Institutions and Welfare in Colombia: a comparative analysis

Institutions and Welfare in Colombia: a comparative analysis

Diego A. González

Institutions and Welfare in Colombia: a comparative analysis

Diego A. González

Abstract

Based on different sources about institutions and welfare in Colombia, the association between the efficiency of the institutions, and the economic development are evaluated. Adding information from nations such as Chile and Venezuela, the comparison with countries with similarities in culture and economy is executed. In theory, the institutions’ strength is related to improvements in welfare. Considering this aspect, the situation of Colombia as a developing country is highlighted from a point of view, thus the recommendations on improvement of current institutional and welfare-related points at issue are worth mentioning. Positive relationships were found between the institutions and economy in most of the scenarios for each country assessed, however, exhibited negative and significant relationships to resources of commodities and economic development.

Table of Contents

List of Figures and Tables

List of abbreviations

1. Introduction

2. Theoretical Framework

2.1. Institutions

2.2. Welfare

2.2.1. Human Development Index (HDI)

2.2.2. Millennium development goals (MDG)

2.2.3. Happiness in an economy: Easterlin Paradox

2.3. Relationship of institutions and welfare

2.3.1. Influence of institutions on welfare

2.3.2. Industrialization theory on institutions

2.3.3. Modernization theory on institutions

2.3.4. Dutch Disease

3. Country profile: Latin America region

3.1. Colombia

3.2. Chile

3.3. Venezuela

4. Results

4.1. Data and statistics

4.2. Health: Life expectancy and infant mortality

4.3. Education: Expected and mean years of schooling

4.4. Economy: GNI and poverty

4.5. Basic Needs: Water and Electricity

4.6. Human Development Index: The representation of the quality of life

4.7. Strength of Institutions: Law and corruption

5. Recommendations

6. Conclusion and Discussion

References

List of Figures and Tables

List of Figures

Figure 1 Determinants of income 12

Figure 2 Human Development Index components 22

Figure 3 Easterlin Paradox: Happiness vs GNI p.c. 35

Figure 4 Dutch Disease: Demand and offer changes 46

List of Tables

Table 1 Determinants of development: Channels of Influence 14

Table 2 Evolution of the dominant meaning and measurement of welfare 19

Table 3 Life expectancy at birth 71

Table 4 Infant mortality rate per 1000 live births 73

Table 5 Expected years of schooling 74

Table 6 Mean years of schooling 75

Table 7 GNI per capita PPP 76

Table 8 Poverty headcount ratio at 1.90 USD a day (%) 78

Table 9 Share of the total population with improved water sources 79

Table 10 Access to electricity (% of the population) 80

Table 11 HDI with country comparison 82

Table 12 Country Perception Index 2018 (CPI) 85

List of abbreviations

CPI Corruption Perception Index

GDP Gross Domestic Product

GNI Gross National Product

IMF International Monetary Fond

HDI Human Development Index

IEA International Energy Agency

OECD Organisation for Economic Cooperation and Development

OLS Ordinary Least Squares

PPP Purchasing Power Parity

UNDESA United Nations, Department of Economic and Social Affairs

UNESCO United Nations Educational, Scientific and Cultural Organization

UNICEF United Nations Children's Fund

UNDP United Nations Development Programme

WHO World Health Organization

1. Introduction

The expression of Latin America was mentioned to the countries, located south of the Rio Grande in the United States in which they speak a language e.g. Spanish, Portuguese, and French, derived from Latin, besides referring to characteristics common such as the localisation in the Western Hemisphere and the origins of language (Bulmer-Thomas, 2003). Some authors; such of stated; the differences of climate, ethnicity, natural resources, population, or degree of development marked the difference in the formation of republics by much more than geography and language (e.g., López-Calva, 2010; Ferreira, 2008).

