Visualizing the development gap
Lazarus Chakwera won Malawi’s 2020 Presidential election on an anti-corruption, pro-growth platform. It’s no surprise that Malawians voted for growth, as Malawi has been called the world’s “poorest peaceful country”. According to Our World in Data, the median income per day is $1.53, or about $560 per year. Real GDP per capita has grown at an average rate of just 1.4% per year since 1961 and stands today at $1650 per person (PPP, current international $). Furthermore, the country has yet to recover from an economic downturn caused by the Covid-19 pandemic, leaving GDP per capita only slightly higher than it was in 2014.
Life on $560 a year is possible, but not very comfortable. A sudden illness, accident, or natural disaster can be devastating. Even after spending almost all one’s income, many of one’s basic needs remain unmet. Investments for one’s future, including education and durable goods, are mostly out of reach.[1] Life satisfaction in countries where incomes are so low is poor.
We know that it’s not fair some people have to make do with so little. In the U.S., the poverty threshold, below which one qualifies for various government benefits to help meet basic needs, is $26,200 for a family of four, or $6625 per person.[2] That makes it almost 12 times higher than the median Malawian income. (All of these international comparisons are adjusted for purchasing power.)
Let that sink in. The majority of Malawians don’t earn one-tenth of the amount of money below which we, in a high-income country, think one should get help from the government. And of course, the same is true in most countries. If we applied the U.S. poverty line around the world, we would see that most people just don’t have enough money to meet all their basic needs.[3]
That’s why finding ways to speed up development in low-income countries would be a huge win for philanthropists, policymakers, and citizens alike. Unfortunately, we haven’t made much progress towards this goal.
In this post, I give a sense of why it’s important for EAs to think about broad economic growth in lower income countries. I do this by showing how long it will take Malawi to catch up to where a high-income country like the United States is at today. In short, at typical growth rates, it will take a depressingly long time: almost two centuries. Sparking a growth acceleration, like what India has experienced in recent decades, would help a bit, but it would still take many decades for Malawi’s economy to grow to the point that most Malawians can afford a reasonable standard of living.
These calculations should help deepen one’s understanding of the development gap: the difference in living standards between high- and low-income countries. The implications for global development advocates are obvious. But I also think longtermists should pay attention. First, the wellbeing of billions is not unimportant from a longterm perspective – it’s just that future wellbeing matters as well. Second, I think speeding up development would help more people from lower-income countries access the educational and professional opportunities they need to participate in what could be humanity’s most important century.
Growth trajectories for Malawi
One way to visualize the development gap is to think about how long it will take a country like Malawi to reach various benchmarks. To that end, let’s consider a few different growth trajectories. I’m going to continue to refer to Malawi specifically, but one could similarly visualize any country. What matters is just the starting income and the growth rate.
First, what if Malawi continued to grow at 2% per year, roughly as it has in recent decades? At this rate, it would take a shocking 105 years for Malawi to catch up to where the U.S. was a century ago, in 1922. To reach the U.S.’s current GDP per capita would take 189 years.
Now suppose President Chakwera managed to deliver on his election promises. Let’s say his policies were to double Malawi’s growth rate to 4% per year. And let’s suppose Malawi maintained this growth rate in perpetuity. It would still take 54 years to catch up to 1922 America, and 96 years to catch up to where the U.S. is today.
We can also ask how many years it will take for the median Malawian income to reach the US poverty line. Remember, the median Malawian earns $1.53 per day, or $560 per year. And the US poverty line in 2022 is $26,500 for a family of four, or $6625 per person.
Once again, the length of time needed to catch up is daunting. Even at 4% annual growth, it would be 63 years before half of Malawians live above the U.S.’s current poverty line. At 2% growth, the number of years needed jumps to 122.
Considering its historical performance, 4% annual growth would represent a great outcome for Malawi. And yet it would still take more than 60 years for half of Malawians to achieve a standard of living that is considered minimally-acceptable in the U.S.
A growth acceleration would modestly narrow the gap
Now, we know that most economies don’t grow in smooth curves. Instead, their growth rates vary over time. The most powerful growth stories are growth accelerations: sustained periods of much-faster-than-average growth that quickly raise incomes across a country.
