Daron Acemoglu on the U.S.-Mexican border

by on January 5, 2010 at 7:41 am in Economics, Education, Law | Permalink

Via Arnold Kling, Acemoglu writes:

On one side of the border fence, in Santa Cruz County, Arizona, the median household income is $30,000. A few feet away, it's $10,000….The key difference is that those on the north side of the border enjoy law and order and dependable government services — they can go about their daily activities and jobs without fear for their life or safety or property rights. On the other side, the inhabitants have institutions that perpetuate crime, graft, and insecurity.

With apologies to Douglass North, I am rarely happy with this kind of explanation.  First, are the bad institutions cause or effect?  Most likely we need a framework which allows them to be both.

Second, I want the theory to also explain the (quite large) difference between the truly poor Chiapas and the relatively wealthy northern Mexico.  By many metrics northern Mexico is more corrupt than Chiapas (there is more to be corrupt over, for one thing, plus drug routes play a role) and it very likely has higher rates of violent crime.  In general I prefer theories which explain three data points to theories which explain two.  Chiapas, of course, isn't some weird outlier which I pulled out of a hat; it's in the same country as northern Mexico and many people from that region have populated both northern Mexico and Arizona for that matter.  I could have picked many other parts of Mexico as well.

One factor is positive selection into northern Mexico, on grounds of ambition and desire for higher wages.  Another factor is that northern Mexican norms are (partially) geared to support American multinationals and these norms have spread more generally, including to Mexican enterprises in the region.

On another point, as I get older, I tend to view "family structure which encourages an obsession with education" as an increasingly important variable for explaining levels in per capita income, if not always growth rates in the immediate moment.  It's not a truly independent variable — when it comes to growth what is? — but it's one good place to start.  It helps explain why the Soviet Union, after decades of state fascism/communism, slid into a living standard higher than that of much of Latin America.  It explains quite a bit of Arizona vs. Mexico but less of northern Mexico vs. Chiapas.  Acemoglu mentions education in his article, but he seems to view it as resulting from instiutions rather than causing them.

I don't buy into the genetic explanations but still I view "family structure which encourages an obsession with education" as very hard to replicate through policy.  Emmanuel Todd's The Causes of Progress has many problems, but it is an under-mined book when it comes to the causes of both liberty and economic growth.

1 Doc Merlin January 5, 2010 at 8:05 am

Tyler, sorry to say it, but your post makes you sound clueless of the situation in Mexico. Chiapas has been in almost constant civil war through the 90’s. Northern Mexico is now in a state of civil war. Sherrifs are regularly killed. The local police have been supporting the drug dealers which have been warring against the federal police. Thousands and thousands of women are killed and buried in the desert.

Your attempts to be nuanced usually result in good posts, but this one is ludicrous. Mexico was basically a corrupt semi-fascist country until the early 90’s and parts of it have been in virtual civil war since then.

2 stephen January 5, 2010 at 8:42 am

I have a hard time believing that genetic variation accounts for %0 of the variation in wealth. Even if the “true” r-squared value is unknown, to bluntly say “I don’t buy into the genetic explanations” sounds reflexive, and motivated by signaling given how intricate your model is concerning the other variables you discuss.

3 Grammar nazi January 5, 2010 at 9:27 am

> Soviet Union slid into a living standard higher than that of much of Latin America
You lost me here. Does this imply that living standards went down compared to Soviet times?

FWIW, education (especially higher education) is becoming more and more debased in post-USSR countries. Everything is bought and sold — lecture notes, coursework, papers, prepackaged theses, you name it. Most so-called students don’t study at all, instead they work and pay their way towards the coveted “korochka” (diploma) out of their earned income. The quality of education suffered tremendously, courses are outdated and staff has little motivation to teach even when they have the skill and the knowledge. At my sister’s university, nobody is surprised to see a B.S. in pure mathematics who doesn’t what is the absolute value of i ($sqrt{-1}).

4 Mike Linksvayer January 5, 2010 at 10:07 am

How old is the wealth gap between northern and southern Mexico?

