Why is India so poor? A macro approach

India’s total area, in square kilometers, is 1,222,559 3,166,414.

The total area of France, Germany, the UK, Ireland, the Netherlands, Belgium, Luxembourg, Denmark, Sweden, Iceland, Norway, Finland, Switzerland, Austria, Italy, the Czech Republic and Slovakia (or “the West”), in square kilometers, is 1,223,543 3,106,585.

Think of this comparison in terms of regions: one region is India, the other is the West. Both regions are densely populated. Both regions have a number of languages and an even greater number of regional dialects. Yet one region is wealthy, and the other is poor.

One way to look at this phenomenon would be to glance at the macro institutional structures in place in these two regions. India is one country. The West is composed of 6 17 countries. That’s six seventeen centers of power, as opposed to one, within territorial spaces that are roughly equivalent in size.

If we think about these macro institutions and incorporate them into other institutional arguments that focus on the micro institutions, then India actually has a lot of hope. The West saw numerous wars before it finally came to the arrangements it now has (six seventeen independent centers of power and a free trade zone binding them together), so India has a great blueprint for improving its macro institutions.

On the downside, of course, is the fact that many factions won’t really care if India becomes freer and more prosperous, so long as they get theirs. Along with the standard public choice explanation, the path dependency argument also suggests that India has a tough road ahead.

Sometimes being a libertarian sucks.

Update: Dr Gibson was kind enough to point out that I had initially calculated India’s size in square miles rather than square kilometers. I have taken that into account and updated it accordingly. Conceptually, my argument actually grows in strength with the corrected size. 

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