Developing situation

Kevin Lewis

October 25, 2017

Language standardization and the Industrial Revolution
Leonard Dudley
Oxford Economic Papers, October 2017, Pages 1138–1161


Why did the countries with the highest literacy rates fail to contribute to the innovations of the Industrial Revolution? Recent empirical research shows that people tend to mistrust those perceived to speak with an accent. Here the hypothesis of a link between language, trust and innovation is tested with a new data set comprising 201 urban regions and 117 important innovations between 1700 and 1850. In the three states that contributed almost all of these innovations (Britain, France and the USA), rising literacy was merely the first step toward the formation of large networks of people speaking standardized languages. These networks proved particularly important for advances requiring collaboration. Elsewhere, where language standardization was delayed, innovation also came later.

Teaching personal initiative beats traditional training in boosting small business in West Africa
Francisco Campos et al.
Science, 22 September 2017, Pages 1287-1290


Standard business training programs aim to boost the incomes of the millions of self-employed business owners in developing countries by teaching basic financial and marketing practices, yet the impacts of such programs are mixed. We tested whether a psychology-based personal initiative training approach, which teaches a proactive mindset and focuses on entrepreneurial behaviors, could have more success. A randomized controlled trial in Togo assigned microenterprise owners to a control group (n = 500), a leading business training program (n = 500), or a personal initiative training program (n = 500). Four follow-up surveys tracked outcomes for firms over 2 years and showed that personal initiative training increased firm profits by 30%, compared with a statistically insignificant 11% for traditional training. The training is cost-effective, paying for itself within 1 year.

Mills, cranes, and the great divergence: The use of immovable capital goods in western Europe and the Middle East, ninth to sixteenth centuries
Bas van Bavel, Eltjo Buringh & Jessica Dijkman
Economic History Review, forthcoming


This article contributes to the ongoing debate on the causes of the great divergence by comparing the use of expensive labour-saving capital goods — water-mills, windmills, and cranes — in medieval western Europe and the Middle East. Using novel ways of measuring, we find that whereas the use of these goods increased in Europe, in the Middle East their prevalence decreased, or they were not used at all. We investigate several possible explanations and reject most of them, including religion, geography, technological knowledge, and disparities in wages and cost of capital. Our analysis shows that differences in lordship systems and the security of property rights best explain the patterns found.

Room for discretion? Biased decision-making in international financial institutions
Valentin Lang & Andrea Presbitero
Journal of Development Economics, January 2018, Pages 1-16


We exploit the degree of discretion embedded in the World Bank-IMF Debt Sustainability Framework (DSF) to understand the decision-making process of international financial institutions. The unique, internal dataset we use covers the universe of debt sustainability analyses conducted between December 2006 and January 2015 for low-income countries. These data allow us to identify cases where the risk rating implied by the application of the DSF's mechanical rules was overridden to assign a different official rating. Our results show that both political interests and bureaucratic incentives influence the decision to intervene in the mechanical decision-making process. Countries that are politically aligned with the institutions' major shareholders are more likely to receive an improved rating; especially in election years and when the mechanical assessment is not clear-cut. These results suggest that the room for discretion international financial institutions have can be a channel for informal governance and a source of biased decision-making.

Financial Markets and Genetic Variation
Eric Cardella, Ivalina Kalcheva & Danjue Shang
Journal of International Financial Markets, Institutions and Money, forthcoming


We investigate the extent to which a country’s degree of genetic variation contributes to the observed variation in financial market activity across countries. We postulate that genetic variation can affect financial markets through its impact on aggregate investment behavior, innovation in the financial sector, and productivity. Our country-level, cross-sectional analysis reveals a significant hump-shaped relation between a country’s predicted genetic variation and the size of its financial markets. This result is consistent with the conjecture that at relatively intermediate degrees of genetic variation, the associated intermediate levels of trust and risk-taking within the country result in the largest investment flows into public financial markets. Our results are robust to different measres of financial market size, several regression specifications, and the inclusion of a broad range of controls such as legal origin, institutional characteristics, culture, natural endowment, and trade openness. Our main findings appear to be restricted specifically to equity markets (vs. debt markets) where there is relatively more uncertainty and, thus, trust and risk-taking are relatively more important. Additional analysis suggests that better overall country-level governance can moderate the role that genetic variation plays in shaping equity market size.

The Changing Pattern of Nutrition Intake by Social Class in Contemporary China, 1991–2011
Zhun Xu & Wei Zhang
American Journal of Public Health, November 2017, Pages 1809-1811

Methods: We defined social class in 2 ways. The first definition was based on employment, and the second definition was based on per capita household income levels. We used China Health and Nutrition Survey data from 1991 to 2011 to show the changes in the relation between social class and nutrition intake.

Results: The relation between social class and nutrition intake in China changed significantly within the 2 decades. For example, in the early 1990s, the lowest social class (defined by employment or income) had more caloric intake than did the highest social class; 20 years later, however, the relation reversed, and the lowest social class consumed significantly fewer calories.

