The Washington Consensus Works: Causal Effects of Reform, 1970-2015
Kevin Grier & Robin Grier
Journal of Comparative Economics, forthcoming
Traditional policy reforms of the type embodied in the Washington Consensus have been out of academic fashion for decades. However, we are not aware of a paper that convincingly rejects the efficacy of these reforms. In this paper, we define generalized reform as a discrete, sustained jump in an index of economic freedom, whose components map well onto the points of the old consensus. We identify 49 cases of generalized reform in our dataset that spans 141 countries from 1970 to 2015. The average treatment effect associated with these reforms is positive, sizeable, and significant over 5- and 10-year windows. The result is robust to different thresholds for defining reform and different estimation methods. We argue that the policy reform baby was prematurely thrown out with the neoliberal bathwater.
The Baker Hypothesis
Anusha Chari, Peter Blair Henry & Hector Reyes
NBER Working Paper, August 2020
In 1985, James A. Baker III's “Program for Sustained Growth” proposed a set of economic policy reforms including, inflation stabilization, trade liberalization, greater openness to foreign investment, and privatization, that he believed would lead to faster growth in countries then known as the Third World, but now categorized as emerging and developing economies (EMDEs). A country-specific, time-series assessment of the reform process reveals three clear facts. First, in the 10-year-period after stabilizing high inflation, the average growth rate of real GDP in EMDEs is 2.2 percentage points higher than in the prior ten-year period. Second, the corresponding growth increase for trade liberalization episodes is 2.66 percentage points. Third, in the decade after opening their capital markets to foreign equity investment, the spread between EMDEs average cost of equity capital and that of the US declines by 240 basis points. The impact of privatization is less straightforward to assess, but taken together, the three central facts of reform provide empirical support for the Baker Hypothesis and suggest a simple neoclassical interpretation of the unprecedented increase in growth that has taken place in EMDEs since 1995.
Disease Control and Inequality Reduction: Evidence from a Tuberculosis Testing and Vaccination Campaign
Aline Bütikofer & Kjell Salvanes
Review of Economic Studies, October 2020, Pages 2087–2125
This article examines the economic impact of a tuberculosis control program launched in Norway in 1948. In the 1940s, Norway had one of the highest tuberculosis infection rates in Europe, affecting about 85% of the inhabitants. To lower the disease burden, the Norwegian government launched a large-scale tuberculosis testing and vaccination campaign that substantially reduced tuberculosis infection rates among children. We find that cohorts in school during and after the campaign in municipalities with high tuberculosis prevalence gained more in terms of education, earnings, longevity, and height following this public health intervention. Furthermore, the gains from the disease control program are not limited to the initially treated cohorts but also affect their children. The results also suggest that individuals from a low socioeconomic background benefited more from the intervention and we present new evidence that a narrowing of the gap in childhood health can lead to a reduction in socioeconomic inequalities in adulthood.
Usury Enforcement as an Alternative to Capital Taxation in Pre-Modern States
University of Mississippi Working Paper, July 2020
All governments have an obligation to protect their territory and the wealth within that territory from external predation. In fact, since war has historically resulted in the plunder and destruction of wealth, it seems straightforward to suggest that the cost of providing adequate defense of one's territory is a function of the accumulated wealth within the territory. Suppose that all wealth in society is capital. The accumulation of capital conveys a private benefit to its owner, but imposes an external cost on society. As with any externality, the optimal tax policy would be to tax capital. The revenue from capital taxation could then be used to finance defense. Such a taxation scheme, however, requires the state to have an appropriate level of bureaucratic capacity. During the Middle Ages and the early Renaissance, this sort of state infrastructure did not exist. Yet the rulers of those states faced the same constraint. In this paper, I argue that the enforcement of usury laws during this period imperfectly replicate the outcome of the optimal capital tax. Lending at interest was prohibited. However, rulers often allowed certain groups to lend in society in exchange for a license fee. This granted monopoly status to lenders. At the same time, rulers imposed binding price ceilings on interest rates. The combination of these three characteristics of enforcement replicate the long-run restriction on capital accumulation of the optimal capital tax whereas the licensing fees allowed the governments to collect as much as half of the revenue that the optimal capital tax would generate. Given that some defense costs were paid in kind, this sort of policy is capable of replicating the optimal capital tax. I support this claim with historical examples of "lombard'' and Jewish lending in pre-modern England, Italy, and France.
