Explaining the rain: The Rise and Decline of Nations after 25 years

Southern Economic Journal, July, 2007 by Jac C. Heckelman

As discussed later in this paper, Olson describes in Rise and Decline how his theory applies to a select group of developing nations but does so without any accompanying econometric evidence. Weede (1986a) may have been the first to run regressions for growth rates of LDCs on a measure of sclerosis. (4) Weede's proxy of an index of price distortions, however, is far removed from any direct connection to Olson. Neither groups nor national stability appear in the regression, and any number of non-Olsonian factors may have contributed to the variation in price distortions. Thus, Weede's claimed support for Olson must be qualified.

More recently, samples mixing developed and developing nations appear to be the norm. In a predominantly but not exclusively OECD-oriented sample, Knack's (2003) proxy for interest group intensity comes from a survey of the number of sectional groups to which respondents belong. Heckelman (2000) extends the McCallum and Blais (1987) OECD-exclusive sample by adding group counts for three additional OECD nations and 22 non-OECD nations. (5) By far the largest sample testing for institutional sclerosis is the LDC-dominated 114-nation sample in Koubi (2005). Care should be taken, though, not to mix stable and unstable nations in the same sample. Olson (p. 167) states that "the most basic implication of the theory for unstable societies, then, is that their governments are systematically influenced" by various vested interests that can quickly organize. Thus, the proper comparison would be to relate length of stability to growth, as long as each nation was stable during the entirety of the growth period. Indeed, although Heckelman (2000) reports an inverse correlation between the number of sectional groups and growth across the full sample of countries analyzed, the relationship was found to be statistically significant only for the subset of nations not having undergone any coups or revolutions during the sample growth period.

In sum, the majority of studies conducting empirical tests generally find support for Olson's thesis. A quarter of them do not, while the rest find mixed support. Given the variety of proxies utilized and samples considered, it would appear that a lot of econometric evidence has been generated, largely substantiating the theory of institutional sclerosis.

Descriptive Narrative Histories

In Rise and Decline, Olson also presents narrative histories of the post--World War II experience for many nations that are consistent with his theory. The fastest-growing nations in the postwar period were those that suffered the most destruction within their society, including especially the eradication of their wartime and prewar governments. In these countries, namely, Germany, Japan, and Italy, newly installed democratic governments fostered stability in economic and political relationships. Nations whose governments and institutions were not altered by the war, such as the United States, Britain, Australia, and New Zealand, generated much lower growth after the war.