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Why are poor countries still poor?

Lagos, Nigeria, "the most chaotic city in the world".

The adoption of technological innovations allows countries to move up the economic ladder by producing more sophisticated goods. Although globalization makes it easier to diffuse technology to poor countries, economists have observed that despite the ubiquity of technology, cross-country differences in income have diverged. Standard explanations argue that poorer countries are struggling to narrow income gaps, due to a divergence in penetration rates after the adoption of technology.

In a study addressing the topic entitled “If Technology has Arrived Everywhere, why has income diverged?”, the researchers promulgate that during the nineteenth-century income divergence was a consequence of the pace of technology adoption in poorer countries which triggered faster adoption rates that managed to produce higher growth rates in non-Western countries. However, by the twentieth-century higher penetration rates accelerated income growth in rich countries thereby exacerbating the Great Divergence.

According to their estimates, if penetration rates had remained similar, the income gap between Western and non-Western countries would be closer to the level in 1820, and hence the Great Divergence would have been averted. The researchers propose that cross-country differences in productivity account for the divergence in penetration rates and ultimately income divergence. But an alternative explanation could be that the disparity in penetration rates is an outcome of national intelligence.

Intelligent people are adept at acquiring new skills and are more productive because they possess a superior understanding of technical tasks, hence it’s unsurprising that studies show an association between national intelligence and labor productivity. Invariably, countries with high IQ scores will have higher penetration rates considering that intelligent people establish a multiplier effect by creating more applications for new technologies. Macro-innovations unleash the conditions for economic growth, but as Robert Fogel discovered in his study on railroads, refined micro-innovations are responsible for propelling economic growth by injecting the economy with novel applications.

Furthermore, IQ is also linked to creativity and innovation; therefore, countries with a high level of national intelligence are likely to manufacture more spin-off innovations that increase penetration rates and apply technology to a broader segment of  society. By fostering higher levels of economic complexity through the application of intelligence, smarter people provide more opportunities for employment, entrepreneurship, and innovation.  Contrary to popular opinion, economic complexity is correlated with more, rather than less employment.

Such is the conclusion of a 2021 paper by Antonis Adam and co-authors that contradicts the prevailing consensus: “In detail, countries that produce more sophisticated products generally have lower unemployment rates and higher employment rates…the present value for firms creating new jobs is higher when product sophistication increases, and, according to our estimates, this effect is not symmetrical across industries.”

More important is empirical research linking national intelligence to product sophistication thus enabling intelligent countries to export sophisticated products and fetch higher prices. A reason for the relatively higher poverty of poorer countries is that they export low-quality products. Therefore, until the IQ gap between rich and poor countries recedes considerably, closing the income gap will be difficult

Another advantage of intelligence is that it improves the efficiency of technological innovation and more efficient technology leads to higher output and greater savings. Meanwhile, a benefit of greater savings is that people and companies will have more funds at their disposal to allocate to entrepreneurship and upgrading technology. A high national intelligence score results in a plethora of economic benefits for society that will amplify the income gap between rich and poor countries.

Although politicians in developing countries like to blame the West for parochial failures, it appears that the best strategy for improving their people is to focus on raising IQ scores. Attacking foreigners is fashionable, but a country’s success is really dependent on the quality of its population.

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