From the ground up
Development, Structure, and Transformation: Some Evidence on Comparative Economic Growth
Gordon McCord & Jeffrey Sachs
NBER Working Paper, October 2013
Abstract:
We suggest that the geographical patterns of income differences across the world have deep underpinnings. We emphasize that economic development is a complex process driven by economic, political, social, and biophysical forces. Some economists have argued that the patterns reflect mainly the historical footprint of colonial rule and political evolution, and that geography's effects on development occurred exclusively through its effects on this historical institutional development. We believe that economic development has also been shaped very importantly by the biophysical and geophysical characteristics of economies. Per capita incomes differ around the world in no small part because of sharp differences across regions in the natural resource base and physical geography (e.g. distance to coast), and by the amplification of those differences through the dynamics of saving and investment. We posit that the drivers of economic development include institutions, technology, and geography, and that none of these alone is sufficient to account for the diverse patterns of global growth. We survey the relevant literature, and empirically show that a multi-causal framework helps to explain when countries achieve middle income; the distribution of economic activity around the world today; the patterns of growth between 1960 and 2010; the patterns of income per person within large economies; and the structural characteristics of the remaining countries still stuck in poverty today.
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Stephen Le
Cross-Cultural Research, November 2013, Pages 388-414
Abstract:
Societal trust is widely believed to be a fundamental component of prosperous societies, but geographical determinants of societal trust have not been examined in depth. This study examines hypothesized pathways between geography and societal trust. Strongest support is found for the hypothesis that higher geographical latitude leads to lower disease prevalence, lower income inequality, and less ethnic and less linguistic heterogeneity. Lower disease prevalence, lower income inequality, and less ethnic and less linguistic heterogeneity in turn appear to determine the viability of a "virtuous circle" of mutually reinforcing societal characteristics, including greater wealth, greater life expectancy, greater political rights, greater civil liberties, greater societal trust, less religiosity, and less corruption.
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Ioana Andreea Pop, Erik van Ingen & Wim van Oorschot
Social Indicators Research, September 2013, Pages 1025-1043
Abstract:
The idea that the level of stratification of societies contributes to the well-being of their members is gaining popularity. We contribute to this debate by investigating whether reducing inequalities in the income distribution of societies is a strategy for improving population health, especially appropriate for those countries that have reached the limits of economic growth. We test this idea on a dataset covering 140 countries and 2360 country-year observation between 1987 and 2008 and formulate hypotheses separately for countries with different level of economic development. We indeed found that countries with higher levels of income inequality also have lower levels of life expectancy (our measure of population health), and this result was consistent both in cross-sectional and longitudinal analyses. However, the relationship was found only among low- and middle-developed countries. In the group of high-developed countries, the relationship between income inequality and life expectancy was non-significant, which contradicts the literature. Expectations on the relationship between a country's wealth and health were confirmed: economic growth does contribute to improving population health, but this effect is weaker in more economically developed countries. These results imply that a decrease in a country's income inequality parallel with an increase in its wealth can help to improve health in economically lesser-developed countries, but not in high-developed countries.
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Long-Term Barriers to Economic Development
Enrico Spolaore & Romain Wacziarg
NBER Working Paper, August 2013
Abstract:
What obstacles prevent the most productive technologies from spreading to less developed economies from the world's technological frontier? In this paper, we seek to shed light on this question by quantifying the geographic and human barriers to the transmission of technologies. We argue that the intergenerational transmission of human traits, particularly culturally transmitted traits, has led to divergence between populations over the course of history. In turn, this divergence has introduced barriers to the diffusion of technologies across societies. We provide measures of historical and genealogical distances between populations, and document how such distances, relative to the world's technological frontier, act as barriers to the diffusion of development and of specific innovations. We provide an interpretation of these results in the context of an emerging literature seeking to understand variation in economic development as the result of factors rooted deep in history.
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The diffusion of health technologies: Cultural and biological divergence
Casper Worm Hansen
European Economic Review, November 2013, Pages 21-34
Abstract:
This paper proposes the hypothesis that genetic distance to the health frontier influences population health outcomes. Evidence from a world sample suggests that genetic distance, interpreted as long-term cultural and biological divergence, is an important factor in understanding health inequalities across countries. Specifically, the paper documents a remarkably robust negative link between genetic distance to the United States and population health - as measured by life expectancy at birth and the adult survival rate - even after accounting for an extensive set of possible confounders, such as GDP per capita and various climatic factors. Consistent with the interpretation that genetic distance is related to population health indirectly through human barriers to the diffusion of modern health technologies, the evidence indicates that the gene gradient emerges at the onset of the international epidemiological transition.
