Visualizing the development gap

By Stephen Clare @ 2022-12-07T12:57 (+106)

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:

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.

1. ^{^}

   I recommend Gapminder’s Dollar Street as a powerful visualisation of life at various income levels.

2. ^{^}

   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

3. ^{^}

   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.

4. ^{^}

   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.

Vaidehi Agarwalla @ 2022-12-08T15:57 (+4)

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)

Stephen Clare @ 2022-12-08T17:17 (+3)

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.