Truck and Barter

World Bank blogger Ignacio comments on a speech of Edward Prescott, 2004 Noble laureate in economics.

“…economic integration would be the main driver for growth and development.

For example, according to Prescott, the original European Community countries were able to catch-up with the US in the second half of the 20th century because they became a free trade club, as the US had done before. The reason why Latin America is not catching up would be that it has not adopted this US/EU type free trade club.

In his optimistic conclusion, Prescott forecasts that in the long term the whole world will catch up with rich countries, which will continue to double their living standards every generation. This forecast is conditional on all countries becoming economically integrated, and on all of them maintaining economic sovereignty. He sees the European Union expanding (including Turkey), and a functioning NAFTA, with India and China being big enough to constituting a trading club in themselves and the rest of Asia maybe becoming a trading club.”

Prescott has been talking of about wealth of nations for some time; see the paper Changes in the Wealth of Nations. In an interview, Prescott says;

“I think the question, "Why isn't the whole world rich?" is the most important question facing economists. I think we've learned that just accumulating more capital—that is more machines, factories, and roads—is not sufficient to become rich. Accumulating more human capital, as well, is not sufficient either. Both are important and essential but, given the economy wide productivity parameter, these factors of production will be accumulated. As I see it, what we need is a theory of this parameter, and I expect that the rules of the game a country sets up will account for the big difference in this number across countries.”