The majority of Latin American countries won independence from their European rulers in the late 1810s and in the early 1820s. Even with the promises of increase of living standards, none of the countries in the region has accomplished uniformly enough high living standards, educational levels, grades of competitiveness, or stages of technological development in comparison to a developed country (Bértola and Ocampo, 2012). Even though some Latin American countries are still deprived of richness and large segments of population are on the sidelines of economic and social development progresses, the region has made large steps in bringing about prominent economic, social, and political changes that have positioned it on a development path, as a whole and in some social areas, to accomplish middle-income position on a global scale.

From another point of view, underpopulation and labor scarcity persisted in North America throughout the entire colonial period, but even with that, there was a tremendously elevated rate of population growth in the colonies, securing the British power over the North American region (Walton and Rockoff, 2013). The overpopulation was relatively associated to the available land and the constant territorial expansion, besides the increasing demand of the population, originated by the commercial successes, auspicious economic circumstances and finally the high value of labor, making an immense difference between South and North.

Looking in the real world, we see the border between the United States and Mexico in the place called Nogales, one part in Arizona (United States) and the another in Sonora (Mexico). The people of the United States can choose their profession, including education and skill formation, meanwhile, the companies could invest in human capital and technology, resulting in constant increases in productivity and income. In the political aspect, the can freely choose their politicians and participate in the democratic process, in the way the politicians tend to work in benefit for the citizens. In the opposite side, on the other place of the border, in Mexico, the mechanism is different and dissimilar, with lower welfare conditions and in an alternative world with disparate institutions (Robinson and Acemoglu, 2012). The differences between the two Nogales are quite developed because of the efficiency of the institutions and their influence on the welfare of the territory, which leads to GDPs from 30.000 USD per capita to 10.000 USD per capita, although both cities are separated by a short distance.

Why do these countries have different economic outcomes? In the case of the United States and Mexico along the border, the geographical and cultural differences apparently do not play a vital role in economic development and hence in the general welfare of territories (e.g., Robinson, 2012; Rodrik, 2003). According to the example, it determines a significant part of institutions on the development of these two countries, in short, an improvement of institutions quality attracts improved economic conditions for the people.

In the case of Latin America, the countries of Colombia, Chile, and Venezuela have a direct relationship with Mexico, sharing a similar culture and language basis, nonetheless Mexico is larger in population and GDP, economically speaking, in comparison with the mentioned countries (e.g., Franko, 2006; Sigmund, 2011). Comparing with the United States, the cultural, regional and economic difference goes beyond an international comparison with any Latin American country.

How are these countries performing each other and compared with the rest of the world? What does make them different from each other? The three countries share a common history, from the point of the war of independence until today, beginning with upright promises about an independent future success, but ending up with an alternative outcome (e.g., Pop-Eleches, 2008). The recent economic and politic history of Colombia, Chile, and Venezuela is going to be described.

Returning to the topic of country comparison, the following countries Colombia, Venezuela and Chile share numerous common aspects to plausibly participate in this research. Firstly, similarities in the culture, geography, and language are exposed in the three nations. Furthermore, the territories have analogous proportions in population and in economic indicators as well. Finally, the history of the three countries are correlated to each other, but with some different outcomes and situations of each other.

About Colombia, the country has been highlighting the headings in the media because of drug crime business which undesirably had an influence on Colombia’s image by the large-scale cocaine manufacture and trade in the earlier 1980s and in the earlier 1990s (Schneider, 2014). Since the early 1990s, Colombia has experienced remarkably turbulent social, economic, and political changes (e.g., Leech, 2011; Herbolzheimer, 2006; Estrada, 2018). These have been characterized by relatively profligate economic growth, raised levels of violence, and the evolution of an illegal psychoactive drugs industry (Thoumi, 1995). Differences in politics and ideologies movements have had since independence’s day about more than 200 years ago.

