Thursday, October 20, 2011

Timothy Besley, Kuwait Professor of Economics and Political Science at the London School of Economics and Political Science

Torsten Persson, Torsten and Ragnar Söderberg Chair in Economic Sciences at the IIES of Stockholm University

Using the tools of modern political economics and combining economic theory with a bird's-eye view of the data, the book reinterprets Smith's “pillars of prosperity” to explain the existence of development clusters—places that tend to combine effective state institutions, the absence of political violence, and high per-capita incomes.

The book argues for a radical rethinking of standard foreign aid practices. If development assistance is to work, according to the authors, the donor’s focus should be on whether recipient governments invest, in a measurable way, public goods and the fiscal and legal capacity of their governments. A consequence of this approach would be to scrap a majority of current foreign aid budgets.

On a different note, the book also argues that the size of government is positively linked to development. Raising enough money in revenue through taxes is a precondition for economic development since it reinforces the government’s commitment to a growing private economy that would enable it to extract even more revenue.