Findings

The Elusive Quest for Growth

Kevin Lewis

October 08, 2009

"...at the beginning of the twentieth century, France was as capitalist as the UK or the United States; with a market value of 78 percent of GDP, the Bourse de Paris was the symbol of capitalism more than the closed economy of the US, whose stock market accounted for only 38 percent of GDP..." [Giuliano & Spilimbergo, NBER Working Paper, September 2009]

------------------------

"The reality is, developing countries aren't following the same path and could actually jump ahead of developed countries because of their greater willingness to adopt breakthrough innovations. With far smaller per capita incomes, developing countries are more than happy with high-tech solutions that deliver decent performance at an ultralow cost — a 50% solution at a 15% price. And they lack many of the legacy infrastructures of the developed world, which were built when conditions were very different. They need communications, energy, and transportation products that address today's challenges and opportunities, such as unpredictable oil prices and ubiquitous wireless technologies. Finally, because of their huge populations, sustainability problems are especially urgent for countries like China and India. Because of this, they're likely to tackle many environmental issues years or even decades before the developed world. All this isn't theory. It's already happening. Emerging markets are becoming centers of innovation in fields like low-cost health-care devices, carbon sequestration, solar and wind power, biofuels, distributed power generation, batteries, water desalination, microfinance, electric cars, and even ultra-low-cost homes." [Jeffrey Immelt, Vijay Govindarajan & Chris Trimble, Harvard Business Review]

------------------------

The Political Economy of Ethnolinguistic Cleavages

Klaus Desmet, Ignacio Ortuño-Ortín & Romain Wacziarg
NBER Working Paper, September 2009

Abstract:
This paper proposes a new method to measure ethnolinguistic diversity and offers new results linking such diversity with a range of political economy outcomes -- civil conflict, redistribution, economic growth and the provision of public goods. We use linguistic trees, describing the genealogical relationship between the entire set of 6,912 world languages, to compute measures of fractionalization and polarization at different levels of linguistic aggregation. By doing so, we let the data inform us on which linguistic cleavages are most relevant, rather than making ad hoc choices of linguistic classifications. We find drastically different effects of linguistic diversity at different levels of aggregation: deep cleavages, originating thousands of years ago, lead to measures of diversity that are better predictors of civil conflict and redistribution than those that account for more recent and superficial divisions. The opposite pattern holds when it comes to the impact of linguistic diversity on growth and public goods provision, where finer distinctions between languages matter.

------------------------

Brain size as an explanation of national differences in IQ, longevity, and other life-history variables

Philippe Rushton
Personality and Individual Differences, forthcoming

Abstract:
Brain size provides a causal mechanism for why national differences in intelligence correlate with life-history variables such as longevity, health, parental care, and fecundity. Brain size correlates .40 with general intelligence within human populations, .91 with IQ across ten human population groups, and .60-.90 with longevity, fecundity, and infant mortality in non-human animals (just as IQ does within and across nations, albeit often with lower values). Brain size is central to a suite of life-history variables arising during the course of evolution. Traits need to be harmonized, not work independently of each other. The question Wicherts et al. do not ask is — what causes national differences in their preferred theory of "developmental status?" Heritable brain-power is the answer. A life-history theory perspective on heritable brain-power also explains the social-class/longevity paradox within nations. Any theory which explains differences at the individual, national, and cross-national level deserves to be taken very seriously.

------------------------

On the Collapse of Historical Civilizations

David Good & Rafael Reuveny
American Journal of Agricultural Economics, November 2009, Pages 863-879

Abstract:
To explain the collapse of historical civilizations, scholars typically point to suboptimal behaviors including misunderstanding the natural environment, shortsightedness, or a lack of institutions. We examine the collapse of four historical societies with a model of endogenous population growth and renewable resources employing components of optimal resource management, economic growth theory, and the moral philosophy of social welfare function choice. We find that these collapses may have been socially optimal. Further, we show that the transient behavior of the system is more sensitive to assumptions than the equilibrium behavior and that focusing solely on equilibria may miss key insights.

------------------------

Agriculture, Diffusion and Development: Ripple Effects of the Neolithic Revolution

Louis Putterman
Economica, November 2008, Pages 729-748

Abstract:
Are the effects of the Neolithic revolution still impacting on incomes across the world today? I find strong support for this proposition using new, country-specific estimates of the timing of the agricultural transition and provide evidence that the differences are due to how technological diffusion is accounted for. A correction for world migrations since 1500 significantly improves the fit. Transition year also helps to explain income in 1500 itself, and an alternative measure of pre-modern development, state history, has similar ability to predict income in 1500 and 1997.