About Chile, the nation was founded by Spanish conquistadors in the 1540s, and after the wars of independence, the country started to play a significant economic role, where there has been unusual institutional permanency in the Spanish America of nineteen century (Collier, 1996). The modern history of Chile (1973-1990) is noticeable profoundly by the dictatorship of General Augusto Pinochet for 17 years (Bertelsmann Stiftung, 2018), in which the government had not a good opinion in relation to the firm hand and the control measures, resulting in violations of human rights. Some experts categorized the government model as extremely economic liberalism, in which the state abandons no only interventions on markets but also essential services such as education, health, labor and social security (e.g., Gough, 1979; Roberts, 2016).

About the situation of Venezuela, the country suffers an immense inflation, radical changes in the foreign exchange specially with USD, including the official and unofficial foreign exchange due to the unilateral decision of government for the official exchange rate and generating hence the corruption with the criminality work with a market-oriented exchange rate, and the macroeconomic vacillations of the Venezuelan economy in the last years (Cartaya, 2011). Moreover, the country profoundly depends on the petroleum prices and variations on oil prices prominently affect the Venezuelan economy, and on another hand, the lack of fiscal control and monetary control lead in an excessive public expenditure and elevated indebtedness (e.g., Buxton, 2014).

Besides, does an increase in income drive to more happiness? The Easterlin paradox clarifies that happiness improves with the individual income, including decrescent results in happiness with increases in income. In the theory, there is a positive relationship between income and the degree of happiness, but empirically, there are no results which verify the theoretical structure (e.g., Easterlin et al, 1974; Nuscheler, 2012). Another thing to be considered, in all times, the countries with higher incomes are at an assumed period happier than others with lower income. Yet, hovering the incomes of a country does not mean an increase in happiness of territory (e.g., Easterlin, 1995; Bruni, 2007; Frey, 2002).

Basing on the theoretical framework, the institutions develop an essential role on income structure, in the same way, are also correlated to income and geography (e.g., Robinson, 2012; Acemoglu, 2007, 2011; Kuznets, 1968). The integration of a country with other countries and its quality of institutions are triggered by endogenous causes, in relation to other country and to geography, but also to revenue levels. Problems of endogeneity and opposite connection obstruct the research among the causal factors (Rodrik, 2003). The Geography has an effect on institutions in which there historically were disadvantageous consequences for institutional development extreme inequalities and could enable more concentration of a reduced group of elites (e.g., Engerman, 1994; Boone, 1996).

The develop of welfare, explicit the welfare state, originated from the industrialization process and the implementation of social regulations. In order to fulfill the regulations, the expansion of the state, concerning all social and regulation aspects, has to be applied (e.g., Conceição, 2008; Esping-Andersen, 1990; Olson, 2000; Svenson, 1999). Moreover, the current modernization of society allows people to gain access to politics through the democratic process, leading to the construction of welfare programs. The effect of industrialization and modernization on the evolution of the welfare state goes beyond the limits (e.g., Claudia and Costin, 2018; O’Connor, 2017; Poulantzas, 1973).

Another explanation for the situation of the three countries is the presence of the Dutch Disease on the development process. If these countries receive a potent development of economy because the boom of commodity prices on the primary economic sector, there is a deployment of the distribution of investment in the booming sector, but at the same time this investment is displaced from other sectors, including possible national milestone sectors (e.g., Corden, 1984; Snape, 1977). Thought the Spending and Resource Movement effect, an operation of labor from the non-tradeable industry to the booming and to the lagging industry, especially in direction to the booming industry is executed (e.g., Corden, 1982; Forsyth, 1980).

All this theoretical information concludes in direction to the development of the empirical process. The sectors of Health Care, Education, Income, Basic Supplies: Water and Electricity, and the Application of Law recommend objective indicators in order to find the relation among each value with the welfare and the goals of institutions, resulting a positive relation between the increase of an indicator with economic development, but intrinsically with human welfare (e.g., Claudia, 2018; Conceição, 2008). In these welfare sectors list, there are some features that could be more specific to measure the welfare and institutions efficiency, however, the base of the most criteria is supported under uninformed statistics information and purely subjective basis. It is totally probable the basis of Application of Law is related to subjective standards, even supported by industry experts, that could collect exogen influences from pragmatic politic references.