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Friday, September 19, 2014

Backwards to the future

 

World population stabilization unlikely this century

Patrick Gerland et al.
Science, forthcoming

Abstract:
The United Nations recently released population projections based on data until 2012 and a Bayesian probabilistic methodology. Analysis of these data reveals that, contrary to previous literature, world population is unlikely to stop growing this century. There is an 80% probability that world population, now 7.2 billion, will increase to between 9.6 and 12.3 billion in 2100. This uncertainty is much smaller than the range from the traditional UN high and low variants. Much of the increase is expected to happen in Africa, in part due to higher fertility and a recent slowdown in the pace of fertility decline. Also, the ratio of working age people to older people is likely to decline substantially in all countries, even those that currently have young populations.

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The Long-Term Direct and External Effects of Jewish Expulsions in Nazi Germany

Mevlude Akbulut-Yuksel & Mutlu Yuksel
American Economic Journal: Economic Policy, forthcoming

Abstract:
This paper examines the long-term direct and spillover effects of large-scale human capital loss caused by the persecution of Jewish professionals in Nazi Germany. Using region-by-cohort variation in the Jewish population as a quasi-experiment, we find that on average German children who were of school age during the persecutions have fewer years of schooling in adulthood, and are less likely to finish high school or go to college. These results are robust after controlling for regional unemployment and income, wartime destruction, Nazi and Communist Party support, the compulsory schooling reform, migration, urbanization and mortality.

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Win-win: Female and male athletes from more gender equal nations perform better in international sports competitions

Jennifer Berdahl, Eric Luis Uhlmann & Feng Bai
Journal of Experimental Social Psychology, January 2015, Pages 1–3

Abstract:
The present study provides the first evidence that increased gender equality in a society releases the human potential not only of women, but also of men. Our research setting is the Olympic Games, the world's foremost sports competition and one of the few contexts in which men's and women's performance is fully segregated by gender and objectively measured at the highest levels. We find that even after controlling for potential third variables (i.e., national gross domestic product, population size, geographic latitude, and income inequality), higher levels of gender equality in a country predict significantly greater success at winning Olympic medals for both its female and male athletes. These findings contradict the common belief that access to opportunities is a zero-sum game in which gains for women inevitably result in losses for men. Rather, gender equality is a "win-win" that allows members of both genders to realize their true potential.

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Social Capital and the Family: Evidence that Strong Family Ties Cultivate Civic Virtues

Martin Ljunge
Economica, forthcoming

Abstract:
I establish a positive relationship between family ties and civic virtues, as captured by disapproval of tax and benefit cheating, corruption and a range of other dimensions of exploiting others for personal gain. I find that family ties are a complement to social capital, using within-country evidence from 83 nations and data on second-generation immigrants in 29 countries. Strong families cultivate Universalist values and produce more civic and altruistic individuals. The results provide a constructive role for families in promoting family values, which challenge an ‘amoral familism’. Moreover, strong families are complementary with more developed and democratic institutions.

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Precocious Albion: A New Interpretation of the British Industrial Revolution

Morgan Kelly, Joel Mokyr & Cormac Ó Gráda
Annual Review of Economics, 2014, Pages 363-389

Abstract:
Many explanations have been offered for the British Industrial Revolution. This article points to the importance of human capital (broadly defined) and the quality of the British labor force on the eve of the Industrial Revolution. It shows that in terms of both physical quality and mechanical skills, British workers around 1750 were at a much higher level than their continental counterparts. As a result, new inventions — no matter where they originated — were adopted earlier, faster, and on a larger scale in Britain than elsewhere. The gap in labor quality is consistent with the higher wages paid in eighteenth-century Britain. The causes for the higher labor quality are explored and found to be associated with a higher level of nutrition and better institutions, especially England’s Poor Law and the superior functioning of its apprenticeship system.