------------------------

Evolution, brain size, and the national IQ of peoples around 3000 years B.C

Jelte Wicherts, Denny Borsboom & Conor Dolan
Personality and Individual Differences, forthcoming

Abstract:
In this rejoinder, we respond to comments by Lynn, Rushton, and Templer on our previous paper in which we criticized the use of national IQs in studies of evolutionary theories of race differences in intelligence. We reiterate that because of the Flynn Effect and psychometric issues, national IQs cannot be taken to reflect populations' levels of g as fixed since the last ice age. We argue that the socio-cultural achievements of peoples of Mesopotamia and Egypt in 3000 B.C. stand in stark contrast to the current low level of national IQ of peoples of Iraq and Egypt and that these ancient achievements appear to contradict evolutionary accounts of differences in national IQ. We argue that race differences in brain size, even if these were entirely of genetic origin, leave unexplained 91-95% of the black-white IQ gap. We highlight additional problems with hypotheses raised by Rushton and Templer. National IQs cannot be viewed solely in evolutionary terms but should be considered in light of global differences in socio-economic development, the causes of which are unknown.

------------------------

Ruggedness: The Blessing of Bad Geography in Africa

Nathan Nunn & Diego Puga
NBER Working Paper, April 2009

Abstract:
There is controversy about whether geography matters mainly because of its contemporaneous impact on economic outcomes or because of its interaction with historical events. Looking at terrain ruggedness, we are able to estimate the importance of these two channels. Because rugged terrain hinders trade and most productive activities, it has a negative direct effect on income. However, in Africa rugged terrain afforded protection to those being raided during the slave trades. Since the slave trades retarded subsequent economic development, in Africa ruggedness has also had a historical indirect positive effect on income. Studying all countries worldwide, we find that both effects are significant statistically and that for Africa the indirect positive effect dominates the direct negative effect. Looking within Africa, we provide evidence that the indirect effect operates through the slave trade. We also show that the slave trade, by encouraging population concentrations in rugged areas, have also amplified the negative direct impact of rugged terrain in Africa.

------------------------

The Proof Is in the Pudding: Feasting and the Origins of Domestication

Brian Hayden
Current Anthropology, October 2009, Pages 597-601

Abstract:
Feasting has been proposed as the major context and impetus behind the intensification of production leading to the domestication of plants and animals. This article examines the way feasting contributes to fitness in traditional societies through the reduction of risks involving subsistence, reproduction, and violent confrontations. As other authors have noted, the risk-reduction strategies used by simple foragers differ significantly from risk-reduction strategies used by transegalitarian hunter-gatherers and horticulturalists. These differences are examined in more detail and are related to the emergence of feasting in transegalitarian societies. Surplus-based feasting is proposed as an entirely new element in community dynamics, probably first developed during the Upper Paleolithic in Europe, but becoming much more widespread in the world with the development of Mesolithic technology. Because feasting entails survival and risk-reduction benefits, it creates inherently inflationary food-production forces. These elements first appear among complex hunter-gatherers and logically lead to the intensification of food production, ultimately resulting in the domestication of plants and animals.

------------------------

Opportunity for Natural Selection Among the Indian Population: Secular Trend, Covariates and Implications

Rajesh Gautam
Journal of Biosocial Science, November 2009, Pages 705-745

Abstract:
Crow's index is widely used for indirect quantitative estimation of natural selection using birth and death rates. The present investigation is based on 179 studies among 144 different endogamous communities belonging to nineteen states and six geographical regions of India, categorized into six social groups. These studies appeared in 33 different years over six decades (1956 to 2007). The secular trend in Crow's index (It) and its mortality and fertility components (Im and If) shows a gradual decline in It and radical shift in the relative contributions of Im and If. Before 1990 the opportunity for natural selection was mainly determined by differential pre-reproductive mortality (Im), whereas after 1990 it has been determined by differential fertility (If). To find out the covariates of It, Im and If sixteen socio-demographic variables were considered, and nine were found to be significantly correlated with It: total dependency ratio, decadal growth rate 1991-2001, young age dependency ratio, crude death rate, total fertility rate, child mortality rate, under-5 mortality rate, old age dependency ratio and decadal growth rate 1981-1991. On the basis of multivariate stepwise regression analysis, female literacy emerged as one of the most important predictors of It. The declining trend of It, Im and If shows that the Indian population is passing through the demographic transition.

