Club for growth
Gifts of Mars: Warfare and Europe's Early Rise to Riches
Nico Voigtländer & Voth Hans-Joachim
Journal of Economic Perspectives, Fall 2013, Pages 165-186
Abstract:
Western Europe surged ahead of the rest of the world long before technological growth became rapid. Europe in 1500 already had incomes twice as high on a per capita basis as Africa, and one-third greater than most of Asia. In this essay, we explain how Europe's tumultuous politics and deadly penchant for warfare translated into a sustained advantage in per capita incomes. We argue that Europe's rise to riches was driven by the nature of its politics after 1350 -- it was a highly fragmented continent characterized by constant warfare and major religious strife. No other continent in recorded history fought so frequently, for such long periods, killing such a high proportion of its population. When it comes to destroying human life, the atomic bomb and machine guns may be highly efficient, but nothing rivaled the impact of early modern Europe's armies spreading hunger and disease. War therefore helped Europe's precocious rise to riches because the survivors had more land per head available for cultivation. Our interpretation involves a feedback loop from higher incomes to more war and higher land-labor ratios, a loop set in motion by the Black Death in the middle of the 14th century.
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Trade, Institutions, and Ethnic Tolerance: Evidence from South Asia
Saumitra Jha
American Political Science Review, November 2013, Pages 806-832
Abstract:
I provide evidence that the degree to which medieval Hindus and Muslims could provide complementary, nonreplicable services and a mechanism to share the gains from exchange has resulted in a sustained legacy of ethnic tolerance in South Asian towns. Due to Muslim-specific advantages in Indian Ocean shipping, interethnic complementarities were strongest in medieval trading ports, leading to the development of institutional mechanisms that further supported interethnic exchange. Using novel town-level data spanning South Asia's medieval and colonial history, I find that medieval ports, despite being more ethnically mixed, were five times less prone to Hindu-Muslim riots between 1850 and 1950, two centuries after Europeans disrupted Muslim overseas trade dominance, and remained half as prone between 1950 and 1995. Household-level evidence suggests that these differences reflect local institutions that emerged to support interethnic medieval trade, continue to influence modern occupational choices and organizations, and substitute for State political incentives in supporting interethnic trust.
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Military Conflict and the Economic Rise of Urban Europe
Mark Dincecco & Massimiliano Gaetano Onorato
University of Michigan Working Paper, October 2013
Abstract:
We present new city-level evidence about the military origins of Europe's economic "backbone," the prosperous urban belt that runs from the Low Countries to northern Italy. Military conflict was a defining feature of pre-industrial Europe. The destructive effects of conflict were worse in the countryside, leading rural inhabitants to relocate behind urban fortifications. Conflict-related city population growth in turn had long-run economic consequences. Using GIS software, we construct a novel conflict exposure measure that computes city distances from nearly 300 major conflicts from 1000 to 1799. We find a significant, positive, and robust relationship between conflict exposure and historical city population growth. Next, we use luminosity data to construct a novel measure of current city-level economic activity. We show evidence that the economic legacy of historical conflict exposure endures to the present day.
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Inclusive Institutions and Long-Run Misallocation
Oded Galor, Kaivan Munshi & Nicholas Wilson
Brown University Working Paper, October 2013
Abstract:
This research advances the hypothesis that resource abundant economies characterized by a socially cohesive workforce and network externalities triggered the emergence of efficiency-enhancing inclusive institutions designed to restrict mobility and to enhance the attachment of community members to the local labor market. However, the persistence of these institutions, and the inter-generational transmission of their value, ultimately resulted in the misallocation of talents across occupations and a reduction in the long-run level of income per capita in the economy as a whole. Exploiting variation in resource intensity across the American Midwest during its initial development, the empirical analysis establishes that higher initial resource-intensity in 1860 is indeed associated with greater community participation over the subsequent 150 years, and reduced mobility and labor misallocation in the contemporary period.