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Do Poverty Traps Exist? Assessing the Evidence

Aart Kraay & David McKenzie
Journal of Economic Perspectives, Summer 2014, Pages 127-148

Abstract:
A "poverty trap" can be understood as a set of self-reinforcing mechanisms whereby countries start poor and remain poor: poverty begets poverty, so that current poverty is itself a direct cause of poverty in the future. The idea of a poverty trap has this striking implication for policy: much poverty is needless, in the sense that a different equilibrium is possible and one-time policy efforts to break the poverty trap may have lasting effects. But what does the modern evidence suggest about the extent to which poverty traps exist in practice and the underlying mechanisms that may be involved? The main mechanisms we examine include S-shaped savings functions at the country level; "big-push" theories of development based on coordination failures; hunger-based traps which rely on physical work capacity rising nonlinearly with food intake at low levels; and occupational poverty traps whereby poor individuals who start businesses that are too small will be trapped earning subsistence returns. We conclude that these types of poverty traps are rare and largely limited to remote or otherwise disadvantaged areas. We discuss behavioral poverty traps as a recent area of research, and geographic poverty traps as the most likely form of a trap. The resulting policy prescriptions are quite different from the calls for a big push in aid or an expansion of microfinance. The more-likely poverty traps call for action in less-traditional policy areas such as promoting more migration.

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Africa is on time

Maxim Pinkovskiy & Xavier Sala-i-Martin
Journal of Economic Growth, September 2014, Pages 311-338

Abstract:
We present evidence that the recent African growth renaissance has reached Africa’s poor. Using survey data on African income distributions and national accounts GDP, we estimate income distributions, poverty rates, and inequality indices for African countries for the period 1990–2011. We show that: (1) African poverty is falling rapidly; (2) the African countries for which good inequality data exists are set to reach the Millennium Development Goal (MDG) poverty target on time. The entire continent except for the Democratic Republic of Congo (DRC) will reach the MDG in 2014, one year in advance, and adding the DRC will delay the MDG until 2018; (3) the growth spurt that began in 1995, if anything, decreased African income inequality instead of increasing it; (4) African poverty reduction is remarkably general: it cannot be explained by a large country, or even by a single set of countries possessing some beneficial geographical or historical characteristic. All classes of countries, including those with disadvantageous geography and history, experience reductions in poverty. In particular, poverty fell for both landlocked as well as coastal countries; for mineral-rich as well as mineral-poor countries; for countries with favorable or with unfavorable agriculture; for countries regardless of colonial origin; and for countries with below- or above-median slave exports per capita during the African slave trade.

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Do Markets Reward Constitutional Reform? Lessons from America’s State Debt Crisis

Brian Beach
University of Pittsburgh Working Paper, July 2014

Abstract:
America’s 1840s state debt crisis presents a unique opportunity to identify whether institutional constraints lower borrowing costs. After nine states defaulted, sixteen states adopted constitutional provisions promoting credibility. Only states that defaulted during the crisis were rewarded with lower borrowing costs and increased access to credit following reform. This cannot be explained by underlying trends or differences in the content of the reforms. Non-defaulting states, which had established commitment by avoiding default, were not rewarded because reform did not convey new information. These results indicate that sovereigns with tarnished reputations can benefit from adopting constitutional constraints to convey commitment.

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Deal with the Devil: The Successes and Limitations of Bureaucratic Reform in India

Iqbal Dhaliwal & Rema Hanna
NBER Working Paper, September 2014

Abstract:
Employing a technological solution to monitor the attendance of public-sector health care workers in India resulted in a 15 percent increase in the attendance of the medical staff. Health outcomes improved, with a 16 percent increase in the delivery of infants by a doctor and a 26 percent reduction in the likelihood of infants born under 2500 grams. However, women in treatment areas substituted away from the newly monitored health centers towards delivery in the (unmonitored) larger public hospitals and private hospitals. Several explanations may help explain this shift: better triage by the more present health care staff; increased patients’ perception of absenteeism in the treatment health centers; and the ability of staff in treatment areas to gain additional rents by moving women to their private practices and by siphoning off the state-sponsored entitlements that women would normally receive at the health center at the time of delivery. Despite initiating the reform on their own, there was a low demand among all levels of government — state officials, local level bureaucrats, and locally-elected bodies — to use the better quality attendance data to enforce the government’s human resource policies due to a fear of generating discord among the staff. These fears were not entirely unfounded: staff at the treatment health centers expressed greater dissatisfaction at their jobs and it was also harder to hire new nurses, lab technicians and pharmacists at the treatment health centers after the intervention. Thus, this illustrates the implicit deal that governments make on non-monetary dimensions — truancy, allowance of private practices — to retain staff at rural outposts in the face of limited budgets and staff shortages.

