The charts below show the growth of real GDP per capita in three pairs of geographically adjacent countries: North and South Korea, Argentina and Chile, Zimbabwe and Botswana (using data from the Penn World Table).

a. Which country in each pair experienced faster growth in GDP per capita? Which one is now richest?

b. The World Bank’s World Governance Indicators for each country in 2000 were as shown in the table (higher is better).Based on these data, do you think institutions can explain the divergent outcomes in these countries? Explain. Why do you think it helps to compare countries that are physically contiguous?

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Real GDP per capita $20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 South Korea North Korea Chile South Korea 0 1950 1960 1970 1980 1990 2000 Argentina Botswana Zimbabwe North Korea Control of Corruption 0.37 -0.93 1.56 -0.34 1.02 -0.87 Real GDP per capita $14,000 12,000 10,000 8,000 6,000 4,000 2,000 Argentina 1950 1960 1970 1980 1990 2000 0.63 -1.10 Chile Government Political Effectiveness Stability and 1.34 0.28 0.98 -1.13 Absence of Violence 0.49 -0.66 0.85 0.48 0.90 -1.21 Real GDP per capita $10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 Rule of Law Botswana 0 1950 1960 1970 1980 1990 2000 0.64 -1.08 1.31 0.17 0.67 -0.74 Garant Zimbabwe Regulatory Quality 0.47 -1.70 1.38 0.45 0.79 -1.61 Voice and Accountability 0.76 -2.02 0.56 0.44 0.78 -0.97