Ester Boserup is an economist who wrote two books which influenced me greatly. I read both of these books around 15 years ago while in grad school, and I can’t find my copies at home, so I can’t refer to them more precisely. I bet they are both at work. The first book, published in 1965, is “The Conditions of Agricultural Growth: The Economics of Agrarian Change under Population Pressure”, which I was delighted today to find online for free. This book describes how agricultural intensification results from increased population density. I think the underlying story is one of production technologies changing based on land abundance and scarcity. The second, published in 1981, is “Population and Technological Change: A Study of Long Term Trends”, was broader, looking at specialization throughout the economy. It is the second one that I mostly think about in this post.
What I am trying to get at is what may cause a country to get stuck in a high population, low GDP situation, and what might be done to help it get unstuck. My thoughts, based on Boserup’s books, began in regard to the issues of intensification and specialization. The first thing that came to mind was that once a country was more market-oriented or integrated into the global system, what drives development is investments in improving the productivity of labor and capital, since returns to land (owned by someone) and returns to labor are paid at the rate of the value of the marginal product of labor.
The second thought I had brought in von Thunen’s model of land use. Ultimately what drives that model is transport cost, but thinking more broadly, we might call that transaction costs. Transaction costs might be used to explain much of the forces inside Boserup’s model: until a certain population density is reached, the transaction costs are so high that the society is unable to get organized well enough for trade to take place. Without trade, there can be no specialization. Transaction costs include not only transportation costs, as already mentioned, but costs related to organizing markets and unequal availability of information, including that related to trust, including supporting legal structure.
I suppose I just answered — at least partially — the question I set out to think about. That is, some countries can get stuck in being unable to address high transaction costs. This might be related to lack of investment in transport infrastructure, or it might be related to failure to organize the legal structure to support lower transaction costs. In any case, breaking a country out of a low GDP scenario may involve addressing the major sources of high transaction costs.