So let’s consider a growth acceleration outcome. What if Malawi’s GDP per capita were to grow at 6% per year for 20 years, then revert to 2% per year?[4]
The picture is somewhat improved. Malawi needs 67 years to catch up to where the U.S. was in 1922 and exactly 150 years to catch up to where it is today. Without the acceleration it took 105 and 186 years, respectively, to reach those milestones. So a two-decade, India-style growth acceleration would shorten development timelines by about 40 years. (In this scenario, it would take 83 years for the median income to reach the current U.S. poverty threshold, by the way.)
Note also that the growth acceleration means more than just reaching a certain milestone faster. It also means that everyone living in Malawi during and after the growth acceleration enjoys a higher standard of living. This gives a strong reason for urgency. Although changing when a given acceleration happens doesn’t change when Malawi reaches a certain milestone, the sooner it happens the greater the number of people who benefit.
Summary
Here’s a summary of all the scenarios discussed above:
Number of years needed… | |||
| … for Malawi GDP per capita to catch up to 1922 U.S. | … for Malawi GDP per capita to catch up to 2021 U.S. | … for Malawi’s median income to reach 2021 U.S. poverty threshold | |
| 2% annual growth | 105 | 189 | 122 |
| 4% annual growth | 54 | 96 | 63 |
Growth acceleration (6% growth for 20 years, 2% growth after) | 67 | 150 | 83 |
I find those numbers pretty depressing. For much of the 20th century, many low-income countries struggled to grow much at all. Things have been better in the last two decades or so, but maintaining steady growth is still far from a given. And these calculations suggest that even if we could guarantee decent growth rates, a low-income country like Malawi is many, many decades away from growing enough that all its citizens can enjoy a decent standard of living.
But effective altruism is about noticing a big problem and resolving to do something about it.
I’m still bullish on the importance of effective philanthropic investments in growth- and policy-focused interventions. There is so much work to be done to close the development gap. Until lower-income countries find ways to spark and sustain growth over the course of decades, billions of people will be unable to fulfil all their basic needs. This is made clearer when one stops using different poverty lines for high- and low-income countries.
I also want to gesture at one longtermist implication of this work. I think it’s important that as many people as possible are empowered to participate in what could be humanity’s most important century. It’s only fair that many different people get to weigh in on where humanity is going. It may also be helpful. As Will Macaskill discusses in What We Owe the Future, moral progress is made possible when societies can consider different values and adopt the best ones.
We should, of course, endeavour to include a variety of different viewpoints despite global economic inequality. But this task will be made easier if people around the world are able to access educational opportunities and develop skills to participate in highly-technical discussions. Creating those opportunities requires the kind of societal surplus economic growth creates.
Finally, in “Growth and case against randomista development”, Halstead and Hillebrandt advocated for a “~4 person-year research effort [to] find donation opportunities working on economic growth in [low- and middle-income countries.” I still think that would be a valuable investment. Even a small growth speed up in one country would positively impact millions of lives for decades to come. Because incomes are currently so low, marginal gains are highly valuable. And the potential for bigger and broader effects means the upside risk is enormous.
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I recommend Gapminder’s Dollar Street as a powerful visualisation of life at various income levels.
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U.S. Department of Health and Human Services, 2022, https://aspe.hhs.gov/topics/poverty-economic-mobility/poverty-guidelines/prior-hhs-poverty-guidelines-federal-register-references/2021-poverty-guidelines
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To be honest I’m not totally sure I’m comparing apples to apples here. First, the U.S. poverty line has been called the money needed to meet one’s basic needs, but its construction is more arbitrary and contingent than that makes it seem. In reality, the poverty threshold is calculated by adjusting for inflation a threshold that was first set in 1963 as “three times the cost of a minimum food diet” (https://www.irp.wisc.edu/resources/how-is-poverty-measured/).
Second, the poverty threshold is calculated for families, so it doesn’t break down neatly into a clear “income per person” metric. Larger families get less money per head because of fixed costs. I’ve chosen to consider a family of four here, but all this analysis would look different if one used a different family size.
All that said, I still think the poverty threshold is useful as life at that level may be more intuitive to readers from high income countries. And I don’t think using a different family size, or different definition of how much money one needs to meet one’s basic needs, wouldn’t change my conclusions much.
- ^
This would be a similar growth story to that of India, whose GDP per capita has grown at just under 6% per year on average in the 21st century.
