Philip Parker, Physioeconomics: The Basis for Long-Run Economic Growth. Cambridge, MA: MIT Press, 2000. xi + 315 pp. $29.95 (cloth), ISBN: 0-262-16194-X.

Reviewed for EH.NET by Sylvain H. Boko, Department of Economics, Wake Forest University.

This book offers a unique approach to explaining differences in growth performance across countries. The approach is based on the so-called "equatorial paradox," the observation that the closer a country is to the equator the more likely it will have lower than average consumption per capita. The author argues that the latitude of a country is the main determinant of its inhabitants' "homeostatic utility," which, in turn, is determined by the laws of physics (thermodynamics), and the brain's hypothalamus, a major regulator of homeostasis. For Parker, each country has a natural homeostatic steady state, governed by physioeconomics. Further, he proposes that a country's economic performance should be gauged "not by its absolute level of income or consumption, but rather by how far it is from [its] homeostatic steady state" (p. ix). With respect to the empirical application of these ideas, Parker proposes four innovative approaches, the results of which are sometimes unexpected.

The first idea stems from the observation that international economic data are spatially correlated. As is well known, failure to account for these correlations results in inefficient parameter estimates, biased estimates and bad inference. Attempts to correct for such autocorrelation or serial autocorrelation problems through the inclusion of dummy variables in traditional growth models have proven "disappointing" from the author's point of view. A proposed solution is a sample matching approach, which consists of clustering countries based on their "physioeconomic dispositions" (p 212). Within each cluster, countries are then ranked by various measures of performance, allowing for standard econometric modeling to be applied. The approach is said to effectively eliminate spatial correlations, easily revealing the successes and failures of each country's policies relative to other members of the cluster. One shortcoming of this approach is that it provides only limited insight into the dynamics of within-cluster performance.

To remedy this, Parker proposes "filtering" cross-country data "for exogenous climatic variables, as one might deseasonalize times series data prior to measuring the impact of policy" (p 216). The final residuals series after this filtering is completed is termed a Relative Performance Index (RPI) by the author. It is claimed that the RPI controls for exogenous factors that underlie systematic differences in the steady state of homeostatic utility. The higher the RPI, the better-ranked countries are. This procedure, when applied to a cross-section of countries sometimes generated some highly unexpected results. For example, according to this method, Burkina Faso "is an above average performer, given its starting position, compared to the United States^Å [meaning that] it has been better at generating more income given its steady-state endowments than the United States with its endowments" (p. 225). This is not a conclusion that one would expect to obtain from traditional growth models.

The author points out that the filtering procedure lacks utility maximization and "homeostatic comfort" as a central notion. Thus, an alternative solution is to use "local performance measures." Roughly, this method calls for the determination of local (country-specific) and "unambiguous" measures of physical consumption (food, housing, clothing, transportation, energy and various forms of entertainment) that is required to establish human comfort, this being determined by the country's "thermodynamic disposition." A relative performance index is then derived by dividing actual per capita income by the income required for a "decent standard of living." On the basis of this measure, a country is ranked as a high performer when it has been able to generate average incomes that are higher than the minimal requirements for the country's specifically determined "decent living conditions." The application of this methodology to a cross-section of countries also reveals surprising results. For instance, contrary to the popular notion in the literature, some of the highest performing countries (with Gabon as a prime example) are in Africa.

The fourth idea advanced in the book, and the least convincing, is to ask groups of selected respondents from various countries, what income levels they believe would be necessary in their respective countries to achieve the same level of utility as in some selected base country (Germany for example). The author terms this method "direct inspection." Groups of World Bank or IMF types, MBA students, and economists from various points on the globe are asked to answer this question. The apparently consistent result is that the utility-equalizing income levels indicated by those who originate from hotter countries are significantly lower than those indicated by respondents originating from colder countries. It is a rather "obtuse" methodology as recognized by the author himself, and one that seems forced. The most glaring shortcoming of this method is that it polls people or groups of people who are not representative of the average person in their countries of origin, and may have a distorted notion of what income that average person would need to achieve the same level of utility as other countries. However, the results do seem to corroborate the hypothesis -- i.e., warmer countries have lower requirements for physical consumption to maintain their steady-state level of homeostatic utility than colder countries -- that the book purports to test.

The book ends with long-term predictions with respect to various measures of development. Generally, the predictions are that longevity, literacy, population growth, and migration, as well as the adoption of liberal political and economic institutions, will converge in the long run (by the end of the twenty-first century), both in terms of mean and dispersion, across all countries. However, consumption patterns will remain divergent and physioeconomic factors will generate most variances in the long run. It is somewhat disappointing that most of the arguments used to support these predictions are intuitive. There is no treatment of the dynamics that will determine the convergence or divergence of the different measures considered in this analysis.

In the end, the book makes a valiant effort in its attempts to find innovative ways to measure the relative performance of countries. If one were to agree with the book's contention that a country's latitude, through the laws of thermodynamics, determines its population's homeostatic consumption level and utility, then this implies a major shift in development policy. Lower income countries need not emulate higher income countries with respect to consumption levels, since the former group needs lowers levels of physical consumption to achieve the same level of utility as the latter group. The policy focus ought to be to invest in education, health and infrastructure to assure that for each country, the inhabitants have achieved a comfort level that is at least equal to the minimum required level of consumption, determined locally on the basis of physioeconomics. As suggested by the author, "the World Bank and similar institutions should invest greater resources in estimating the real income required to maintain human decency^Å Abject poverty, whether in urban America or rural Somalia, remains abject" (p. 234). This is a potentially powerful line of research that can help to redirect countries' resources to more efficient and more effective usage by shifting the focus of development policy from unattainable goals. As the opening chapters of the book demonstrate however, the approach attempts to coordinate complex, multidimensional and multidisciplinary issues and factors that affect human behavior and human interaction, and perform economic analysis and predictions on that basis. It is a difficult task that certainly requires further development. Hopefully Physioeconomics will generate increased interest in such an inquiry.

Sylvain H. Boko is currently completing a book on Decentralization and Reform in Africa (Kluwer Academic Press, forthcoming). His articles include "The Impact of International Agreements on Domestic Policy: An Analysis of Tariff Policy in African Countries"(Atlantic Economic Journal, March 2001); and "A New Look At Africa's Growth Performance and Prospects for the 21st Century" (in Ebere Onwudiwe and Minabere Ibelema, (eds), Afro-Optimism: Perspectives on Africa's Advances, Praeger. Forthcoming.)