The long-term effects of American Indian boarding schools
Matthew Gregg
Journal of Development Economics, January 2018, Pages 17-32


This paper explores some long-standing questions of the legacy of American Indian boarding schools by comparing contemporary Indian reservations that experienced differing impacts in the past from boarding schools. Combining recent reservation-level census data and school enrollment data from 1911 to 1932, I find that reservations that sent a larger share of students to off-reservation boarding schools have higher high school graduation rates, higher per capita income, lower poverty rates, a greater proportion of exclusively English speakers, and smaller family sizes. These results are supported when distance to the nearest off-reservation boarding school that subsequently closed is used as an instrument for the proportion of past boarding school students. I conclude with a discussion of the possible reasons for this link.

The Effect of Prenatal Stress on Cooperation: Evidence from Violent Conflict in Uganda
Francesco Cecchi & Jan Duchoslav
European Economic Review, forthcoming


Are preferences endogenously determined in the womb? We play a public goods game with Ugandan children born during a conflict characterised by high civilian victimisation. Children whose caregivers suffer from post-traumatic stress disorder are more likely to free-ride in the game. Genetic and environmental factors alone do not explain the relationship, but children’s 2D:4D digit ratio – a marker of fetal hormone exposure associated with epigenetic effects of maternal distress – does. Our findings extend the fetal origins literature to the domain of preferences. By reducing next generation’s taste for cooperation, conflict may have father-reaching economic consequences than previously thought.

The role of trade in structural transformation
Marc Teignier
Journal of Development Economics, January 2018, Pages 45-65


Low agriculture productivity is considered a key obstacle to economic development for many countries. International trade in agricultural goods can help overcome this barrier and facilitate structural transformation because it allows countries to import part of their food needs. This article quantifies the role of trade in this context through the examples of South Korea during the last 50 years and Great Britain in the 19th century. To do the analysis, I calibrate and simulate a two-sector, neoclassical growth model to match the data and perform the policy experiments. I find that agricultural imports played a crucial role in the early transformation of Great Britain, while, in South Korea, trade also had a positive impact on its structural transformation but it could have played a much larger role if the country had not introduced agricultural protection policies.

Contagious disruptions and complexity traps in economic development
Charles Brummitt et al.
Nature Human Behaviour, September 2017, Pages 665–672


Poor economies not only produce less; they typically produce things that involve fewer inputs and fewer intermediate steps. Yet the supply chains of poor countries face more frequent disruptions — delivery failures, faulty parts, delays, power outages, theft and government failures — that systematically thwart the production process. To understand how these disruptions affect economic development, we modelled an evolving input–output network in which disruptions spread contagiously among optimizing agents. The key finding was that a poverty trap can emerge: agents adapt to frequent disruptions by producing simpler, less valuable goods, yet disruptions persist. Growing out of poverty requires that agents invest in buffers to disruptions. These buffers rise and then fall as the economy produces more complex goods, a prediction consistent with global patterns of input inventories. Large jumps in economic complexity can backfire. This result suggests why ‘big push’ policies can fail and it underscores the importance of reliability and gradual increases in technological complexity.

Emigration during the French Revolution: Consequences in the Short and Longue Durée
Raphaël Franck & Stelios Michalopoulos
NBER Working Paper, October 2017


During the French Revolution, more than 100,000 individuals, predominantly supporters of the Old Regime, fled France. As a result, some areas experienced a significant change in the composition of the local elites whereas in others the pre-revolutionary social structure remained virtually intact. In this study, we trace the consequences of the émigrés' flight on economic performance at the local level. We instrument emigration intensity with local temperature shocks during an inflection point of the Revolution, the summer of 1792, marked by the abolition of the constitutional monarchy and bouts of local violence. Our findings suggest that émigrés have a non monotonic effect on comparative development. During the 19th century, there is a significant negative impact on income per capita, which becomes positive from the second half of the 20th century onward. This pattern can be partially attributed to the reduction in the share of the landed elites in high-emigration regions. We show that the resulting fragmentation of agricultural holdings reduced labor productivity, depressing overall income levels in the short run; however, it facilitated the rise in human capital investments, eventually leading to a reversal in the pattern of regional comparative development.

Do refugee camps help or hurt hosts? The case of Kakuma, Kenya
Jennifer Alix-Garcia et al.
Journal of Development Economics, January 2018, Pages 66-83


We combine nighttime lights data, official statistics, and new household survey data from northern Kenya in order to assess the impact of long-term refugee camps on host populations. The nighttime lights estimates show that refugee inflows increase economic activity in areas very close to Kakuma refugee camp: the elasticity of the luminosity index to refugee population is 0.36 within a 10 km distance from the camp center. In addition, household consumption within the same proximity to the camp is 25% higher than in areas farther away. Price, household survey, and official statistics suggest that the mechanisms driving this positive effect are increased availability of new employment and price changes in agricultural and livestock markets that are favorable to local producers.

Consequences of Linguistic Distance for Economic Growth
Erkan Gören
Oxford Bulletin of Economics and Statistics, forthcoming


This paper advances a new country-level measure of ethno-linguistic diversity, making use of Greenberg's definition of diversity by synthesizing information on the share of different ethno-linguistic groups in a country's population and, more importantly, information on intergroup linguistic distances derived from a recently developed lexicostatistical approach. I show that this measure captures ethno-linguistic diversity at lower levels of linguistic aggregation. However, unlike the commonly used phylogenetic language tree approach, I found that these distance-weighted diversity measures continue to have a strong negative statistical association with economic growth that is not sensitive to the underlying resemblance function between ethno-linguistic groups.

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