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Joerg Baten & Dácil Juif
Journal of Comparative Economics, forthcoming
Abstract:
We create a new dataset to test the influence of land inequality on long-run human capital formation in a global cross-country study and assess the importance of land inequality relative to income inequality. Our results show that early land inequality has a detrimental influence on math and science skills even a century later. We find that this influence is causal, using an instrumental variable (IV) approach with geological, climatic and other variables that are intrinsically exogenous. A second major contribution of our study is our assessment of the persistence of numerical cognitive skills, which are an important component of modern human capital measures. Early numeracy around 1820 is estimated using the age-heaping strategy. We argue that countries with early investments in numerical education entered a path-dependency of human capital-intensive industries, including skill-intensive agriculture and services. The combined long-run effects of land inequality and human capital path-dependence are assessed for the first time in this article.
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Globalization, Democracy and Development
Jorge Braga de Macedo et al.
NBER Working Paper, October 2013
Abstract:
This paper addresses the interactions between globalization, the quality of democracy, and economic convergence using simultaneous estimation techniques. To reflect process, we use multi-dimensional, de facto, and continuous measures of democracy and globalization. To reflect context, as defined by space (geography) and time (history), we control for the distance to the income frontier. Using this measure of development, we extend the test for the two-way relationship between democracy and globalization put forward by Eichengreen and Leblang (2008) for the period 1870-2000. Focusing on the more recent wave of globalization (1970-2005), we find a two-way relationship between democracy and globalization and also significant two-way relationships with development. In the restricted sample of non-OECD countries, however, democracy hurts development.
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Is trust the missing root of institutions, education, and development?
Christian Bjørnskov & Pierre-Guillaume Méon
Public Choice, December 2013, Pages 641-669
Abstract:
We report evidence that trust is the missing root relating education, institutions, and economic development. We observe that more trust both increases education and improves legal and bureaucratic institutions, which in turn spurs economic development. We substantiate this intuition with a series of regressions that provide evidence that trust determines both education and the quality of institutions, and that education and institutions in turn affect GDP per capita.
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Growth in Per Capita GDP in the West Bank and Gaza 1950–2005
Andrew Schein
Middle Eastern Studies, November/December 2013, Pages 973-989
Abstract:
This paper examines the growth of per capita GDP in the West Bank and Gaza Strip (WBG) from 1950 to 2005. Data from Israel's Central Bureau of Statistics and the World Bank is integrated with Angus Maddison's estimates of per capita GDP of the WBG and Israel to produce new estimates of per capita GDP for the WBG from 1950–2005 in 1990 international dollars. With these new estimates, it is possible to compare the growth in WBG from an international perspective. One finding is that from 1968 to 1999 the economic growth in WBG was the tenth highest in the world.
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Human Capital and Fertility in Chinese Clans Before Modern Growth
Carol Shiue
NBER Working Paper, November 2013
Abstract:
This paper studies the pre-industrial origins of modern-day fertility decline. The setting is in Anhwei Province, China over the 13th to 19th centuries, a period well before the onset of China’s demographic transition and industrialization. There are four main results. First, we observe non-Malthusian effects in which high income households had relatively fewer children. Second, higher income households had relatively more educated sons, consistent with their greater ability to support major educational investments. Third, those households that invested in education had fewer children, suggesting that households producing educated children were reallocating resources away from child quantity and towards child quality. Fourth, over time, demand for human capital fell significantly. The most plausible reason is the declining returns to educational investments. The findings point to a role for demography in explaining China’s failure to industrialize early on.
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Is the Demographic Dividend an Education Dividend?