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The Effect of the TseTse Fly on African Development

Marcella Alsan
American Economic Review, forthcoming

Abstract:
The TseTse fly is unique to Africa and transmits a parasite harmful to humans and lethal to livestock. This paper tests the hypothesis that the TseTse reduced the ability of Africans to generate an agricultural surplus historically. Ethnic groups inhabiting TseTse-suitable areas were less likely to use domesticated animals and the plow, less likely to be politically centralized and had a lower population density. These correlations are not found in the Tropics outside of Africa, where the fly does not exist. The evidence suggests current economic performance is affected by the TseTse through the channel of precolonial political centralization.

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Governance, corruption and Olympic success

Todd Potts
Applied Economics, Fall 2014, Pages 3882-3891

Abstract:
This article is the first to utilize a set of World Governance Indicators published by the World Bank to examine what role, if any, various characteristics of governance played in promoting success in the 2012 Summer Olympics. Although no strong statistical linear relationship is found between any of the governance indicators and Olympic success, it is shown that nations belonging to roughly the top quintile in control of corruption had a lower probability of medalling and received lower medal shares, ceteris paribus. A possible explanation for this reduced success is revealed in that scoring in the top quintile of control of corruption is also associated with fewer anti-doping violations, which may indicate lower rates of performance-enhancing drug use.

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Constitutional Rights and Education: An International Comparative Study

Sebastian Edwards & Alvaro Garcia Marin
NBER Working Paper, September 2014

Abstract:
We investigate whether the inclusion of social rights in political constitutions affects social performance. More specifically, we analyze whether including the right to education in the constitution has been related to better “educational outcomes.” We rely on data for 61 countries that participated in the 2012 PISA tests. Our results are strong and robust to the estimation technique: we find that there is no evidence that including the right to education in the constitution has been associated with higher test scores. The quality of education depends on socioeconomic, structural, and policy variables, such as expenditure per student, the teacher-pupil ratio, and families’ background. When these covariates are excluded, the relation between the strength of constitutional educational rights and the quality of education is negative and statistically significant. These results are important for emerging countries that are discussing the adoption of new constitutions, such as Thailand and Chile.

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Learning Dynamics and Support for Economic Reforms: Why Good News Can Be Bad

Sweder van Wijnbergen & Tim Willems
World Bank Economic Review, forthcoming

Abstract:
Support for economic reforms has often shown puzzling dynamics: many reforms that began successfully lost public support. We show that learning dynamics can rationalize this paradox because the process of revealing reform outcomes is an example of sampling without replacement. We show that this concept challenges the conventional wisdom that one should begin by revealing reform winners. It may also lead to situations in which reforms that enjoy both ex ante and ex post majority support will still not come to completion. We use our framework to explain why gradual reforms worked well in China (where successes in Special Economic Zones facilitated further reform), whereas this was much less the case for Latin American and Central and Eastern European countries.

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Civil liberty and economic growth in the world: A long-run perspective, 1850–2010

Javier Alfonso-Gil, Maricruz Lacalle-Calderón & Rocío Sánchez-Mangas
Journal of Institutional Economics, September 2014, Pages 427-449

Abstract:
The objective of this paper is to study the relationship between economic growth and civil liberty across the globe in the long run. To fulfill this aim, we use an unbalanced panel of 149 countries for the period 1850–2010 with data on gross domestic product (GDP) from Maddison, and data on civil liberties from Polity IV. The dynamics of both variables are investigated. Once country and time effects are accounted for in a dynamic panel data model, our results show that movements toward higher levels of civil liberty are associated with higher economic growth rates. Therefore, we find that civil liberties are a relevant factor to explain economic growth. We perform some sensitivity tests that confirm the robustness of our results.

