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Ch. 1 So close yet so different


Nogales, Arizona (US) and Nogales, Sonora (Mexico) shares same people and same culture, yet there's a stark difference in those two cities' economic success. This difference comes from their history


Mexico - was colonized by Spanish, who set up forced labor system for the elites. Suffered from unstable politics after the independence.

US - England tried to adopt same strategy that used by the Spain, but failed due to different circumstances. They adopted different strategy that granted incentive to the colonists, which led to innovations. With democratic, egalitarian politics, US had a stable society for the most of the time.


Ch. 2 Theories that don't work


There are some theories that try to explain world economic inequality, but they are all wrong.


Geographic theory - Guns, Germs, and Steel is good at explaining premodern development, but it can't explain why inequality persists even after the crops, livestock and technology became readily available to the natives.

Culture theory - Many Latin American people is descendants of European colonists, yet they are not prosperous unlike European countries. Religion has nothing to do with economic success, as the East Asian countries saw success without Christian culture.

Ignorant Leaders theory - Some dictators had competent advisors, yet adopted bad economic policies. They do this because of politics.


Ch. 3 The making of prosperity and poverty


North and South Korea was divided in 1945 - after about half a century, in 1990s, South Korean economy was 10 times larger than that of the North. Korea is a very homogenous country, those two countries share same people, language and culture. Why there is so much difference between the two?


※Key words

Inclusive economic institution - A institution which promotes public welfare. Property right is protected, so there's individual incentive to improve and innovate.

Extractive economic institution - A institution which fills the coffer of elites at the expense of the mass. Individual property can be taken at any time, so there's no incentive for innovation

Inclusive political institution - Democratic and Plural government, which is centralized and stable.

Extractive political institution - A government which doesn't meet the condition above


Inclusive political institution tend to adopt inclusive economic institution, and extractive political institution tend to adopt extractive economic institution.

If a extractive political institution adopts inclusive economic institution, there will be shift of wealth from elites to other people, which led to the shift of the political power. Dictators know this and try to avoid this problem. 

If a inclusive political institution adopts extractive economic institution, the ruling party will quickly lose their support and the change will be reverted.


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