5 E. Barandiaran January 5, 2010 at 10:24 am

I agree with the skeptical tone of your post, and I’d like to emphasize how little we still know about “the causes of progress”. I hope you find time to write a post on the main lines of ongoing research.

6 Ed January 5, 2010 at 10:52 am

Is the standard of living in southern Arizona really three times higher than in the neighboring Mexican state?

I realize this sounds like a stupid question. Of course the standard of living in southern Arizona is higher than in northern Mexico. I don’t think any county sheriffs or local police chiefs have been killed in southern Arizona recently. But is it three times higher?

How much does the average person in southern Arizona pay out in taxes, for rent or mortgage payments, and for health care compared with the average person in northern Mexico? Is it easier for the Mexican to forgo a college education and still make ends meet (probably yes, by coming to southern Arizona)?

The point is that the American standard of living now involves paying out a bewildering array of fixed costs, whose total dollar value is considerably higher than the median income in many developing countries. Subtract the fixed costs in both places and I’m not sure if what is left for the Arizonan is three times higher than for the Mexican. Probably twice, but not three times.

7 charlie January 5, 2010 at 12:18 pm

northern mexico is more violent, but I’m not sure it is more corrupt….

8 M1EK January 5, 2010 at 12:31 pm

This comparison of course ignores the high probability that quite a bit of the relatively high (for Mexico) MHI near the border is from the drug trade itself.

9 lemmy caution January 5, 2010 at 1:47 pm

This could be due to the smart fraction theory (plus northern mexico being next to the USA):

http://74.125.93.132/search?q=cache:TKaZuidGQqAJ:iratde.org/issues/1-2009/tde_issue_1-2009_03_rindermann_et_al.pdf+smart+fraction+theory&cd=6&hl=en&ct=clnk&gl=us&client=firefox-a

Apparently, Garett Jones book, “Hive Mind: Why Your Country’s Intelligence Matters So Much More Than Your Own” (mentioned in Bryan Caplan’s advice column) will give this a pro-immigration spin:

As a macroeconomist, I investigate both long-term economic growth and short-term business cycles. My current research explores why IQ and other cognitive skills appear to matter more for nations than for individuals.

For example: A two standard deviation rise in an individual person’s IQ predicts only about a 30% increase in her wage. But the same rise in a country’s average IQ score predicts a 700% increase in the average wage in that country. I want to understand why IQ appears to have such a large social multiplier. The story is much the same for math and science scores: A person’s individual score predicts little about how she’ll do in the job market, but the richest and fastest-growing countries in the world tend to do much better on math and science tests. If the IQ multiplier is even half as large as it appears to be, then health, nutrition, and education policies in developing countries should be targeted at raising the brain health of the world’s poorest citizens.

An even more important implication of my research is that low-skilled immigrants should be allowed to migrate to the world’s richest countries: Low-skilled immigrants have little or no net effect on the wages of the citizens of rich countries, but their lives massively improve when they immigrate to these countries.

10 Steve Sailer January 5, 2010 at 4:30 pm

As Porfirio Diaz said a century pr more ago, “Mexico, so far from God, so close to the United States.” What he forgot to mention was that being close to the U.S. is what makes Mexican per capita GDP several times higher than in Paraguay.

11 Doc Merlin January 5, 2010 at 4:36 pm

@mulp
“Aren’t Hispanic American citizens in Arizona considered to be alien in their own land where they probably lived for hundreds of years?”

No, its only the very recent newcomers that are considered alien.

@Tyler
“Doc, read the post. Chiapas is fairly peaceful (now) and northern Mexico isn’t. Yet northern Mexico is still doing much better. That’s exactly the paradox.”

My comment was more an argument against the whole “just north and just south” of the US/Mexico border, disparity. Just north of the border is peaceful and has been for generations. Just south of the border is in a state of civil war, is horribly corrupt and has horrible crime. Between the north and south in mexico, I agree that there are substantial differences that are interesting.

12 Sbard January 5, 2010 at 5:43 pm

@mulp: You may not realize this, but hispanics can be of any race. They can even be white (take a look at the cast of a Mexican telenovella some time).

