The Deep-Rooted Reasons Behind the Wealth and Poverty of Nations

Why are some nations always thriving while others stay caught in cycles of poverty and distress? What causes could explain the marked inequalities between countries like Norway and Nigeria, or South Korea and North Korea?

Economists, political thinkers, and historians have long contemplated these issues. Although some focus on divergence of natural resources or cultures, others highlight national histories or administrative systems. But the truth is more layered than that—the fortunes or paucity of countries is moulded by a complex interplay of historical legacies, institutional decisions, geographic chance, social models, and global forces.

Let us explore these causes, with a focus on groundbreaking research and global case studies to grasp the core reasons why some nations rise, while some lag.

Beyond GDP: Rethinking Prosperity

Gross Domestic Product (GDP) is regularly utilized as the foremost indicator of a nation’s riches. Yet, GDP alone can be deceptive—it does not take into consideration other factors like sustainability, human well-being, inequality, or opportunity. For example, countries like Qatar and Kuwait boast above average GDP numbers thanks to their oil wealth but might fall short on other metrics such as labour rights or social progress.

In comparison, countries like Finland and Norway merge economic wealth with elevated levels of education, equality, and healthcare. For an all-inclusive understanding of national well-being, other metrics are vital—like the Human Development Index (HDI), which combines income, education, and life expectancy (UNDP); the Gini Coefficient, which measures income inequality; and the Social Progress Index, which evaluates quality of life beyond economic performance (Social Progress Imperative).

Historical Path Dependencies

History casts a long shadow. Colonialism is a considerable factor in shaping the inequalities of today. Colonists frequently instituted extractive establishments—fixated on wealth transfer and resource plunder, rather than building public infrastructure or inclusive governance. The far-reaching effects of these policies and actions include skewed economies, persistent inequality, and underdeveloped political systems. For example:

• Many South Asian and African countries inherited brittle state infrastructures after their independence.
• Latin American nations, which were colonized for resource extraction, witnessed power concentrated in privileged hands, limiting all-inclusive development.

In their book Why Nations Fail, Daron Acemoglu and James Robinson argue that historical institutions often set the trajectory for a country’s long-term development.

Institutions Matter: Inclusive vs. Extractive

A nation’s economic success is closely linked to the quality of its institutions. Inclusive institutions—those that enforce contracts, protect property rights, and provide equal opportunities—create a foundation for growth, investment, and innovation. These institutions often include accountable governance structures, independent judiciaries, and transparent regulatory systems. In contrast, extractive institutions concentrate power and wealth in the hands of a few, stifling entrepreneurship and hindering long-term economic development.

Consider the case of South Korea and North Korea—two countries with shared historical and cultural backgrounds but markedly different economic trajectories. This disparity primarily stems from government choices: South Korea has embraced inclusive, democratic governance, while North Korea has entrenched authoritarianism and centralized control.

Similarly, Botswana serves as a notable example of a resource-rich African nation that has avoided the “resource curse.” It has achieved this by establishing strong democratic institutions and sound fiscal policies, distinguishing itself from many other mineral-rich countries.

Strong institutions lower corruption, maintain the rule of law, and encourage meritocracy. They establish an environment where individual entities and businesses can prosper—making them necessary for continual economic success and national prosperity.

Geography, Climate, and Natural Resources

Geography is not destiny—but it plays a part in determining a country’s economic path. Landlocked countries may face difficulties in trade due to lack of direct access to ports, which in turn raises the cost of imports and exports.

Countries with tropical climates are more prone to diseases such as malaria, which can considerably cut worker productivity and put a strain on public health systems. Likewise, fragile environments with limited water supply or harsh terrains can thwart the agricultural yield and development of infrastructure.

However, geography alone does not determine a country’s fate. The concept of the “resource curse” illustrates how natural wealth can sometimes be more of a burden than a blessing. For instance, Nigeria, despite being rich in oil, has long grappled with corruption, conflict, and economic volatility.

In contrast, Norway has also benefited from oil resources, but its success stems from prudent management—investing in strong institutions and creating a sovereign wealth fund to secure the nation’s future.

Ultimately, it is not the mere presence of natural resources or geographic advantages that define national prosperity, but how these assets are governed and leveraged.

Culture and Social Norms

Culture impacts economic trends, education, and governance. Cultures that highlight long-term views, collective responsibility, and gender equality are more likely to do better economically. For example, East Asia’s economic rise has been supported by Confucian values of education and discipline. Low trust societies or those with profoundly rooted hierarchies often face inefficiency or stagnation.

However, culture can evolve—and is often influenced by institutions and underlying leadership. What matters is not cultural determinism but the ability to foster adaptive, inclusive values that support progress.

Globalization, Trade, and Technology

Globalization has lifted millions out of poverty—but not equally. Countries that focussed on integrating into global value chains (GVCs) with strategic policies have been seen to thrive, while others were left behind. For example, Vietnam embraced export-led growth, and emphasized on investing in infrastructure and education to become a manufacturing hub. Many low-income countries are unable to benefit similarly due to lack the infrastructure or institutional capacity.

Technology can widen wealth gaps—unless training, access, and digital infrastructure are prioritized by their governments. The digital divide risks deepening inequalities across and within nations.

Policy Choices and Leadership

Ultimately, development is a result of human agency. Good policies and visionary leadership can transform even resource-poor nations.

• Singapore invested in education, urban planning, and corruption-free governance despite its small size.
• Rwanda rebounded from genocide to achieve growth through innovation, healthcare, and women’s participation.
• Estonia became a digital leader through e-governance and startup-friendly reforms.

Effective policies focus on long-term goals, institutional strengthening, and inclusion. Leadership matters—not just charisma, but commitment to reform, transparency, and nation-building.

The Way Forward

There isn’t a universal path to prosperity, but many successful countries share common foundational enablers that drive long-term resilience and growth. Key initial steps in this journey include building inclusive and accountable institutions, investing in education and healthcare, fostering innovation, and addressing the rural-urban divide.

Promoting social cohesion and equitable growth, along with participating in fair global systems, can significantly enhance any nation’s chances of achieving its long-term goals. Understanding the deep-rooted causes of inequality is essential to avoid simplistic solutions and to move toward sustainable and just development.

ISPP and Its Commitment to Inclusive Growth

The Indian School of Public Policy (ISPP) is committed to supporting future policy leaders who are equipped to tackle diverse and complex developmental challenges. By blending rigorous academics with practical training, ISPP emphasizes:

• Data-driven decision-making,
• Institutional understanding,
• Ethical governance,
• And inclusive, long-term policy thinking.

Its graduates are uniquely positioned to design and implement transformational policies that address the root causes of poverty and enable lasting prosperity—both in India and globally.

Learn more about the programs here: https://www.ispp.org.in