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The Female Labor Force and Long-run Development: The American Experience in Comparative Perspective
Claudia Olivetti
NBER Working Paper, June 2013
Abstract:
This paper provides additional evidence on the U-shaped relationship between the process of economic development and women's labor force participation. The experience of the United States is studied in a comparative perspective relative to a sample of rich economies observed over the period 1890-2005. The analysis confirms the existence of a U-shaped female labor supply function, coming from both cross-country and within country variation. Further analysis of a large cross section of economies observed over the post-WWII period suggests that the timing of a country's transition to a modern path of economic development affects the shape of women's labor supply.
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Measuring the Level and Inequality of Wealth: An Application to China
Patrick Ward
Review of Income and Wealth, forthcoming
Abstract:
We construct and compare three distinct measures of household asset wealth that complement traditional income- or expenditure-based measures of socioeconomic status. We apply these measures to longitudinal household survey data from China and demonstrate that household asset wealth has been increasing over time, a theme consistent with many previous studies on the process of development in China. Unlike other studies that have shown rising income inequality over time, however, we show that asset wealth inequality has actually been declining in recent years, indicating widespread participation in the benefits of economic reforms. Furthermore, the evolution in the cumulative distribution of household welfare is such that social welfare has been increasing with the passage of time, despite rising inequality in the early years of the survey.
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Inherited vs Self-Made Wealth: Theory & Evidence from a Rentier Society (Paris 1872-1927)
Thomas Piketty, Gilles Postel-Vinay & Jean-Laurent Rosenthal
Explorations in Economic History, forthcoming
Abstract:
We divide decedents into two groups: Rentiers (whose wealth is smaller than the capitalized value of their inherited wealth) and "savers" (who consumed less than their labor income). Applying this split to a unique micro data set on inheritance and matrimonial property regimes, we find that Paris from 1872 to 1927 was a "rentier society". Rentiers made up about 10% of the population of Parisians but owned 70% of aggregate wealth. Rentier societies thrive when the rate of return on private wealth r is larger than the growth rate g (say, r = 4% vs g = 2%). This was the case in the 19th and early 20th centuries and is likely to happen again in the 21st century. At the time, top successors' capital income sustains living standards far beyond what labor income alone would permit.
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Does Economic Growth Reduce Corruption? Theory and Evidence from Vietnam
Jie Bai et al.
NBER Working Paper, September 2013
Abstract:
Government corruption is more prevalent in poor countries than in rich countries. This paper uses cross-industry heterogeneity in growth rates within Vietnam to test empirically whether growth leads to lower corruption. We find that it does. We begin by developing a model of government officials' choice of how much bribe money to extract from firms that is based on the notion of inter-regional tax competition, and consider how officials' choices change as the economy grows. We show that economic growth is predicted to decrease the rate of bribe extraction under plausible assumptions, with the benefit to officials of demanding a given share of revenue as bribes outweighed by the increased risk that firms will move elsewhere. This effect is dampened if firms are less mobile. Our empirical analysis uses survey data collected from over 13,000 Vietnamese firms between 2006 and 2010 and an instrumental variables strategy based on industry growth in other provinces. We find, first, that firm growth indeed causes a decrease in bribe extraction. Second, this pattern is particularly true for firms with strong land rights and those with operations in multiple provinces, consistent with these firms being more mobile. Our results suggest that as poor countries grow, corruption could subside "on its own,'' and they demonstrate one type of positive feedback between economic growth and good institutions.
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Plague in seventeenth-century Europe and the decline of Italy: An epidemiological hypothesis
Guido Alfani
European Review of Economic History, November 2013, Pages 408-430
Abstract:
This article compares the impact of plague across Europe during the seventeenth century. It shows that the disease affected southern Europe much more severely than the north. Italy was by far the area worst struck. Using a new database, the article introduces an epidemiological variable that has not been considered in the literature: territorial pervasiveness of the contagion. This variable is much more relevant than local mortality rates in accounting for the different regional impact of plague. Epidemics, and not economic hardship, generated a severe demographic crisis in Italy during the seventeenth century. Plague caused a shock to the economy of the Italian peninsula that might have been key in starting its relative decline compared with the emerging northern European countries.