This is a nice post that should help people better grasp the magnitudes of income gaps across countries and the importance of growth. I’d only add two things:
Regarding growth, the issue in LICs usually isn’t actually speeding up growth, it’s sustaining growth. Basically every country has experienced periods of Chinese level growth rates (Malawi’s GDP growth data here). The main issue is that in poorer countries these spells are shorter and they are often followed by periods of negative growth.
The development community is very much aware of these arguments, as are EA people that overlap both communities (hi). The reason people gravitate towards things like bed nets is purely on tractability. Somewhat crudely speaking, the last time that outsiders tried seriously to reform institutions in LICs in order to promote growth was the period of IMF structural adjustment in the 80s and 90s and that wasn’t exactly a huge success. This is basically why there was a shift towards “randomista” development i the 2000s. As a matter of history, the development community goes back and forth on this macro vs. micro question every 20ish years, so I suppose we’re due for a swing towards growth again.
On (2), I’m curious what you make of the argument from Bill Easterly that we should be re-re-evaluating structural adjustment-type policies in light of strong growth in LMICs since roughly the turn of the century?
Good question. Kevin and Robin Grier make a similar argument. I mostly buy it, but I think there are two very important caveats.
First, for a long time (like from Nic VDWs politics of permanent crisis if not earlier) a mainstream argument has been that SAPs were bad not because the policies were bad—many were straightforwardly, obviously good—but because they were nearly impossible to implement given the politics of the countries undergoing crisis. In response, many countries just didn’t implement the policies, or they kind of half implemented them and foot dragged and did all kinds of stuff to avoid implementing politically destabilizing policies. So then if we look back like the Griers did in their paper or Easterly did and say “countries that reformed did well” this doesn’t actually address the initial issue with SAPs, which is that lots of countries didn’t reform despite the IMF wanting them to, often for actually decent reasons. And of course for anyone acting today the question isn’t “did countries that selected into reform do well?” it is “did the countries that the IMF tried to get to reform do well?”. Turns out those are different questions, and we don’t have an answer to the second.
Second, and this is more anecdotal, but even if we grant that SAPs worked one effect of them was to radically delegitimize all sorts of good economic policies (like removing gasoline subsidies). That’s tragic, and I think it’s plausible that this effect echos out to this day in some LICs. Any full accounting of SAPs would ideally take this into account.
In response to all this, we got small bore randomista development. I’m not saying it should be the only game in town, but if the question is what can outsiders do to help people in LICs? then I think the randomista approach has a lot going for it. For reasons of power and skin in the game and information, I don’t think outsiders are usually well-positioned to do institutional reform stuff within LICs. I do not feel the same way about water chlorination or bed nets or cash transfers, etc.
Super interesting! I hadn’t come across that permanent crisis book.
All this does give some evidence against the critique that “we don’t know how to increase growth.” That’s not something you’ve said, but was a common reaction to the randomista development post. It also implies that there’s still lots of potential growth to unlock through policy change in those countries that have resisted or been unable to implement reforms.
I’m not sure I quite understand the sentence about how SAPs “radically delegitimize all sorts of good economic policies”—do you mean that while the SAP reforms as a whole might look good on recent analyses, they included some harmful recommendations, such as removing gasoline subsidies?
Agree that outsiders working on institutional reform is much more fraught and difficult. If I was going to work on this, the first interventions I’d be interested in evaluating are technical assistance programs like the ODI Fellows, and home-grown policy advice orgs like the Africa Center for Economics Transformation. I’m very unsure about the impact of those orgs at the moment, but I’m so curious to know what a rigorous evaluation would find.
There are two meanings of “we don’t know how to increase growth.” One is that literally no one knows what Malawi could do to increase growth. That’s very likely wrong. The second is “given all of the social and (especially) political constraints in existence right now, no one knows what marginal thing they could actually do that would increase growth in Malawi.” I think that’s basically right. Leaders in LICs themselves generally know, or have advisors that know, which policies could increase growth. If a LIC isn’t growing it very likely isn’t because leaders lack knowledge of what they should do. They lack incentives, and those incentives should be taken seriously. It’s kind of like pointing out that US sugar subsidies are a bad economic policy, which they totally are. Everyone knows this. They don’t persist because US politicians or anyone else lacks that knowledge. They persist because of bad incentives, and changing those is very hard.