Why is welfare provision unpopular in China?
This article analyses from a cultural perspective why, despite exacerbating income inequality, Chinese people are not in favour of income equality. I argue that the patriotic education campaign initiated in the 1990s encouraged citizens to sacrifice for the greater good of China and caused the Chinese to accept and adapt to a decrease in governmental welfare as well as lessening the demand for it, thus reducing the government’s financial burden of welfare provision. I then test the hypothesis against the Asian Barometer Survey data. The statistical results support my assertion, suggesting that strong patriotic beliefs reduce the preference for social equality, and that private income and economic perspectives do not significantly stimulate the public demand for redistributive policies in China.
The Real Value of China’s Stock Market
Jennifer Carpenter, Fangzhou Lu & Robert Whitelaw
Journal of Financial Economics, forthcoming
What capital allocation role can China’s stock market play? Counter to perception, stock prices in China have become as informative about future profits as they are in the US. This rise in stock price informativeness has coincided with an increase in investment efficiency among privately owned firms, suggesting the market is aggregating information and providing useful signals to managers. However, price informativeness and investment efficiency for state-owned enterprises fell below that of privately owned firms after the postcrisis stimulus, perhaps reflecting unpredictable subsidies and state-directed investment policy. Finally, evidence from realized returns suggests Chinese firms face a higher cost of equity capital than US firms.
Colonial Origins, Property Rights, and the Organization of Agricultural Production: The US Midwest and Argentine Pampas Compared
Eric Edwards, Martin Fiszbein & Gary Libecap
NBER Working Paper, August 2020
We examine the origins, persistence, and economic consequences of institutional structures of agricultural production. We compare farms in the Argentine Pampas and US Midwest, regions of similar potential input and output mixes. The focus is on 1910-1914, during the international grain trade boom and when census data are available. The Midwest was characterized by small farms and family labor. Land was a commercial asset and traded routinely. The Pampas was characterized by large landholdings and use of external labor. Land was a source of status and held across generations. Status attributes could not be easily monetized for trade, reducing market exchange, limiting entry, and hindering farm restructuring. Differing land property rights followed from English and Spanish colonial and post-independence policies. Geo-climatic factors cannot explain dissimilarities in farm sizes, tenancy, and output mixes, suggesting institutional constraints. Midwest farmers also were more responsive to exogenous signals. There is evidence of moral hazard on Pampas farms. Conjectures on long-term development are provided.
The bounty of the sea and long-run development
Carl-Johan Dalgaard, Anne Sofie Knudsen & Pablo Selaya
Journal of Economic Growth, September 2020, Pages 259–295
We document that a high level of natural productivity of the ocean — a rich bounty of the sea — has had a positive and persistent impact on economic development since pre-industrial times until today. In addition, we document that it is the bounty of the sea of the ancestors of current populations which drives the persistent effect, not geography per se. We argue that an explanation is that a rich bounty of the sea facilitated early coastal settlements and an early coastal orientation of pre-industrial economic activity. This gave rise to occupations outside of agriculture and capabilities that were complementary to early industrialization. In the long run this contributed to an early take-off to sustained economic growth.
Health Impacts of the Green Revolution: Evidence from 600,000 births across the Developing World
Jan von der Goltz et al.
Journal of Health Economics, forthcoming
What is the contribution of the ‘Green Revolution’ to improvements in child health during the century? We provide global scale estimates of this relationship by constructing a novel, spatially-precise indicator of modern crop variety (MV) diffusion and leveraging child-level data from over 600,000 children across 21,604 sampling locations in 37 developing countries between 1961–2000. Results indicate that the diffusion of MVs reduced infant mortality by 2.4–5.3 percentage points (from a baseline of 18%), with stronger effects for male infants. The sizable contribution of agricultural technology to improved welfare should inform global food and development policy.
Knowledge Access: The Effects of Carnegie Libraries on Innovation
Enrico Berkes & Peter Nencka
Ohio State University Working Paper, April 2020
Between 1883 and 1919, Andrew Carnegie donated approximately $1 billion in 2019 dollars to fund the construction of more than 1,500 public libraries across the United States. We show that this historical rollout of public libraries — which promoted access to knowledge for millions of people — increased the innovation output of recipient towns. To identify the causal effect of Carnegie libraries on innovation, we use new data on city-level patenting and a novel control group: cities that qualified to receive a library grant, applied for the program, received preliminary construction approval, but ultimately did not build a Carnegie library. Patenting in recipient towns increased by 8-13 percent in the 20 years following library entry. We show that this increase is concentrated in technology classes that overlap with library holdings. The number of women and immigrant inventors also increased after libraries opened. We provide evidence that additional access to scientific knowledge and opportunities to interact with fellow patrons are possible mechanisms.
