Covid-19 – in many emerging countries primarily an institutional problem

13:32 by Hubert Fromlet, Kalmar

To avoid any misunderstanding: covid-19 is a global disease and not only spread in emerging market countries. Advanced OECD countries were also badly hit by corona, such as the United States, Spain, Italy and the UK. Sweden could not either escape from covid-19 without pain. Not even Germany made it really well since the eruption of the crisis (though better than most other European countries). Norway and Denmark, however, succeeded pretty well so far – Finland even better.

Unfortunately, it can be recognized that emerging (developing) countries altogether are most heavily hit by corona infections, both in absolute and real terms. Why is that? In my view, there exist clear institutional shortcomings in the most heavily affected emerging countries, being mainly responsible for the bad outcome. But this kind of underlying weakness can also be watched in advanced countries with heavily burdening corona infections.

Quality and effectiveness of institutions play a decisive role

Nobel Prize winner Douglass North – the “father” of New Institutional Economics – probably remains the most strongly convincing economist about the decisive importance of institutions for growth and wellbeing of a country. (“Institutions form the incentive structure of a society, and the political and economic institutions, in consequence, are the underlying determinants of economic growth”). Insufficient health care – also when it comes to covid-19 – must certainly be regarded as an institutional failure.

However, if this described relationship is so logical and correct – which actually should be the case also in my own view – why are so many emerging countries incapable of managing  necessary institutional improvements? A possible (partial) answer is given by Olivier Blanchard (MIT, in his textbook “Macroeconomics”) who comes to the conclusion that low (high) institutional protection is associated with a low (high) GDP per capita. This means in other words that many emerging or developing countries suffer from insufficient financial resources.

Ten of the twelve most corona-affected countries belong to the emerging world  https://www.worldometers.info/coronavirus/ (August 21- 24, 2020)

Conclusions

¤ There is no doubt that the corona epidemic in emerging countries to a high extent can be referred to institutional shortcomings – institutional shortcomings that often can be explained by too limited financial resources for improvements. This factor should be considered more seriously by international organizations.

¤ It should not be neglected that many emerging market countries also face a large number of hidden corona cases since statistical quality still must be regarded as poor in many lagging countries. The real number of corona infections may be strongly underestimated (for example in Indian and probably also in Chinese statistics). Foreign support to developing and emerging countries could be very useful in this institutional context. International organizations should develop mechanisms that encourage and reward specific kinds of institutional progress, measured by, for example, “Doing Business” of the World Bank and the rankings of Transparency International.

¤  The EU, single EU-member countries and the UK could act more ambitiously to support improving institutions in lagging emerging countries, particularly in Africa. People in Africa need hope, driven by improved political, institutional and social improvements – including health and education with their strong institutional nexus. Hopefully, such a policy change could also give sustainable relief to the European migration problem in a somewhat longer perspective, originated by sizable institutional progress. Remember what Douglass North has been saying and writing about the decisive contribution of institutions to economic growth! There is no alternative.

¤  However, Latin America (and quite a number of emerging countries elsewhere) should not be neglected either – needing urgently a substantially improved institutional environment. “Urgently” should be stressed strongly. Institutional improvements do not come overnight.

Finally, the following question may be allowed: Could Joe Biden as a potential president give new and (relatively) unselfish incentives for institutional improvements in South/Latin America – or is that just wishful thinking?

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

 

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