The Nature of the Wealth of Nations

Written by Ryan McGuine //

Before inquiring into the causes of development phenomena observed, it is a good idea to first establish just what phenomena are observed. Toward those ends, Nicholas Kaldor presented a set of six stylized facts in 1961 designed to summarize what had been learned about economics in the 20th century and establish a research agenda framework. Following the same line of reasoning in the 21st century, Charles Jones and Paul Romer presented another set of six facts in 2009 — dubbed the “New Kaldor Facts.” These state that:

1. Increased flows of goods, ideas, finance, and people — via both globalization and urbanization — have increased the extent of the market for all workers and consumers.
2. For most of history, growth in both population and GDP per capita were nearly zero, but have accelerated during the last century to the relatively rapid rates observed today.
3. The variation in cross-country rate of growth of GDP per capita increases with increasing distance from the world technological frontier (the highest level of technological advancement possible).
4. Differences in measured inputs explain less than half of the enormous cross-country differences in GDP per capita. The rest can be explained by productivity differences.
5. Human capital per worker (education, vocational skills, etc.) is rising dramatically throughout the world.
6. The rising quantity of human capital relative to unskilled labor has not been matched by a sustained decline in skilled workers’ wages.