------------------------

Sweet Diversity: Colonial Goods and the Rise of European Living Standards after 1492

Jonathan Hersh & Hans-Joachim Voth
University of Pennsylvania Working Paper, July 2009

Abstract:
Did living standards stagnate before the Industrial Revolution? Traditional real-wage indices typically show broadly constant living standards before 1800. In this paper, we show that living standards rose substantially, but surreptitiously because of the growing availability of new goods. Colonial luxuries such as tea, coffee, and sugar transformed European diets after the discovery of America and the rounding of the Cape of Good Hope. These goods became household items in many countries by the end of the 18th century. We use the Greenwood-Kopecky (2009) method to calculate welfare gains based on data about price changes and the rate of adoption of new colonial goods. Our results suggest that by 1850, the average Englishman would have been willing to forego 15% or more of his income in order to maintain access to sugar and tea alone. These findings are robust to a wide range of alternative assumptions, data series, and valuation methods.

------------------------

New evidence and new methods to measure human capital inequality before and during the industrial revolution: France and the US in the seventeenth to nineteenth centuries

Dorothee Crayen & Joerg Baten
Economic History Review, forthcoming

Abstract:
We explore pre- and early industrial inequality of numeracy using the age heaping method and anthropometric strategies. For France, we map differential numeracy between the upper and lower segments of a sample population for 26 regions during the seventeenth century. For the US, inequality of numeracy is estimated for 25 states during the 19th century. Testing the hypothesis of a negative impact of inequality on welfare growth, we find evidence that lower inequality increased industrial development in the US, whereas for France such an effect was only evident in interactions with political variables such as proximity to central government.

------------------------

Electoral Fraud, the Rise of Peron and Demise of Checks and Balances in Argentina

Lee Alston & Andrés Gallo
Explorations in Economic History, forthcoming

Abstract:
The future looked bright for Argentina in the early twentieth century. It had already achieved high levels of income per capita and was moving away from authoritarian government towards a more open democracy. Unfortunately, Argentina never finished the transition. The turning point occurred in the 1930s when to stay in power, the Conservatives in the Pampas resorted to electoral fraud, which neither the legislative, executive, or judicial branches checked. The decade of unchecked electoral fraud led to the support for Juan Peron and subsequently to political and economic instability.

------------------------

Poverty, Risk Aversion, and Path Dependence in Low-Income Countries: Experimental Evidence from Ethiopia

Mahmud Yesuf & Randall Bluffstone
American Journal of Agricultural Economics, forthcoming

Abstract:
In most low-income countries, rural households depend on mixed rain-fed agriculture/livestock production, which is very risky. Due to numerous market failures, there are few ways to shift risks to third parties. The literature has focused on what determines the responses of households in such environments. Of special concern are path dependencies in which households experiencing failure are prone to further failure and potential poverty traps. This paper estimates levels and determinants of risk aversion in the highlands of Ethiopia. We find high risk aversion and evidence that constraints have important impacts on risk-averting behavior with perhaps significant implications for long-term poverty. The results also suggest the possibility of path dependence and offer insights into links between risk aversion and poverty traps.

------------------------

The Evolution of Markets and the Revolution of Industry: A Quantitative Model of England's Development, 1300-2000

Klaus Desmet & Stephen Parente
University of Minnesota Working Paper, May 2009

Abstract:
This paper argues that an economy's transition from Malthusian stagnation to modern growth requires markets to reach a critical size, and competition to reach a critical level of intensity. By allowing an economy to produce a greater variety of goods, a larger market makes goods more substitutable, raising the price elasticity of demand, and lowering mark-ups. Firms must then become larger to break even, which facilitates amortizing the fixed costs of innovation. We demonstrate our theory in a dynamic general equilibrium model calibrated to England's long-run development and explore how various factors affect the timing of takeoff.

------------------------

Reforming Institutions: Where to Begin?