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Resistance to technology adoption: The rise and decline of guilds
Klaus Desmet & Stephen Parente
Review of Economic Dynamics, forthcoming
Abstract:
This paper analyzes the decision of a group of specialized workers to form a guild and block the adoption of a new technology that does not require their specialized input. The theory predicts an inverted-U relation between guilds and market size: for small markets, firm profits are insufficient to cover the fixed cost of adopting the new technology, and hence, specialized workers have no reason to form guilds; for intermediate sized markets, firm profits are large enough to cover the higher fixed costs, but not large enough to defeat workers? resistance, and so workers form guilds and block adoption; and for large markets, these profits are sufficiently large to overcome worker resistance and so guilds disband and the more productive technology diffuses throughout the economy. We show that this inverted-U relation between guilds and market size predicted by our theory exists in a dataset of Italian guilds from the 14th to the 19th century.
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Spatial Inequality and Development - Is There an Inverted-U Relationship?
Christian Lessmann
Journal of Development Economics, January 2014, Pages 35-51
Abstract:
This paper studies the hypothesis of an inverted-U-shaped relationship between spatial inequality and economic development. The theory of Kuznets (1955) and Williamson (1965) suggests that (spatial) inequality first increases in the process of development, and then decreases. To test this hypothesis I have used a unique panel data set of spatial inequalities in 56 countries at different stages of economic development, covering the period 1980-2009. Parametric and semiparametric regressions are carried out using cross-section and (unbalanced) panel data. The results provide strong support for the existence of an inverted-U. I also find some evidence that spatial inequalities increase again at very high levels of economic development.
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Antitrust Law and the Promotion of Democracy and Economic Growth
Niels Petersen
Journal of Competition Law & Economics, September 2013, Pages 593-636
Abstract:
There is a considerable debate in the legal literature about the purpose of antitrust institutions. Some argue that antitrust law merely serves the purpose of economic growth, while others have a broader perspective on the function of antitrust, maintaining that the prevention of economic concentration is an important means to promote democratization and democratic stability. This article seeks to test the empirical assumptions of this debate. Using panel data of 154 states from 1960 to 2005, it analyzes whether antitrust law actually has a positive effect on democracy and economic growth. The article finds that antitrust law has a positive effect on the level of GDP per capita and economic growth after ten years. However, there is no significant positive effect on the level of democracy. It is suggested that these results might be due to the current structure of existing antitrust laws, which are designed to promote economic efficiency rather than to prevent economic concentration.
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Who benefits from financial development? New methods, new evidence
Daniel Henderson, Chris Papageorgiou & Christopher Parmeter
European Economic Review, October 2013, Pages 47-67
Abstract:
This paper takes a fresh look at the impact of financial development on economic growth by using recently developed kernel methods that allow for heterogeneity in partial effects, nonlinearities and endogenous regressors. Our results suggest that while the positive impact of financial development on growth has increased over time, it is also highly nonlinear with more developed nations benefiting while low-income countries do not benefit at all. We also conduct a novel policy analysis that confirms these statistical findings. In sum, this set of results contributes to the ongoing policy debate as to whether low-income nations should scale up financial reforms.
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Financial Constraints and Innovation: Why Poor Countries Don't Catch Up
Yuriy Gorodnichenko & Monika Schnitzer
Journal of the European Economic Association, October 2013, Pages 1115-1152
Abstract:
This paper examines micro-level channels through which financial development can affect such macroeconomic outcomes as level of income. Specifically, we investigate theoretically and empirically how financial constraints affect a firm's innovation activities. Theoretical predictions are tested using unique firm survey data, which provide direct measures for innovations and firm-specific financial constraints, as well as information on shocks to firms' internal funds that serve as firm-level instruments for financial constraints. We find unambiguous evidence that financial constraints restrain the ability of domestically owned firms to innovate and hence to catch up to the technological frontier.
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Siping Luo, Mary Lovely & David Popp
NBER Working Paper, October 2013
Abstract:
We offer new evidence on indigenous innovation and intellectual returnees by estimating the relationship between patenting by Chinese photovoltaic firms and the presence of corporate leaders with international experience. Our research approach combines data from three sources: the industrial census, international and domestic patent records, and leadership biographical information. Using nonlinear methods, we find robust evidence that returnees positively influence patenting activity and also promote neighboring firm innovation. We find no tendency for export intensive firms to patent more. Controlling for R&D expenditures, we find that firms with returnees in leadership roles have more patents.