When Uncle Sam Introduced Main Street to Wall Street: Liberty Bonds and the Transformation of American Finance
Eric Hilt, Matthew Jaremski & Wendy Rahn
NBER Working Paper, August 2020
We study the effects of the liberty bond drives of World War I on financial intermediation in the 1920s and beyond. Using panel data on U.S. counties we find that higher liberty bond subscription rates led to an increase in the number of investment banks, stronger local competition between investment banks and commercial banks, and a relative contraction in commercial bank assets. We also find that individuals residing in states with higher liberty bond subscription rates were more likely to report owning stocks or bonds in the late 1930s. Finally, we find that this shift in financial intermediation away from commercial banks was correlated with slower growth in the number of manufacturing enterprises and farms at the county level. Although they were conducted to support the American effort in World War I, the liberty loan drives reshaped American finance.
Patent disclosure and England’s early industrial revolution
European Review of Economic History, August 2020, Pages 447–467
Did the English patent system helps to spark the Industrial Revolution? Most scholars addressing this question have focused on whether patents improved the economic incentive to invent. In contrast, I focus on whether patents improved access to useful knowledge — via the requirement (instituted in 1734) that patentees provide technical specifications for their inventions. I documented a structural break in per capita patenting in 1734 — but only in London, where specifications were stored. I also documented a structural shift in London-based inventors’ responsiveness to non-metropolitan patents in 1734, when specifications for them became regularly available.
The legacy effect of unexploded bombs on educational attainment in Laos
Journal of Development Economics, forthcoming
Between 1964 and 1973, the U.S. dropped two million tons of bombs on Laos. As the legacy of war, unexploded ordnance (UXO) contaminates a quarter of villages. This paper studies the long-term impact of UXO on education, exploiting the instrumental variable that originates from the geography of U.S. bombing campaigns in Laos. It finds that bombing not only interrupts the education of wartime cohorts, but also has strong and persistent negative impacts on the education of postwar cohorts through the legacy of UXO. Two decades after the U.S. bombing ended, school-age children with exposure to the average level of UXO contamination still had 1.3 fewer years of education. I rule out other mechanisms and show that with UXO in farmland, villagers farm more carefully and slowly. This reduction in farming efficiency demands more labor to sustain subsistence farming. In response, children drop out of school to supplement agricultural labor.
Early Fertility Decline in the United States: Tests of Alternative Hypotheses using New Complete-Count Census Microdata and Enhanced County-Level Data
Michael Haines, David Hacker & Matthew Jaremski
NBER Working Paper, August 2020
The U.S. fertility transition in the nineteenth century is unusual. Not only did it start from a very high fertility level and very early in the nation’s development, but it also took place long before the nation’s mortality transition, industrialization, and urbanization. This paper assembles new county-level, household-level, and individual-level data, including new complete-count IPUMS microdata databases of the 1830-1880 censuses, to evaluate different theories for the nineteenth-century American fertility transition. We construct cross-sectional models of net fertility for currently-married white couples in census years 1830-1880 and test the results with subset of couples linked between the 1850-1860 and 1860-1870 censuses. We find evidence of marital fertility control consistent with hypotheses as early as 1830. The results indicate support for several different but complementary theories of the early U.S. fertility decline, including the land availability, conventional structuralist, ideational, child demand/quality-quantity trade-off, and life-cycle savings theories.
The Micro-Evidence for the Malthusian System. France, 1670-1840
European Economic Review, forthcoming
I test the assumptions of the Malthusian model at the individual, cross-sectional level for France, 1650-1820. Using husband’s occupation from the parish records of 41 French rural villages, I assign three different measures of status. There is no evidence for the existence of the positive check; infant deaths are unrelated to status. However, the preventive check operates strongly, acting through female age at first marriage. The wives of rich men are younger brides than those of poorer men. This drives a positive net-fertility gradient in living standards. However, the strength of this gradient is substantially weaker than it is in pre-industrial England.