Idrees Khawaja & Sajawal Khan
Pakistan Institute of Development Economics Working Paper, August 2009

Abstract:
No society is devoid of institutions but many live with poor institutions. Institutions promote growth. This is a view now held firmly and widely. The task then is to ‘engineer' growth-promoting institutions. Endogeneity characterises institutions; for example, groups enjoying political power influence economic institutions, but political power itself is a function of wealth. Given endogeneity, if the task is to design institutional reforms, the question then arises, as to what to reform first. We use the theories of institutional evolution put forth by Douglas North, Darron Acemoglu and Dani Rodrik and the historical experiences of different countries in the context of development (or non-development) of institutions, to determine the starting-point of institutional reforms, if the objective is to design institutional reforms. We argue that in Pakistan, neither large commercial interest nor fiscal constraints can force the de jure power to reform institutions. Typically, large commercial interests in Pakistan have thrived on favours from de jure power, and therefore do not have teeth. Given strategic interests of foreign powers, foreign aid will alleviate the fiscal constraint and the ruler-citizens bargain-though reforming institution in exchange for tax revenue will remain a dream. The country does not seem ready for a revolution either; the thought process that typically precedes revolutions seems to have barely begun. The alternative, that remains, then is the gradualist approach preferred by North, Acemoglu, and Rodrik. Institutional reforms in Pakistan should begin with reform of the educational system-the introduction of a common educational system for all and sundry up to a certain level. Two reasons make us chose the educational system as the candidate to start the process of institutional reform. First, a common educational system will produce a shared value system which, in turn, will reduce the heterogeneity in the society. Lesser heterogeneity in society will then facilitate an agreement over the minimal set of institutional reforms. Second, politicians being myopic, the de jure power is more likely to concede to the demand for reform of the educational system as compared to the demand to, say, put an end to rent-seeking. The former will affect the de jure power a generation hence, while the latter will affect them today.

------------------------

Bourgeois dignity and liberty: Why economics can't explain the modern world

Deirdre McCloskey
University of Illinois Working Paper, July 2009

Abstract:
Two centuries ago the world's economy stood at the present level of Chad. Two centuries later the world supports more than six-and-half times more people. Starvation worldwide is at an all-time low, and falling. Literacy and life expectancy are at all-time highs, and rising. How did average income in the world move from $3 to $30 a day? Economics mattered in shaping the pattern but to understand it economists must know the history and historians must know the economics. Material, economic forces were not the original and sustaining causes of the modern rise, 1800 to the present. Ethical talk runs the world. Dignity encourages faith. Liberty encourages hope. The claim is that the dignity to stand in one's place and the liberty to venture made the modern world. An internal ethical change allowed it, beginning in northwestern Europe after 1700. For the first time on a big scale people looked with favor on the market economy, and even on the creative destruction coming from its profitable innovations. The world began to revalue the bourgeois towns. If envy and local interest and keeping the peace between users of old and new technologies are allowed to call the shots, innovation and the modern world is blocked. If bourgeois dignity and liberty are not on the whole embraced by public opinion, the enrichment of the poor doesn't happen. The older suppliers win. The poor remain unspeakably poor. By 1800 in northwestern Europe, for the first time in economic history, an important part of public opinion came to accept creative accumulation and destruction in the economy. People were willing to change jobs and allow technology to progress. People stopped attributing riches or poverty to politics or witchcraft. The historians of the world that trade created do not acknowledge the largest economic event in world history since the domestication of plants and animals, happening in the middle of their story. Ordinary Europeans got a dignity and liberty that the proud man's contumely had long been devoted to suppressing. The material economy followed.

------------------------

Democratic Quality and Human Development in Latin America: 1972-2001

David Altman & Rossana Castiglioni
Canadian Journal of Political Science, June 2009, Pages 297-319

Abstract:
This paper analyzes the connection between democracy and human development. In so doing, it examines two main questions: Are democracies better than non-democracies in achieving human development? Among democracies, is there a direct relationship between the actualization of civil and political rights and human development? In answering these questions, we offer a cross-national study of 18 Latin American countries from 1972 to 2001. We use fixed effect models for analyzing our cross-country, pooled time-series data. The evidence suggests not only that democracies are better than nondemocracies in fostering human development (controlling for wealth), but also that differences in degree of democracy have a significant impact on human development in terms of infant mortality and life expectancy.


Sign-in to your National Affairs subscriber account.


Already a subscriber? Activate your account.


subscribe

Unlimited access to intelligent essays on the nation’s affairs.

SUBSCRIBE
Subscribe to National Affairs.