Jesús Crespo Cuaresma, Wolfgang Lutz & Warren Sanderson
Demography, forthcoming
Abstract:
The effect of changes in age structure on economic growth has been widely studied in the demography and population economics literature. The beneficial effect of changes in age structure after a decrease in fertility has become known as the “demographic dividend.” In this article, we reassess the empirical evidence on the associations among economic growth, changes in age structure, labor force participation, and educational attainment. Using a global panel of countries, we find that after the effect of human capital dynamics is controlled for, no evidence exists that changes in age structure affect labor productivity. Our results imply that improvements in educational attainment are the key to explaining productivity and income growth and that a substantial portion of the demographic dividend is an education dividend.
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The Long-run Macroeconomic Impacts of Fuel Subsidies
Michael Plante
Journal of Development Economics, forthcoming
Abstract:
Many developing and emerging market countries have subsidies on fuel products. Using a small open economy model with a non-traded sector, I show how these subsidies impact the steady state levels of macroeconomic aggregates such as consumption, labor supply, and aggregate welfare. These subsidies can lead to crowding out of non-oil consumption, inefficient inter-sectoral allocations of labor, and other distortions in macroeconomic variables. Across steady states, aggregate welfare is reduced by these subsidies. This result holds for a country with no oil production and for a net exporter of oil. The distortions in relative prices introduced by the subsidy create most of the welfare losses. How the subsidy is financed is of secondary importance. Aggregate welfare is significantly higher if the subsidies are replaced by lump sum transfers of equal value.
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Tomas Cvrcek & Miroslav Zajicek
NBER Working Paper, December 2013
Abstract:
The rise of education has featured prominently in the debate on the sources of modern long-term economic growth. Existing accounts stress the positive role of public education and the importance of political support for its provision. We argue that such an explanation for the spread of schooling is probably a poor fit for many nations’ schooling histories and provide an example, using detailed data on schooling supply from the Habsburg Empire. We show that while economic development made schooling more affordable and widespread, the politics of demand for schools was not motivated by expectations of economic development but by the ongoing conflict between nationalities within the Empire. We find that public schools offered practically zero return education on the margin, yet they did enjoy significant political and financial support from local political elites, if they taught in the “right” language of instruction. Our results suggest that, for some countries at least, the main link, historically, went from economic development to public schooling, not the other way round.
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The Formative Years of the Modern Corporation: The Dutch East India Company VOC, 1602–1623
Oscar Gelderblom, Abe de Jong & Joost Jonker
Journal of Economic History, December 2013, Pages 1050-1076
Abstract:
With their legal personhood, permanent capital, transferable shares, separation of ownership and management, and limited liability, the Dutch and English colonial trading companies VOC and EIC are considered institutional breakthroughs. We analyze the VOC's business operations and financial policy and show that its novel corporate form owed less to foresight than to piecemeal engineering to remedy design flaws. The crucial feature of managerial limited liability was not, as previously thought, integral to that design, but emerged only after protracted experiments with various solutions to the company's financial bottlenecks. Legal form followed economic function, not the other way around.
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Eugene Goryunov et al.
NBER Working Paper, November 2013
Abstract:
Every country faces what economists call an intertemporal (across time) budget constraint, which requires that its government’s future expenditures, including the servicing of its outstanding official debt, be covered by its government’s future receipts when measured in present value. The difference between the present value of a country’s future expenditures and its future receipts is called its fiscal gap. This study estimates Russia’s 2013 fiscal gap at 890 trillion rubles or $28 trillion. This longterm budget shortfall is 8.4 percent of the present value of projected GDP. Consequently, eliminating Russia’s fiscal gap on a smooth basis requires fiscal tightening by 8.4 percent of each future year’s projected GDP. One means of doing this is to immediately and permanently raise all Russian taxes by 29 percent. Another is to immediately and permanently cut all spending, apart from servicing outstanding debt, by 22.4 percent. How can a country with vast energy resources and foreign reserves and other financial assets that exceed its official debt still have very major fiscal problems? The answer is that the Russia’s energy resources are finite, whereas its expenditure needs are not. Moreover, Russia is aging and facing massive obligations from its pension system and other age related expenditures.