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Growing their own: Unobservable quality and the value of self-provisioning
Vivian Hoffmann & Ken Gatobu
Journal of Development Economics, January 2014, Pages 168-178
Abstract:
Many important food quality and safety attributes are unobservable at the point of sale, particularly in informal markets with weak reputation effects. Through a framed field experiment conducted in western Kenya, we show that farmers place a large premium on maize they have grown themselves, relative to that available for purchase. Providing information on the origin of maize, and on its taste and safety, reduces this gap. We conclude that information which is unavailable during typical market transactions is important to how consumers value maize, and that imperfect information may contribute to the prevalence of agricultural production for subsistence needs in developing countries.
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Economic Growth in the Mid Atlantic Region: Conjectural Estimates for 1720 to 1800
Joshua Rosenbloom & Thomas Weiss
Explorations in Economic History, forthcoming
Abstract:
We construct decadal estimates of GDP per capita for the colonies and states of the Mid Atlantic region between 1720 and 1800. They show that the region likely achieved modest improvements in per capita GDP over this period despite a number of demographic factors that tended to slow the pace of growth. Nonetheless the rate of growth we find is below that commonly assumed to have prevailed in eighteenth century North America and calls those estimates into question. The striking feature of the region's economy in the eighteenth century was not rising living-standards, but its ability to achieve rapid extensive growth without a decline in living standards. To contemporaries this extensive growth and short-term volatility in incomes must have been much more visible than any trend improvement in overall well-being.
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The social capital legacy of communism - results from the Berlin Wall experiment
Peter Boenisch & Lutz Schneider
European Journal of Political Economy, forthcoming
Abstract:
In this paper we establish a direct link between the communist history, the resulting structure of social capital, and attitudes toward spatial mobility. We argue that the communist regime induced a specific social capital mix that discouraged geographic mobility even after its demise. Theoretically, we integrate two branches of the social capital literature into one more comprehensive framework distinguishing an open and a closed type of social capital. Using the German Socio-Economic Panel (GSOEP) we take advantage of the natural experiment that separated Germany into two parts after the WWII to identify the causal effect of social capital on mobility. We estimate a three equation ordered probit model and provide strong empirical evidence for our theoretical propositions.
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Was Stalin Necessary for Russia's Economic Development?
Anton Cheremukhin et al.
NBER Working Paper, September 2013
Abstract:
This paper studies structural transformation of Soviet Russia in 1928-1940 from an agrarian to an industrial economy through the lens of a two-sector neoclassical growth model. We construct a large dataset that covers Soviet Russia during 1928-1940 and Tsarist Russia during 1885-1913. We use a two-sector growth model to compute sectoral TFPs as well as distortions and wedges in the capital, labor and product markets. We find that most wedges substantially increased in 1928-1935 and then fell in 1936-1940 relative to their 1885-1913 levels, while TFP remained generally below pre-WWI trends. Under the neoclassical growth model, projections of these estimated wedges imply that Stalin's economic policies led to welfare loss of -24 percent of consumption in 1928-1940, but a +16 percent welfare gain after 1941. A representative consumer born at the start of Stalin's policies in 1928 experiences a reduction in welfare of -1 percent of consumption, a number that does not take into account additional costs of political repression during this time period. We provide three additional counterfactuals: comparison with Japan, comparison with the New Economic Policy (NEP), and assuming alternative post-1940 growth scenarios.
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Inescapable hunger? Energy cost accounting and the costs of digestion, pregnancy, and lactation
Eric Schneider
European Review of Economic History, August 2013, Pages 340-363
Abstract:
This paper adjusts reconstructions of per capita food consumption in England from the eighteenth to twentieth centuries by factoring in the energy costs of digestion, pregnancy, and lactation. Digestion costs arise because the body has difficulty digesting certain components of food. Incorporating digestion costs reduced the calories available per capita by 12.7 per cent in 1700 but only by 4.9 per cent in 1909 because of changes in diet. The energy costs of pregnancy and lactation were lower only reducing calorie consumption by 2.5 per cent. These adjustments suggest a more pessimistic level of calorie availability before the twentieth century.