Institutions and Agricultural Growth in Bolivia and New Zealand

Abstract

This essay compares the experiences of agricultural development and overall development in two similar but very different countries: Bolivia and New Zealand. Similar since they both have small populations living from economies based on relatively abundant natural resources; and both are remote from the centres of the world economy. Both became largely self-governing in the first half of the nineteenth century; but there the similarities end, for today while New Zealand is a prosperous and relatively egalitarian society with high indices of human development, Bolivia remains poor and highly divided by class, ethnicity and region; a land of few haves and many have-nots who live in unacceptable poverty. To what extent can the different economic institutions that have evolved in the two countries explain these differences? Or are there other more powerful factors, including political institutions, that apply. This essay addresses the question by looking at the agricultural development of the two countries since the early nineteenth century. In terms of performance, the New Zealand agricultural economy grew only modestly for most of the twentieth century, with fluctuations reflecting the changing fortunes of agriculture producing mainly for international markets. Over the last forty years, Bolivian agriculture has grown more quickly, thanks to a dramatic expansion of cultivation in the formerly remote and inaccessible eastern lowlands. Productivity gains in yields per hectare and returns to labour have been similar, although in the case of labour productivity from a very much lower base in Bolivia. Overall economic growth over the last half century shows that while New Zealanders were roughly twice as well off by 2000 in real terms as they were in 1950, Bolivians had remained at the same average income levels; but growth in the two countries was not different: in both cases, as small economies open to the world, there were variations resulting from external conditions - and both countries saw many years when average incomes fell. The difference was that in Bolivia there were more bad years, the fall was more severe, and in the good years progress was less rapid than in New Zealand. While Bolivia suffered from external shocks, internal events were also influential. Investment has clearly made a big difference: investment levels have been roughly twice as high, as a share of GDP, in New Zealand compared to Bolivia. Moreover, in Bolivia what growth there has been since the late 1980s - when most years have seen growth - has made little difference to high levels of poverty. In an already highly unequal society, the drivers of growth in recent times - the oil and gas workings and the soybean fields of Santa Cruz seem to have created little employment and equally few linkages in the economy. Government has been unable to redistribute the wealth to spread the benefits.

Citation

IPPG Discussion Paper Series Number Twenty-One, DFID, London, UK, 35 pp.

Institutions and Agricultural Growth in Bolivia and New Zealand

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