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Economic Integration in China: Politics and Culture
Carsten Herrmann-Pillath, Alexander Libman & Xiaofan Yu
Journal of Comparative Economics, forthcoming
Abstract:
The aim of the paper is to explicitly disentangle the role of political and cultural boundaries as factors of fragmentation of economies within large countries. On the one hand, local protectionism plays a substantial role in many federations and decentralized states. On the other hand, if the country exhibits high level of cultural heterogeneity, it may also contribute to the economic fragmentation; however, this topic has received significantly less attention in the literature. This paper looks at the case of China and proxies the cultural heterogeneity by the heterogeneity of local dialects. It shows that the effect of politics clearly dominates that of culture: while provincial borders seem to have a strong influence disrupting economic ties, economic linkages across provinces, even if the regions fall into the same linguistic zone, are rather weak and, on the contrary, linguistic differences within provinces do not prevent economic integration. For some language zones we do, however, find a stronger effect on economic integration.
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Malaria and Early African Development: Evidence from the Sickle Cell Trait
Emilio Depetris-Chauvin & David Weil
NBER Working Paper, October 2013
Abstract:
We examine the effect of malaria on economic development in Africa over the very long run. Using data on the prevalence of the mutation that causes sickle cell disease we measure the impact of malaria on mortality in Africa prior to the period in which formal data were collected. Our estimate is that in the more afflicted regions, malaria lowered the probability of surviving to adulthood by about ten percentage points, which is roughly twice the current burden of the disease. The reduction in malaria mortality has been roughly equal to the reduction in other causes of mortality. We then ask whether the estimated burden of malaria had an effect on economic development in the period before European contact. Examining both mortality and morbidity, we do not find evidence that the impact of malaria would have been very significant. These model-based findings are corroborated by a more statistically-based approach, which shows little evidence of a negative relationship between malaria ecology and population density or other measures of development, using data measured at the level ethnic groups.
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Who bribes in public contracting and why: Worldwide evidence from firms
Anna D’Souza & Daniel Kaufmann
Economics of Governance, November 2013, Pages 333-367
Abstract:
We study procurement bribery utilizing survey data from 11,000 enterprises in 125 countries. About one-third of managers report that firms like theirs bribe to secure a public contract, paying about 8 % of the contract value. Econometric estimations suggest that national governance factors, such as democratic accountability, press freedom, and rule of law, are associated with lower bribery. Larger and foreign-owned firms are less likely to bribe than smaller domestic ones. But among bribers, foreign and domestic firms pay similar amounts. Multinational firms appear sensitive to reputational risks in their home countries, but partially adapt to their host country environments.
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Matthew Hoddie & Caroline Hartzell
Social Science Quarterly, forthcoming
Objectives: In this study, we evaluate the effects of the International Monetary Fund's structural adjustment programs (SAPs) on the public health performance of countries. We test the claim made by proponents of SAPs that although these programs may produce short-term hardship for the countries adopting them, they will generate positive developmental effects in the long term.
Methods: Our study draws on a global data set and employs a model that takes into account the potential for selection bias in the adoption of SAPs by states.
Results: The central finding of the article is that SAPs in the short term raise the exposure of populations to conditions that increase incidences of disability and death. Contrary to the assertions made by the advocates of SAPs, we also find evidence that these programs have attenuated but still harmful effect on public health performance in the long term.
Conclusions: This study highlights the negative influences of SAPs on public health and suggests that a need exists to reevaluate the claims that have been made regarding the developmental effects of these programs.
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Does development reduce fatalities from natural disasters? New evidence for floods
Susana Ferreira, Kirk Hamilton & Jeffrey Vincent
Environment and Development Economics, December 2013, Pages 649-679
Abstract:
We analyze the impact of development on flood fatalities using a new data set of 2,171 large floods in 92 countries between 1985 and 2008. Our results challenge the conventional wisdom that development results in fewer fatalities during natural disasters. Results indicating that higher income and better governance reduce fatalities during flood events do not hold up when unobserved country heterogeneity and within-country correlation of standard errors are taken into account. We find that income does have a significant, indirect effect on flood fatalities by affecting flood frequency and flood magnitude, but this effect is nonmonotonic, with net reductions in fatalities occurring only in lower income countries. We find little evidence that improved governance affects flood fatalities either directly or indirectly.
