03
The CDR Framework — Core Concepts
Formal definitions, the CDR scientific law, and the principle of parsimony
Learning Objectives
- State precise CDR definitions of Capitalism, Democracy, and Rule of Law distinguishing them from colloquial usage
- Explain why D and R are heterogeneous exogenous catalysts rather than factor inputs
- Apply Occam's Razor to justify a 3-variable model for ~83% of GDP variance
C
Capitalism (C)
The mechanism for the collection and assembly of capital, measured by total market capitalization. Reflects entrepreneurship capital (exogenous new ideas) plus capital stock (endogenous prior ideas). C is partially endogenous; 2SLS corrects this bias via latitude as instrumental variable.
D
Democracy (D)
Private workforce idea participation and periodic election of public representatives. An exogenous catalyst for the C→G conversion process. D creates new pathways for optimal capital deployment. Measured by democracy ranking (highest = 1, lowest = number of countries).
R
Rule of Law (R)
The reverse of corruption; protection of shareholder and property rights. An exogenous catalyst that attracts capital by providing governance stability. Measured by inverse corruption ranking. Encompasses property rights — prerequisite for capital collateral and foreign direct investment.
G
GDPppp (G)
Real per-capita gross domestic product adjusted for purchasing power parity. Standardized: g = (G − lowest G)/(highest G − lowest G), ensuring 0 ≤ g ≤ 1 across all countries.
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Entrepreneurship Capital
The exogenous component of C: pure human ideas of imagination and creativity. Separated from capital stock via 2SLS using latitude as IV. Contributes ~85% to GDP generation (vs. 15% from accumulated capital stock). The true source of new wealth creation.
The CDR Scientific Law
"High CDR countries are where ideas go to fly. Low CDR countries are where ideas go to die. The CDR model is the first and only scientific economic growth model — governed by the physical and chemical laws of nature, global time invariant."
Catalysis Analogy
D and R behave as heterogeneous exogenous catalysts — analogous to Berzelius (1835) chemical catalysts. They speed up the C→G conversion without being consumed in the process. At the end of a growth cycle, D and R remain intact, unchanged, ready for the next cycle. They produce no information themselves but provide a low-noise channel through which entrepreneurial information flows.
Parsimony (Occam's Razor)
The CDR model uses only 3 policy variables to explain 83% of cross-country variation in GDPppp. While democracy and rule of law are complex constructs containing many sub-components, those components are statistically subsumed in C, D, and R. The principle: "Everything should be made as simple as possible, but not simpler."