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Temporary Shocks and Persistent Effects in the Urban System: Evidence from British Cities after the U.S. Civil War

Walker Hanlon
NBER Working Paper, September 2014

Abstract:
Urban economies are often heavily reliant on a small number of dominant industries, leaving them vulnerable to negative industry-specific shocks. This paper analyzes the long-run impacts of one such event: the large, temporary, and industry-specific shock to the British cotton textile industry caused by the U.S. Civil War (1861-1865), which dramatically reduced supplies of raw cotton. Because the British cotton textile industry was heavily concentrated in towns in Northwest England, I compare patterns in these cotton towns to other English cities. I find that the shock had a persistent negative effect on the level of city population lasting at least 35 years with no sign of diminishing. Decomposing the effect by industry, I show that the shock to cotton textiles was transmitted to other local firms, leading to increased bankruptcies and long-run reductions in employment. This transmission occurred primarily through the link to capital suppliers, such as machinery and metal-goods producers. Roughly half of the reduction in city-level employment growth was due to the impact on industries other than cotton textiles.

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Geography is not destiny: Geography, institutions and literacy in England, 1837–63

Gregory Clark & Rowena Gray
Oxford Economic Papers, October 2014, Pages 1042-1069

Abstract:
Geography made rural society in the southeast of England unequal. Economies of scale in grain growing created a farmer elite and many landless labourers. In the pastoral northwest, in contrast, family farms dominated, with few hired labourers and modest income disparities. Did this geography driven difference in social structure influence educational outcomes in England 1810–45? Using new micro-level data we show that this geographically driven inequality is not a strong predictor of regional literacy rates. We conclude that regional literacy differences seem to have been influenced more by culture. In particular, areas in northern England with more exposure to the highly literate Scottish society seem to have acquired a higher demand for education, independent of local inequality. Geography is not destiny.

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Foreign Aid, Institutional Quality, and Growth

Andrew Young & Kathleen Sheehan
European Journal of Political Economy, December 2014, Pages 195–208

Abstract:
Using a panel of up to 116 countries from 1970-2010 we estimate the effects of foreign aid flows on a variety of measures of institutional quality. We find that aid flows are associated with the deterioration of both political and economic institutions. Regarding the latter, aid flows are associated with deterioration in a recipient’s legal system and property rights, as well as its openness to international trade. Controlling for both political and economic institutions in growth regressions, the latter is robustly, positively associated with growth. After controlling for institutional quality, aid flows are not otherwise significantly related to growth.

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Political Booms, Financial Crises

Helios Herrera, Guillermo Ordoñez & Christoph Trebesch
NBER Working Paper, July 2014

Abstract:
We show that political booms, measured by the rise in governments' popularity, predict financial crises above and beyond other better-known early warning indicators, such as credit booms. This predictive power, however, only holds in emerging economies. We show that governments in emerging economies are more concerned about their reputation and tend to ride the short-term popularity benefits of weak credit booms rather than implementing politically costly corrective policies that would help prevent potential crises. We provide evidence of the relevance of this reputation mechanism.

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Bribe Payments and Innovation in Developing Countries: Are Innovating Firms Disproportionately Affected?

Meghana Ayyagari, Asli Demirgüç-Kunt & Vojislav Maksimovic
Journal of Financial and Quantitative Analysis, February 2014, Pages 51-75

Abstract:
Innovating firms pay more bribes than noninnovators across 25,000 firms in 57 countries. The difference is larger in countries with more bureaucratic regulation and weaker governance. Innovators that pay bribes do not receive better services and do not have greater propensity to engage in other illegal activities such as tax evasion. Thus, innovators are more likely to be victims of corruption than perpetrators. Our findings point to the challenges facing entrepreneurs in developing countries and are consistent with the view that rent seeking by government officials unlike private criminal activity is more likely to target innovators.

