decreasing returns to scale

The scatterplot shown here appears to show a strong positive correlation between population and GDP per capita.

[EDITED to add: no, I'm an idiot and misread the plot, which shows a clear correlation between population and total GDP and suggests rather little between population and per capita GDP. Sorry about that. The Gapminder link posted by satt also suggests very little correlation between population and per capita GDP. So the context for my (unchanged) argument below is not "Increasing returns to scale are just one factor; here are a bunch more" but "Increased returns to scale are probably negligible; here are a bunch of things that aren't".]

In any case, "increasing returns to scale" were just one example (and I think not the best) of how someone might be more productive on moving from (smaller, poorer, more corrupt, less developed) country A to (larger, richer, less corrupt, more developed) country B. Here, let me list some other specific things that might make someone more productive if they move from (say) Somalia to (say) France.

  • Better food and healthcare. Our migrant will likely be healthier in country B, and people do more and better work when healthier.
  • Easier learning. Our migrant may arrive in country B with few really valuable skills, but will find more opportunities than in country A to learn new things.
  • Better infrastructure. Perhaps our migrant is working on making things; country B has better roads, railways, airports, etc., for shipping the products around for sale. Perhaps s/he is (after taking advantage of those educational opportunities) working on computer software; country B has reliable electricity, internet that doesn't suck, places to buy computer hardware, etc.
  • Richer customers. Perhaps our migrant is making food or cleaning houses. People in country B will pay a lot more for this, because they are richer and their time is worth more to them. So, at least as measured in GDP, the same work is more productive-in-dollars in country B than in country A. (Is this a real gain rather than an artefact of imperfect quantification? Maybe. If people in country B are richer and their time is worth more because they are actually doing more valuable things then any given saving in their time is helping the world more.)
  • Less corruption. Many poor dysfunctional countries have a lot of corruption. This imposes a sort of friction on otherwise-productive activities -- one has to spend time and/or money bribing and sweet-talking corrupt officials, and it could have been used for something else. In country B this happens much less.

And what caused these differences between these two countries? (Hint: it's not magical corruption ray located in Mogadishu.) And how will these traits change as more people move from Somalia to France?

Open thread, Nov. 17 - Nov. 23, 2014

by MrMind 1 min read17th Nov 2014329 comments


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