November 29, 2003

Fishing in the Pond of Correlation

Continuing the previous entry, I thought I'd take a stab at the "IQ as predictor of income" debate, and see what I could find out.

So, I compiled a list of statistics from 167 countries which can be found here, collected from the UN Human Development Report 2003. I excluded a few countries out of the 175 total which didn't have statistics for all indicators.

Many cite IQ, or "democracy" as causes of the wealth of nations. I will not deny of course that IQ and "democracy" are correlated with wealth, as measured e.g, by per capita Purchasing Power Parity (PPP), which I'm using.

Correlation, however, does not mean causation. So, I undertook the task of seeing whether or not the discrepancy in incomes around the world can be explained -in a purely statistical sense- by variables other than IQ or "democracy".

Let's take factor #1: Demographic Structure. I used % of population under age 15 as a proxy for this factor. The intuition goes that since children don't have the capacity (muscle or intellectual) to produce as much as adults, a nation with a large number of children will have a lower per capita income.

Indeed, there is a -0.71 correlation between % of population under 15 and per capita PPP, accounting for 50% of the variance of the dependent variable.

Roughly half the population in the world is women. Women get pregnant and while pregnant or rearing young children can't be as productive as men. So, we expect that nations where women have lots of children will have a lower per capita income, simply because half their population spends quite a lot of time being pregnant, breastfeeding or changing diapers. This is factor #2, which also relates to Demographic Structure.

Indeed, there is a -0.56 correlation between the fertility rate and per capita PPP, accounting for 31% of the variance of the dependent variable.

Factor #3 has to do with Child Development. I theorize that a person's outcome in life is predicted to some degree by having a good childhood, allowing him/her to develop his physical and intellectual facilities. As a proxy for this factor, I used Infant Mortality.

I found a -0.64 correlation between infant mortality and per capita PPP, accounting for 41% if the variance of the dependent variable.

Combing these three factors in a multiple regression, we can explain a total of 62% of the variance in per capita PPP.

I suspect that "democracy" would further add to the explicatory power of the model; in any case, it is clear that two simple demographic factors and a factor measuring access to health services have enormous predictive power.

Finally, I list the 10 countries whose per capita PPP is most overestimated by the model: Ukraine, Georgia, Bulgaria, Croatia, Cuba, Romania, Bosnia and Herzegovina, Moldova, Rep. of, Sri Lanka, Russian Federation

It is clear that adding "democracy" as a value, would help eliminate these residual errors. The 10 countries whose income is most underestimated are: Australia, Brunei Darussalam, Switzerland, Denmark, Canada, Equatorial Guinea, Norway, Iceland, Ireland, United States

It is notable that many of these countries have abundant natural resources (e.g., Iceland, Norway, Brunei), special financial status (Switzerland), or a large territory with respect to their population (Canada, Australia).

IN CONCLUSION: Simple demographic and health factors account for the difference in the wealth of nations; the observed residual errors of the 3-factor model indicate that adding "natural resources" or "democracy" would explain some of the remaining variance in per capita income.

Posted by Dienekes at November 29, 2003 05:00 PM | PermaLink
Comments

What about the proportion of rural vs urban? I would think the larger the proportion of urban inhabitants, the greater the per capita PPP.

Posted by: Steve C at November 29, 2003 06:28 PM

This model especially if thinking that "democracy" is a major factor for "wealth" is something very phantastic.

In fact I would think about the possibility that intelligent people can be poor and dumber ones rich too.
The "productive power" of women is also totally overestimated in your correlation in a modern postindustrial/high industrial society women labour is not that necessary for the wealth.

The only thing which is true is your child aspect.
But here again capita PPP is not the only thing which is important for the "wealth" of a nation.

The US live largely through there multinational concerns and capital, ressources and political power.

And the average people are not that prosper too.

Posted by: Chris at November 30, 2003 09:24 AM

I would imagine that IQ correlates with both infant mortality -- as smarter parents take better care of their offspring -- and with population structure -- as smarter people are better at planning their reproduction. I believe both of these correlations have be found within the US, as reported in *The Bell Curve* . And indeed, this fits with the so-called r/K theory, of reproductive strategy.

Therefore, your variables may be confounded with IQ, IQ maybe the ultimate cause of poverty, population structure, and infant mortality rate.

Posted by: Mitchell Young at November 30, 2003 10:03 AM

As you can see infant mortality has decreased over the last 30 years everywhere on the planet. I doubt that a massive change in IQ is responsible for this reduction across every culture in the world. I'd think that improved sanitation and access to health care are responsible.

Indeed, some developed nations had infant mortality rates in 1970 comparable to what some second-tier countries have now. Since both countries have reduced their infant mortality rates, I suspect that we are witnessing a temporal lag. The good living conditions were experienced first in some parts of the world and the rest of the world is catching up from different starting points.

>> I believe both of these correlations have be found within the US, as reported in *The Bell Curve* .

