Why Are Some Countries Richer Than Others?


The Wealth of Nations, written by Adam Smith and published approximately 245 years ago, is considered the book that introduced economics. Yet, even after many years of the world first seeing its economic picture, nothing has changed. The bifurcation between the rich and the developing countries is still the same; in fact, it’s just increasing.

Why Are Some Countries Richer Than Others?

To explain why some countries are rich while others are poor, we need to analyze the following reasons:

  • Property rights for the individual, Firm property rights, and an effective judicial system established for a country to develop into a wealthy nation.
  • If a country has a basic infrastructure that provides access to food, clean water, and healthcare, it is an important foundation to escape poverty.
  • Higher productivity will create faster economic growth, and growth allows any nation to escape poverty. Therefore, Poor-country needs to reallocate jobs and capital from lower productivity to higher productivity sectors.
  • Quality institutions determining a country’s level of wealth. Poorer countries are often stifled by widespread government corruption.
  • Modern private enterprise, entrepreneurial spirit, political democracy develop investment climate.
  • Geography can impact country development (developing countries are found in tropical regions where deadly diseases)
  • Human capital investments represent the foundation of the future development of each rich country.

 

 

The Richer Ones And Poor Ones

When we use these terms in our everyday lives, their meaning is quite simplified. For example, if a person’s poor, they’ve got access to lesser things, have more secondary resources, and more inferior facilities than the one with money. But in the case of a country, its GDP per capita plays the role of defining wealth and well-being.

In simpler terms, GDP is the annual income/gain of a country. To identify the average income of every person present in the country, the GDP is divided by the number of people. This income not only defines the financial capabilities but also the status of a nation. For instance, the USA’s GDP per capita was determined around fifty-seven thousand dollars, whereas Ghana’s GDP per capita was just around fifteen hundred dollars in 2016. These numbers display the status and capability of both countries in terms of economy.

But that’s not the correct way of defining a country’s financial aspect since two people would also have quite many economic differences while being present at the same place. Therefore, some people would always be more delicate than others, regardless of where they are. As per the statistics released in the year 2013, approximately 10 percent of the people worldwide were identified under the international poverty line, i.e., living a life at a dollar and ninety cents every single day.

All-in-all, the primary point is that the better the country does economically, the farther it drifts from poverty.

Economic Growth: How Does That Happen?

Do you know why some countries are wealthier than others? When the services they render and goods they produce help them sustain more extended periods and generate profits for their functioning. Say, for example, there’s a garment factory out there, but it has no standard equipment or skilled workers; how is it supposed to generate profits? It won’t!

On the other hand, a recognized garment factory with skilled labor and proper equipment will always outshine, generate profits, and provide optimum wages to their workers. With a better economic rise, the poverty factor might stay away, but what exactly are nations meant to do to increase their financial status? Here are a few factors:

International trading – Countries need to be open to the rest of the world.

Trading internationally is a crucial way to improve economic growth for several small-sized countries. For example, countries like Ghana rely on Cocoa exports heavily as it’s one of the only cash crops they have with them, and in exchange for money, their demand is all over the world. Countries such as the Netherlands and the USA are the two central countries that import Cocoa worth 321 and 175 million dollars. But, if a country is bound under a trade barrier, then it would be a significant hindrance. Therefore, several researchers suggest the removal of trade barriers to improve the rich & poor scenario.

Institutional Activities

Incentives play a huge role in promoting innovation from time to time. Therefore countries should focus on freedom to function freely in markets, typical rules of law, and perks for introducing something new to the market. But, say, if a business, after all its efforts, has no sort of rebate or incentive that’ll help them promote their business, the knack for innovation or faster functioning will fail. So several countries focus on providing people rebates and subsidies for their businesses to keep running. All of these activities help a country’s financial condition scale high, and economists claim the governments who don’t propose such ideas to the public are one of the poorest countries across the globe.

In Conclusion: What Needs To Be Done?

So far, you know why some countries are more prosperous than others and what they do to help their economy thrive. First, to eliminate poverty, a country’s growth economically is the only way that’ll work. Not only they’ll be eradicating their financial issues, but they will also be bridging the gap between them and the richer ones. Second, the government plays a crucial role in shaping the economy; hence they can provide incentives and perks to people to bolster their spirit. On the other hand, these businesses can promote better production, helping the country reach its economic goals faster. Lastly, international trading opens the gateway to capital resources for businesses, and small countries can scale their business well by stepping into larger markets!

Fxigor

Fxigor

Igor has been a trader since 2007. Currently, Igor works for several prop trading companies. He is an expert in financial niche, long-term trading, and weekly technical levels. The primary field of Igor's research is the application of machine learning in algorithmic trading. Education: Computer Engineering and Ph.D. in machine learning. Igor regularly publishes trading-related videos on the Fxigor Youtube channel. To contact Igor write on: igor@forex.in.rs

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