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Does foreign aid reduce tax revenue? Further evidence
John Thornton
Applied Economics, Winter 2014, Pages 359-373
Abstract:
A common criticism of foreign aid is that it reduces domestic tax effort. Empirical research on the issue has been hampered by the failure to tackle endogeneity issues effectively. We use measures of geographical and cultural distance to donor countries as instrumental variables to uncover the causal effect of aid on tax revenue in a panel of 93 countries. The tax to GDP ratio is found to decrease following aid inflows. This reduction in tax effort is statistically and economically significant; a one SD increase in aid causes a 0.52 percentage point drop in the tax-to-GDP ratio. The results indicate that the effect is driven by unconditional grants, whereas aid given as loans induces recipient governments to improve their tax effort. Our results are robust to changes in the sample and the use of a nearest neighbour matching technique to account for nonrandom assignment of aid. Our identification strategy is sharpened by the use of a difference-in-difference estimation strategy that leverages a natural experiment in which aid flows exogenously increased for some countries following the Iranian Revolution in 1979.
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Digging in the dirt? Extractive industry FDI and corruption
Ivar Kolstad & Arne Wiig
Economics of Governance, November 2013, Pages 369-383
Abstract:
Does corruption attract or deter foreign investment in the extractive sectors? This article presents an econometric analysis of extractive industry foreign direct investment (FDI) inflows to 81 countries in the period 1996–2009. The results suggest that increased corruption within a country is associated with increased extractive industry FDI, but at a diminishing rate as corruption increases grow larger. For realistic changes in corruption, however, more corruption is associated with more extractive industry investment.
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Caitlin Corrigan
Resources Policy, forthcoming
Abstract:
This article critically examines the impact, up until 2009, of the Extractive Industries Transparency Initiative (EITI). The EITI is an international policy intervention that aims to mitigate the negative effects of resource abundance by promoting the transparency of resource revenues and accountability of the governments of resource rich states. Its effectiveness can be assessed by examining two outcomes that are suggested to be negatively affected by resource abundance: economic development and quality of governance. Through a panel study, including approximately 200 countries, the influence of the EITI in these two areas is examined. Results suggest that the negative effect of resource abundance on GDP per capita, the capacity of the government to formulate and implement sound policies and the level of rule of law is mitigated in EITI countries. However, the EITI has little effect on level of democracy, political stability and corruption. The study concludes that there are some early indications that the EITI has been successful in protecting some nations from selected elements of the resource curse. This is encouraging given the relatively short time period since the founding of the EITI, however the mixed results suggest that a similar study should be repeated in 5 to 10 years when EITI policies have had enough time to fully take effect.
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Money for nothing: How firms have financed R&D-projects since the Industrial Revolution
Gerben Bakker
Research Policy, December 2013, Pages 1793–1814
Abstract:
We investigate the long-run historical pattern of R&D-outlays by reviewing aggregate growth rates and historical cases of particular R&D projects, following the historical-institutional approach of Chandler (1962), North (1981) and Williamson (1985). We find that even the earliest R&D-projects used non-insignificant cash outlays and that until the 1970s aggregate R&D outlays grew far faster than GDP, despite five well-known challenges that implied that R&D could only be financed with cash, for which no perfect market existed: the presence of sunk costs, real uncertainty, long time lags, adverse selection, and moral hazard. We then review a wide variety of organisational forms and institutional instruments that firms historically have used to overcome these financing obstacles, and without which the enormous growth of R&D outlays since the nineteenth century would not have been possible.