Poor Countries Like Trade, Rich Countries Hate It

In what is sure to baffle and irritate both modernizaton and dependency theorists, a recent survey by PewResearch suggests that poor countries love international trade... and rich countries (frequently) hate it (or are at least skeptical of it). Way to defy stereotypes, world.

The results of Pew's survey - which polled members of 44 nations around the world between April and May this year - defies the expectations of both the major models of economic development in modern social science.

The first, modernization theory, supposes that there is a direct link between capitalism, industrialization, and democracy, and that each leads necessarily to the others. It also supposes that what holds back poor countries in most cases is a country's resistance to economic development, due to anti-liberal cultural norms and political corruption.


The second, dependency theory, makes a rather different argument. According to dependency theory, poor countries are poor precisely because of international trade. Namely, the efficiency with which rich countries are able to produce manufactured goods crowds out poor countries' ability to compete and relegates them to producing only raw resources or agricultural goods, leaving them in an interminable state of economic dependency on the developed world. The best thing a poor country can do (according to dependency theory) is restrict trade with rich countries and focus on growing an economy locally, often though government subsidization.

I think both models have their virtues as well as their flaws. Looking at the economic development of most countries that jumped from poor to rich (such as the U.S., Germany, or Japan) neither model really fits all of the facts. Generally, developing countries that do well do embrace trade, but they also have a tendency to protect certain infant industries, more often through subsidies than through overt trade barriers. What this most recent survey shows though is that the developing world and the developed world do differ in their attitudes towards trade - but in the exact opposite way that modernization theorists and development theorists would suppose.


Looking at advanced, emerging, and developing economies as aggregates, an interesting trend quickly emerges. On nearly all of the questions Pew asked, developing economies were more likely to approve of trade than advanced ones, with emerging economies often somewhere in-between. Does trade create jobs? Respondents from poor countries said yes (66%); rich countries said no (44%). Does trade raise wages? Again, poor countries agree that trade's a good thing (55%) while rich countries disagree (25%).

There are, on occasion, some exceptions: both poor (85%) and rich (74%) countries tend to view foreign purchases of domestic companies as a good thing, though even here the richest of the rich countries tend to disagree (only 28% of Americans and 17% of Japanese respondents agree). But as a general trend, there's clearly a bias against trade in rich countries and a bias towards trade in poor countries.


Why might that be? Well, Pew's own research suggests a possible answer: there appears to be a strong link between a country's view of trade and its recent economic growth. The faster an economy is growing, the more likely that country is to view trade as a good thing. On the other hand, the slower an economy is growing, the less likely that country views trade as a positive.

If this really is the root cause, it's a little ironic: rich economies grow slower than poor economies because they're richer. With a small GDP, even small increases in absolute terms are rather large from a relative point of view (which is how GDP growth is measured). On the other hand, it's very difficult for a rich country like the U.S. or Japan to keep up a fast pace of growth for any really long stretch of time, because the country has already maximized most of its available inputs. Occasionally, something new will come along like the internet and speed things up again, but in general, very wealthy countries rarely peak above 6% growth annually (and that's in a pretty good year); the U.S.'s growth during the boom of the 1990s was only about 3-4% and was considered pretty damn impressive.

The main exception, of course, is China, which has an immense GDP and a pretty impressive growth rate of about 8-9% per annum. However, China's incredibly large GDP is - to a large degree - a factor of its huge population. On a GDP per capita level, China's actually pretty poor, existing somewhere between Iraq and Botswana (neither of which would be considered particularly rich on an international level). There are, of course, some very rich parts of the country - Shanghai, Tianjin, Beijing, Hong Kong, and Macau, for instance - but most of the country is very, very poor. As a result, it's not as much of an outlier as one might expect: it still has a long way to go before it maximizes its potential, which is why its GDP growth remains startlingly high.


So what about all of you? A lot of us niners are from the rich side of world but some of us I know are from poorer countries. What do you all think of trade? What do you think of these results?