In sum on this point, I agree that “there’s still lots of potential growth to unlock through policy change in those countries that have resisted or been unable to implement reforms.” My claim is that neither you nor I nor basically any outsider has any lever to pull on that, and that thinking really hard about it will not solve this. Growth is pretty attractive to people in LICs, so almost by definition if it’s blocked then something real and hard to move is blocking it. As I said above “The reason people gravitate towards things like bed nets is purely on tractability.”
Lastly, on the confusion re: delegitimizing policies. Sorry if I phrased that badly. To be clear, gasoline subsidies are horrible! We should be taxing gasoline, not subsidizing it. I picked that as an example of a good policy that is plausibly viewed more skeptically because the IMF pushed it. I think it is plausible that there are a lot of good policies that are now viewed more negatively they were part of SAPs. I hold this view weakly as it’s hard to test, but I think it’s a real thing. If all of a sudden China started telling the US to get rid of its sugar subsidies I actually think that would make them harder not easier to remove. This is the same dynamic.
All that said, I think I’d probably also favour people chipping in towards an endowment for a liberal, free market think tank in Nigeria (though I haven’t give this much thought and for all I know 5 might already exist).
OurWorldinData also wrote something like this and had a visualization too
https://ourworldindata.org/poverty-minimum-growth-needed
They also write
”If we want to know how much the distribution of Ethiopia would need to change to reduce the share in poverty to Denmark’s level we can read it off the two parameters that describe the distribution – the average level of income and the inequality of those incomes.
Ethiopia has a much lower average income: an increase of average incomes is called economic growth and to increase the average from $3.30 per day to $55 would mean that Ethiopia would need to increase its income 16.7-fold (because $55 is 16.7-times higher than $3.30).8
[. . .]
A more than 16-fold increase in average incomes is certainly not easy to achieve, but it is also not impossible. The average income in Denmark grew by more than that over the last few generations, and such growth is not rare in recent economic history.
[. . .]
The minimum necessary growth to reduce global poverty to the level of poverty in Denmark is 410%.10
An increase by 100% would mean that the size of the economy would double. A 410% increase is therefore a 5.1-fold increase of the global economy.
Or put differently, a world economy with substantially less poverty is at a minimum 5-times bigger than today’s global economy.”
Post summary (feel free to suggest edits!):
The US poverty threshold, below which one qualifies for government assistance, is $6625 per person for a family of four. In Malawi, one of the world’s poorest countries, the median income is a twelfth of that (adjusted for purchasing power). Without a change in growth rates, it will take Malawi almost two centuries to catch up to where the US is today.
This example illustrates the development gap: the difference in living standards between high and low income countries. Working on this is important both for the wellbeing of those alive today, and because it allows more people to participate meaningfully in humanity’s most important century and therefore help those in the future too.
(If you’d like to see more summaries of top EA and LW forum posts, check out the Weekly Summaries series.)
How does the above take into account access to things like state welfare, access to infrastructure etc. And how it interacts with GDP?
My guess is that even if you boosted GDP it’s not clear if those gains are the same without those other pieces or if you did boost GDP you’d necessarily get those kinds of state investment or support (because of limited or inefficient use of government resources). But I’m sure there is research on this that I’m missing!
(I also have no economics background)
GDP is definitely a proxy, and without knowing more about how income is allocated within a society and what it is spent on, we can’t say we fully understand how changes in GDP affect the health, happiness, personal freedoms that more directly contribute to wellbeing.
That said, I think the empirical evidence suggests strongly that, perhaps outside of a few edge cases (such as resource booms in, e.g., Botswana or Gulf states), GDP per capita strongly correlates with most other metrics one might care about. I recommend this section of H&H’s growth post.
Another example is the strong correlation between GDP per capita and the Social Progres Index, an Index designed specifically to exclude GDP per capita.
Great article but I think the baseline for comparisons should be based on how long a country has existed as an independent cohesive entity. Malawi has only been an independent state for 58 years so maybe the comparison should be done based on the level developed countries were at when they were at 58 years in modern times. I think if this was done Malawi may look a lot better. I’m skeptical that the process of nation building and developing national cohesion can be shortcut. I also think without such national cohesion it’s difficult for broad based economic growth to happen. It seems a lot of comparisons are made between countries in sub-Saharan Africa and countries that have existed in some form or another for centuries or where the populations have remained homogenous enough that there is not significant internal friction limiting economic activity. These 2 things are not true for most sub-Saharan countries where there is a lot of internal division. Many people if not most in these countries have more allegiance to their tribes than the state and this really affects how politics and governments are run. It also affects how resources are distributed and levels of trust in society. I’d guess that in my own country it will take maybe 2 to 3 generations of intermarriage and other societal processes for tribal lines to get sufficiently blurred such that the nation state becomes the preeminent identifying group for most people. I don’t find this depressing as it seems to be a process states have to go through. It would be absurd(in my view) to expect that a young child grow into a matured adult within say half the time it takes other children, similarly I think its kind of absurd to expect young countries that didn’t exist a century ago to become fledgling utopias within say 50 years.
