The Consequences of Treating Electricity as a Right
Robin Burgess et al.
Journal of Economic Perspectives, Winter 2020, Pages 145-169
This paper seeks to explain why billions of people in developing countries either have no access to electricity or lack a reliable supply. We present evidence that these shortfalls are a consequence of electricity being treated as a right and that this sets off a vicious four-step circle. In step 1, because a social norm has developed that all deserve power independent of payment, subsidies, theft, and nonpayment are widely tolerated. In step 2, electricity distribution companies lose money with each unit of electricity sold and in total lose large sums of money. In step 3, government-owned distribution companies ration supply to limit losses by restricting access and hours of supply. In step 4, power supply is no longer governed by market forces and the link between payment and supply is severed, thus reducing customers' incentives to pay. The equilibrium outcome is uneven and sporadic access that undermines growth.
Following the poppy trail: Origins and consequences of Mexican drug cartels
Tommy Murphy & Martín Rossi
Journal of Development Economics, forthcoming
This paper studies the origins, and economic and social consequences of some of the most prominent drug trafficking organizations in the world: the Mexican cartels. It first traces the current location of cartels to the places where Chinese migrated at the beginning of the 20th century, discussing and documenting how both events are strongly connected. Information on Chinese presence at the beginning of the 20th century is then used to instrument for cartel presence today, to identify the effect of cartels on society. Contrary to what seems to happen with other forms of organized crime, the IV estimates in this study indicate that at the local level there is a positive link between cartel presence and better socioeconomic outcomes (e.g. lower marginalization rates, lower illiteracy rates, higher salaries), better public services, and higher tax revenues, evidence that is consistent with the known stylized fact that drug lords tend have great support in the local communities in which they operate.
Do Poor Countries Really Need More IT?
Maya Eden & Paul Gaggl
World Bank Economic Review, February 2020, Pages 48–62
Productivity differences across countries are often attributed to differences in technological capabilities. This paper asks whether there are systematic cross-country differences in the adoption of information technologies (IT). We document a positive correlation between IT use and income, which weakens over time. However, given that IT use is an endogenous outcome of both technological capabilities and the abundance of complementary factors of production, it tends to over-state the degree of cross-country differences in technology. We propose two novel calibration approaches to address this problem. After accounting for endogenous differences in industrial composition, we find that there is no systematic relationship between income and IT capabilities.
Does Greater Regulatory Burden Lead to More Corruption? Evidence Using Firm-Level Survey Data for Developing Countries
Mohammad Amin & Yew Chong Soh
World Bank Working Paper, February 2020
Regulation often creates opportunities for public officials to extract bribes. If this is true, deregulation offers a simple way to combat corruption. However, empirical evidence on the corruption and regulation nexus is limited. Further, the corruption indices used are based on experts' opinions, which may suffer from perception bias. The present paper attempts to address these shortcomings using firm-level survey data for 131 mostly developing countries on the experiences of the firms with bribery and regulatory burden. Exploiting within-country and industry-level variation in regulatory burden, the analysis finds a large, positive effect of regulatory burden on corruption. For the baseline results, the bribery rate is higher by about 0.03 percentage point for each percentage point increase in the regulatory burden. The finding is robust to several endogeneity checks.
Land quality, land rights, and indigenous poverty
Bryan Leonard, Dominic Parker & Terry Anderson
Journal of Development Economics, forthcoming
Agricultural land endowments should contribute positively to economic growth, but in countries colonized by European powers this has not always happened. Productive land attracted colonization, which disrupted Indigenous institutions in ways that can stunt development. American Indian reservations provide a powerful example. Where land quality was high, the federal government facilitated land titling and non-Indian settlement through the General Allotment Act of 1887. The evidence suggests this process caused a U-shaped relationship between American Indian per capita income over 1970 to 2010 and a reservation’s share of prime agricultural land, in contrast to a positive relationship across U.S. counties. The downward slope of the U is due to land ownership fractionation that disproportionately affected reservations with mid-quality land and now requires federal administration. After controlling for fractionation, the effect of prime land is positive, implying land quality has indirectly suppressed income growth through its effects on land rights.
Culture and Native American Economic Development
George Mason University Working Paper, January 2020
This paper explores how culture affects economic development on Native American reservations by examining how culture directs the attention of entrepreneurs and interacts with formal governance institutions. This paper combines theoretical insights from economic sociology, market process economics, and institutional economics as a basis to evaluate entrepreneurship and economic development on Native American reservations. Culture, as a web of social meanings, shapes what opportunities entrepreneurs are alert to, influences how they perceive transaction costs, and determines whether institutions achieve their intended ends. Historical and contemporary case studies are used to build analytical narratives to corroborate the theoretical approach. The federal government has imposed many formal institutions on reservations, which have disrupted traditional governance and property rights structures. If formal institutions do not comport with the underlying culture, those institutions do not facilitate positive entrepreneurship and economic growth. Despite the barriers, entrepreneurs across several reservations have leveraged their cultural and social ties to create robust informal economies. In some cases, imposed institutions have fostered rent-seeking and have given rise to a culture of rent-seeking.
Did the communists contribute to China’s rural growth?