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Democratic Institutions and Regulatory Reforms

Mohammad Amin & Simeon Djankov
Journal of Comparative Economics, forthcoming

Abstract:
We use a sample of 144 countries over the period 2003-2013 to investigate the link between democratic institutions and regulatory reforms. Democracy may be conducive to reform, as politicians embrace growth-enhancing reforms to win elections. On the other hand, authoritarian regimes may not worry as much about public opinion and could undertake reforms that are painful in the short run but bring long-term benefits. We test these alternative hypotheses, using data on regulatory reforms from the World Bank’s Doing Business database. The results provide mixed support for the hypothesis that democracy is good for regulatory reforms. We also show that regulatory reforms are more likely just after parliamentary elections in poor and middle-income countries.

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(Measured) Profit is Not Welfare: Evidence from an Experiment on Bundling Microcredit and Insurance

Abhijit Banerjee, Esther Duflo & Richard Hornbeck
NBER Working Paper, September 2014

Abstract:
We analyze a randomized trial in which microfinance loans were bundled with an unpopular (but cheap) health insurance policy. In randomly assigned treatment villages, purchase of the insurance policy was made mandatory at the time of loan renewal. This requirement led to a 22 percentage point (or 31%) decline in loan renewal in treatment villages, compared to control villages where the insurance policy was not introduced. The insurance policy itself turned out to be useless, partly due to administrative failures in implementation. Therefore, non-renewing clients' valuation of microfinance is approximated by the modest fee to purchase the insurance; in the presence of any expected gains, the fee represents an upper bound. Comparing client businesses in treatment and control villages, however, the decline in loan renewal had negative impacts that were both economically substantial and statistically significant. Clients' decision to incur these losses, rather than pay the modest insurance premium, implies the substantial financial gains from microfinance are mostly dissipated by unmeasured costs of operating the small businesses. This result potentially reconciles the seemingly large returns to capital for microenterprises with the lack of growth and frequent business closure.

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(In)equality in Education and Economic Development

Petra Sauer & Martin Zagler
Review of Income and Wealth, forthcoming

Abstract:
This paper investigates the relationship between the level and the distribution of education and economic development. We contribute to the literature by introducing an interaction term between the education Gini coefficient and average years of schooling. In a dynamic panel over 55 years and 134 countries we provide, on the one hand, strong evidence that more schooling is good for growth, but the coefficient is variable and substantially declining in the degree of inequality. The aggregate benefit to education thus depends on a country's position in the education distribution. On the other hand, we find a slight transitional increase in education inequality to be beneficial at a very low average level of schooling, but detrimental for growth at a relatively high average level. Allowing for the macroeconomic return to education to be heterogeneous with respect to the degree of inequality is therefore paramount in understanding the relationship between education and development.

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Progress on Global Health Goals: Are the Poor Being Left Behind?

Adam Wagstaff, Caryn Bredenkamp & Leander Buisman
World Bank Research Observer, August 2014, Pages 137-162

Abstract:
We examine differential progress on health Millennium Development Goals (MDGs) between the poor and the better off within countries. Our findings are based on an original analysis of 235 DHS and MICS surveys spanning 64 developing countries over the 1990–2011 period. We track five health status indicators and seven intervention indicators from all four health MDGs. In approximately three-quarters of countries, the poorest 40 percent have made faster progress than the richest 60 percent on MDG intervention indicators. On average, relative inequality in these indicators has been falling. However, in terms of MDG outcome indicators, in nearly half of the countries, relative inequality has been growing. Moreover, in approximately one-quarter of the countries, the poorest 40 percent have been slipping backwards in absolute terms on both MDG interventions and outcomes. Despite reductions in most countries, relative inequalities in MDG health indicators are still appreciable, with the poor facing higher risks of malnutrition and death in childhood and lower odds of receiving key health interventions.

By KEVIN LEWIS | 09:00:00 AM