You are making a common error. Let's suppose that "infant mortality" is correlated with IQ. It's also correlated with good nutrition and a good health system. In the US, the latter two are excellent, so there might be a greater dependence on IQ. But, in say Africa, most of the difference is due to environmental factors.

An example for this is the following. There are two drivers and two cars. If the cars are approximately the same then it's the driver (IQ) that wins the race. But if there are great disparities in the car, say a VW Bug vs. a Ferrari, then it's the car that makes the difference.

We must be cautious in generalizing intragroup correlations to intergroup correlations. Here is why: suppose that there are two countries, Bugland and Ferrariland, whose inhabitants drive mostly Bugs and Ferraris respectively. We will notice a very high correlation between driving ability and winning a race in both countries: if two people drive the same car, the better driver wins. We will also notice a very big difference in winning frequency between inhabitants of Bugland and Ferrariland. But, despite the intragroup correlation of driving ability with winning a race, the intergroup differential is not explained by driving ability: it is explained by the mere fact that one group drives a Ferrari while the other doesn't.

Posted by: Dienekes at November 30, 2003 12:19 PM

Well, the interesting thing is that some countries had almost similar starts f.e. in Asia and Africa, but those in Africa are down under the colonial niveau in all regards, and some in South East Asia are above even some European dominated countries.
By chance?

You are right if you generalize, but we got too much cases in which are almost same situations and the difference between Eurasians and Negroids/Primitive races (f.e. Australoid) still staying.

Maybe there are other environmental factors, but a relative difference even under the same conditions between pure Negroids and Eurasians seems to be something quite real.

Posted by: Chris at November 30, 2003 05:08 PM

>> Well, the interesting thing is that some countries had almost similar starts f.e. in Asia and Africa

Do you have any evidence that East Asian and African countries had "similar starts"? I seriously doubt that the average Chinaman and the average inhabitant of Central Africa had the same access to basic human goods when they encountered Western technology.

Posted by: Dienekes at November 30, 2003 05:54 PM

I meant South East Asian countries not China, Japan and South Korea.
F.e. Malaysia, Indonesia, Vietnam, etc...

I personally think that f.e. Ethiopia has much more potential than it looks today, but some West African countries had quite similar starts like the South East Asian states...

Posted by: Chris at November 30, 2003 06:40 PM

>> I meant South East Asian countries not China, Japan and South Korea.
F.e. Malaysia, Indonesia, Vietnam, etc...

The question stands even for "South East Asian" countries.

Posted by: Dienekes at November 30, 2003 06:42 PM

there is a -0.56 correlation between the fertility rate and per capita PPP . . . a -0.64 correlation between infant mortality and per capita PPP . . .

Who would have guessed? Hint: search Google for "demographic transition".

Correlation, however, does not mean causation.

Did you somehow forget this cliche during the course of your "research"?

Simple demographic and health factors account for the difference in the wealth of nations

Wrong. You got it exactly backwards.

Posted by: anon at December 6, 2003 02:40 PM

>> Did you somehow forget this cliche during the course of your "research"?

Not at all. "Explaining" the variance of a random variable is not the same as "causing" the variance of a random variable. The first is a simple statistical fact, the second supposes a mechanism of cause and effect.

When two variables are correlated, e.g., "IQ" and "per capita GDP", it might be due to the fact that high IQ causes high per capita GDP, or conversely that highe per capita GDP causes high IQ or due to a hidden factor that is correlated with both IQ and wealth.

Thomas Volken has written a thorough technical critique of "IQ and the Wealth of Nations" (here pdf).

Abstract

Recently Richard Lynn and Tatu Vanhanen have presented evidence that differences in national
IQ account for the substantial variation in national per capita income and growth. This paper
challenges these findings and claims that, firstly, they simply reflect inappropriate use and
interpretations of statistical instruments. Secondly, it is argued that the models presented by Lynn
and Vanhanen are under-complex and inadequately specified. More precisely the authors confuse
IQ with human capital. The paper concludes that once control variables are introduced and the
models are adequately specified, neither an impact of IQ on income nor on growth can be
substantiated.

Posted by: Dienekes at December 6, 2003 10:59 PM

Long time ago, I didn't notice your reply to me. I took a long at the data on infant mortality you linked. The amazing thing about that is not that IM has declined world wide, but rather that over 30 years it declined by 3/4's in the high income OECD catagory but only 22% in sub-saharan africa. Think about that! Surely this is not a linear relationship, i.e. that the high income OECD countries must be reaching some sort of asymptotic limit as to how low their infant mortality can go whereas Sub Saharan africa still has plenty of low hanging fruit, so to speak, and there has been only modest improvement over thirty years.

As for intra and inter group comparisons, multiple regression was created exactly to deal with this problem. however, a matched pair pseudo-experiment would be intresting on this, say West African descended infant mortality versus Euro descended infant mortality in the US, England, Canada. Matched for income, education level, whatever.

Posted by: Mitchell Young at June 7, 2004 01:21 PM
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