Yi Lu, Mengna Luan & Tuan-Hwee Sng
Explorations in Economic History, forthcoming
The communist revolution brought unprecedented changes to China. Yet there is no consensus on its role in the history of China’s modern economic growth. We investigate whether local communist party membership affected developmental outcomes from 1957–78 (the Maoist period) and 1978–85 (the reform period). Focusing on Sichuan, China’s most populous province, we use the Long March as an instrument to tease out causal effects. We find that counties with more communist members made larger strides in educational attainment, road construction, and agricultural mechanization during the Maoist period. However, these counties recorded faster output growth only after 1978. Our findings provide empirical support to field studies conducted by sociologists and historians who argue that the communists improved the organizational infrastructure in China’s countryside. Furthermore, we highlight the futility of solving collective action problems without heeding private incentives.
The long reach of cotton in the US South: Tenant farming, mechanization, and low-skill manufacturing
Journal of Development Economics, forthcoming
This paper examines the long-run impact of cotton agriculture on local development in the US South, focusing on a novel aspect of structural change. Exploiting climate-based variation in cotton production, I show that cotton specialization in the late 19th century had a negative impact on local development that lasts through 2010. This negative relationship, however, only became evident in the second half of the 20th century. I argue that the change was caused by the mechanization of cotton production, which began in the 1950s. After the mechanization, local manufacturing absorbed displaced cotton tenants with low human capital. In response to the inflow of cotton tenants, labor productivity in manufacturing began to decline and the effects persisted in the long-run. The persistent decline in manufacturing productivity is explained by directed technical change that reduced demand for skills in manufacturing. These results indicate that, depending on the agricultural background, structural change can negatively affect the evolution of technology and productivity in the industrial sector.
Help or hindrance? U.S. aid on growth
Myongjin Kim & Leilei Shen
Applied Economics Letters, forthcoming
We distinguish between U.S. aid and non-U.S. aid and study the effects on growth in recipient countries. Our analysis exploits time variation in aid due to changes in the supply of U.S. aid and cross-sectional variation in a country’s tendency to receive any U.S. aid. We find that U.S. aid has a positive effect on growth. In particular, U.S. economic aid has a positive effect on growth while U.S. military and food aid have no effect on growth. There is also no evidence of U.S. aid crowding out aid from other countries. The effect of U.S. aid on growth is smaller for countries that are well endowed with natural resources, less ethnically polarized, and more aligned with the U.S.
The Role of Historical Christian Missions in the Location of World Bank Aid in Africa
Matteo Alpino & Eivind Moe Hammersmark
World Bank Economic Review, forthcoming
This article documents a positive and sizable correlation between the location of historical Christian missions and the allocation of present-day World Bank aid at the grid-cell level in Africa. The correlation is robust to an extensive set of geographical and historical control variables that predict settlement of missions. The study finds no correlation with aid effectiveness, as measured by project ratings and survey-based development indicators. Mission areas display a different political aid cycle than other areas, whereby new projects are less likely to arrive in years with new presidents. Hence, political connections between mission areas and central governments could be one likely explanation for the correlation between missions and aid.
Six decades after independence: The enduring influence of missionary activities on regional wealth inequalities in Ghana
Godfred Boateng et al.
Journal of Economic Geography, January 2020, Pages 93–122
What forces drive regional economic divergence? This study identifies colonial-era missions as an institutional force in shaping economic relations in Ghana. We conceptualize Christian missions as an institution, in its solid form, as the educational infrastructure and trade networks developed, and in its formal form, as advancing new rules that governed cultural and trade development. We use survey data, a map of mission stations, data on colonial-era urbanization and calculations of geographic endowments in each region of the country to examine the impacts of missionary activities on wealth, schooling and population clustering, and how these are reflected in wealth differences across regions of Ghana today. Results show that regional disparities in household wealth are large and significantly associated with intensity of colonial missionary activities, even after accounting for other important structural factors.
Farewell to the God of Plague: Estimating the effects of China's Universal Salt Iodization on educational outcomes
Qingyang Huang, Chang Liu & Li-An Zhou
Journal of Comparative Economics, March 2020, Pages 20-36
This paper estimates the effects of China's Universal Salt Iodization (USI) policy in 1994 – the largest nutrition intervention policy in human history – on children's later-life educational outcomes. Using population census data combined with county-level information, we apply a difference-in-differences strategy to compare the educational outcomes of cohorts born before and after USI across counties with different iodine deficiency disorder levels. Our results show that USI increased primary school enrollment by 0.6 percentage points. Further investigation suggests that girls and children born in rural areas benefit more from USI. The costs of USI almost evenly fell on China's iodine salt consumers through an in-price tax.
The joint impact of infrastructure and institutions on economic growth
Yitagesu Zewdu Zergawu, Yabibal Walle & José-Manuel Giménez-Gómez
Journal of Institutional Economics, forthcoming
This paper examines the joint impact of infrastructure capital and institutional quality on economic growth using a large panel dataset covering 99 countries and spanning the years 1980–2015. The empirical strategy involves estimating a simple growth model where, in addition to standard controls, infrastructure, institutional quality, and their interaction are included as explanatory variables. Potential endogeneity concerns are addressed by employing generalized method of moments estimators that utilize internal instruments. We find that the interaction terms between infrastructure capital and institutional quality show a positive and significant impact on economic growth. These results are robust to a variety of alternative specifications and institutional quality measures. Hence, our results suggest that maximizing returns from infrastructure capital requires improving the quality of institutions.