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ackground factors (the level of human capital development, the level of market
development and, most basically the level and distribution of per capita income).
Essentially there may be certain measurable criteria which make more explicit,
characteristic links, implying similar economic potential.
Perhaps the most important measurable similarity between economies is per capita
income. This is the criteria by which the World Bank ranks countries in its annual
"World Development Report". If Cyprus 23
was included in the 1995 World
Development Report's "World Development Indicators", it would have found itself
above Puerto Rico, Argentina, Greece, South Korea and Portugal and below New
Zealand, Ireland, Spain, Israel and Australia respectively 24 . If the World
Development Report had been published in 1960 and Cyprus had been included, it
would have been above Spain, Lebanon, Greece, South Africa and Singapore and
below Uruguay, Japan, Trinidad and Tobago, Argentina and Ireland respectively 25 .
As is clear from the diversity of these two groups of economies, per capita income
is a crude indication of economic potential though it is clearly one way of isolating
potential peers. Whilst resisting the more general equations used to create regression
predictions 26 , more variables need to be considered when selecting peers on the
basis of potential development opportunities, rather than simply an economy's level
of income divided by the population size.
Inspired by Chenery and Syrquin and more recently by Sachs and Warner 27 , the key
variables that have tended to be associated with growth are: investment rates,
savings rates, human capital development, openness and government consumption
rates; these have been used to help isolate other economies with more similar
23 Republic of Cyprus only.
24 IBRD, World Development Report 1995. New York: OUP. Countries ranked in ascending order
by per capita income, p. 162 & p.228 (no per capita income data given for Saudi Arabia).
25 Ranking per capita income for all economies listed in the first "World Development Report",
published in 1978, plus Cyprus, but excluding the centrally planned economies. Data for per capita
income in 1960 derived from "World Tables 1971", table 4, IBRD.
26
As reviewed by Levine, R. & Renelt, D. "A Sensitivity Analysis of Cross-Country Growth
Regressions". American Economic Review. Sept. 1992, Vol. 82, No.4, pp.942-963.
27 Sachs, J.D. & Warner, A. 1995. "Economic Reform and the Process of Global Integration."
Brookings Papers on Economic Activity. 1. 1995.
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