“. I think it’s important that as many people as possible are empowered to participate in what could be humanity’s most important century. ”
Dear Stephan, it is not only that they can participate. Poor countries are less stable and can desestabilize others. Their population grows unsustainably and their demographic excedents can be destabilizing.
Growth is a moral imperative and part of the political stabilization that is necessary to avoid big power conflict and even nuclear war.
A Global Middle Class is a necessary condition for the reduction of geopolitical / nuclear risk. So growth is a long term target too. Of course, direct giving and charitable organizations are relatively impotent to create growth: research, technological transfers and political work to put development as a main global target is what can work here.
Great article, thanks! I will be sharing this with my reading group.
A couple of minor points:
The text mentions a 6% growth spurt, but your graph says 8%
It would be great to see the graph of Malawi’s GDP go back to 1961 (rather than 1990), since you mentioned the annual growth rate has averaged just 1.4% since then (I suspect this would better portray the disappointing lack of progress in the late 20th century, too)
Thanks for this! I spent a lot of time playing around with different growth rates for the visualization and that label is a vestige of that. Appreciate you pointing it out.
World Bank data is surprisingly inconsistent and incomplete, depending on the series. They only had GDP per capita at constant int $ data going back to 1990, so I calculated the long-term growth rate using a different series, GDP per capita annual growth rate.
Good portrait of the problem. The solution isn’t obvious to me.
I’m very skeptical of the suggestions from the Halstead and Hillebrandt post. It seems unlikely that a “~4 person-year research effort” could discover the key to economic growth in developing countries when the entire field of development economics has been trying to solve this problem for decades.
Halstead and Hillebrandt didn’t claim that a 4-person year research effort could discover the key to economic growth. Their claim is simply about finding good donation opportunities:
My sense is such an effort might start from Hillebrandt’s appendices, in particular appendix 4. The output of such an effort might look like one of Founders Pledge’s reports (example; Halstead is a coauthor).
Opportunities that development economists have missed?
The general ideas that Hauke suggests in the appendix are things like liberalisation, freeing trade, more open migration. They’re ideas that have been fiercely studied and debated before. Organisations like the World Trade Organisation and The World Bank are built around these ideas. The difficulty in testing and implementing these ideas is part of what drove the rise of the randomistas.
I think the “~4 person-years” idea is delusional and arrogant.
I think the tricky part is finding where smaller donors can donate, similar to GiveWell.
Those organisations have suggestions for large sums of money but there is a gap for advice for individuals that want to give to global development and are okay with it not just being RCT evidence.
Donation opportunities, yes. I’m not sure if donation opportunities in particular are something development economists look for; I’m not familiar with the literature.
I broadly agree with the substance of your comment, I just admittedly find the tone off-puttingly abrasive (“delusional and arrogant” doesn’t seem charitable), so I’ll respectfully bow out of this exchange.
Thank you for putting this together Stephen. I am a facilitator for the Virtual Program and have been giving some thought to additional reading/discussion groups to propose. It’s been my experience that the most impactful virtual groups provide access to good data along with opportunities to make personal/emotional connections. I know very little about Malawi other than what I learned reading the youth edition of William Kamkwamba’s The Boy Who Harnessed the Wind with my children. Without other expertise, I can’t speak with authority about its value as an authentic representation of the true events, but I believe the book accessibly described some of the topics you illustrate here and I know of several universities that adopted it as required reading for all incoming students, so I would guess its an accurate telling. What are your thoughts about a group that reads the original book and supplemental content as a way of engaging with the growth and development situation in Malawi?
If there are others who would like to offer their thoughts for or against this idea, I would be happy to hear them. If this seems promising and anyone has ideas for helpful additional content, I would be happy to try to think some more about a proposal.