ELI5: How is it that Japan was once poor but is now economically prosperous, but regions like Africa and Latin America are perpetually poor?

Japan was pretty well industrialized in the early 20th century, and after WWII, had the support of the US to be able to get back up to its feet.

According Jane Jacobs in her book "Economy of Cities", Japan developed due to what she calls "import replacement". Import replacement is rather similar to import substitution (ISI), the difference is that import replacement is more focused on cities rather than whole nations.

A supply region, countries that are in Africa or Latin America, are the soure of resources. They tend to be overspecialized (like Congo for its copper or Honduras for its bananas) and often are poor due to lack of education, amongst other things. Much of the resources are usually shipped to cities where they would be used for the manufacture of products. Cities, Jacobs argues, are the drivers of economic development, as it is where ideas are invented, where the bulk of workers are, amongst other things.

Jacobs gives an example in the industrialization of Japan in the 1900s. At that time, Japan had to import manufactured goods such as bicycles. The influx of imported bicycles in Tokyo led to the opening of many bicycle repair shops in the city. These shops would become so good in repairing bikes that they advanced themselves to begin manufacturing bicycles in Tokyo itself. At last, these bicycles would be exported.

Not all cities are good though. Cities with diverse enterprises tend to be better, like say, New York. In the 1900s, NY had a diverse industry, making clothing and other products. Detroit, on the other hand, had only its automobile factories. By the end of the 20th century, NY remains to be an economically vibrant city while Detroit had deindustrialized itself.

Jacobs' book though is not generally accepted by the academe, but personally I think it's pretty interesting.

/r/explainlikeimfive Thread