13 Doc Merlin January 5, 2010 at 8:51 pm

A note: the rebels in Chiapas were iirc leftist leaning agrarian guerrillas in the north the rebels are criminal money-making enterprises.

@SBard
True, I am a white hispanic.

14 Steve Sailer January 5, 2010 at 9:28 pm

Dear Larry Glenn:

When I was in Nogales in 2003, I was struck that Mexicans walk across the border to do their shopping on the American side, while the Mexican side of the border is mostly Farmacias and other rakish border businesses. I was surprised NAFTA hadn’t brought better shopping to the Mexican side. Has that changed in seven years?

15 vitamins January 6, 2010 at 12:00 am

The soundness and transparency of government institutions that underpin the success of nations – as the recent example of Iraq and the historical litter of long drawn out experiments with democracy from Asia and Africa conveys – is itself not something that can be easily transplanted into polities and societies. In other words, even assuming that fixing institutions will help rid off poverty, how do we fix governments that can align the incentives?

16 Dave P January 6, 2010 at 7:09 am

“I am rarely happy with this kind of explanation. First, are the bad institutions cause or effect?” Bravo! Not that it’s easy to find coherently-articulated cause & effect in Acemoglu’s little one-dimensional world: he simply has The Big Answer, and that’s just how it is – never mind geography, resources or social & historical contexts. Beware simple explanations, they’re rarely worth the paper they’re written on.

17 axa January 6, 2010 at 1:07 pm

hello, i’m a guy living in northeast mexico born in southeast mexico. this is just my opinion.

about what daron acemoglu wrote on arizona residents: “they can go about their daily activities and jobs without fear for their life or safety or property rights”? i think fear is a personal issue. it doesn’t matter which side of the border you live, you can always find a “reason” to be afraid. there has been a few drug related gun battles close to my home, but life in general is not that bad. as a country we still haven’t joined the club of developed countries where kids shoot each other at school. also, i wonder how is to live on lebanon or israel or any other country where a “real war conflict” is happening, median home income must be close to zero according to this explanation. so, assesing the impact of fear on everyday life is very tricky.

about property rights, mr. acemoglu speaks the truth!. property ownership is not as safe as it should be. an example: mortgage bussiness used to be very risky business until a few years ago. if you had a mortgage and you died, the debt was canceled by law and your family kept the property. the law was deranged and by magic interest rated in mortgages went down.

also, we still carry a burden of laws created by people that believed the socialist narrative of life. these laws caused different type of property rights, and mexicans are still entangled in that confusion.

18 George Colpitts January 6, 2010 at 6:53 pm

Emmanuel Todd, wow, there is a blast from the past. He is an amazing thinker, I feel anything he writes would be worth reading. I have a 1976 edition of his “La Chute Finale” where he predicted the downfall of the Soviet Union. As the back cover explains he uses his training as a historian to understand what is happening in the Soviet Union: “The system and peoples of the USSR are hidden, silent. The work of the historian consists in explaining the evolution of societies that have disappeared, to resuscitate the dead. Here it is a question of making the mute speak…Certain techniques used in historical research enable the rigorous study of the Soviet system despite the uncertainty of the data we have.” “La Chute Finale” means “The Final Fall” and is a play on “La Lutte Finale”, “The Final Struggle” a title of one of the anthems of Communist revolution. He was educated at the Sorbonne and also at Cambridge where he a got a Ph.D in history.

19 Bernard Guerrero January 7, 2010 at 8:02 pm

“Are the property rights of Hispanics north of the border that much more secure than their rights south of the border?”

Yes, based on personal experience.

20 above ground pool covers July 29, 2010 at 2:05 pm

Women can be tough sometimes. Even in sport like this.

21 buy unlocked iphone September 3, 2010 at 8:35 am

I think there shoud be a electric fence / wall with a mine field behind it. A 1/2 mile kill zone manned by our border patrol & national guard w/ shoot to kill orders. A entry control point for those who want to come into the US legit.

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