In development

Kevin Lewis

August 01, 2017

Entertaining Malthus: Bread, Circuses, and Economic Growth
Rohan Dutta et al.
Economic Inquiry, forthcoming

Motivated by the basic adage that man does not live by bread alone, we offer a theory of historical economic growth and population dynamics where human beings need food to survive, but enjoy other things, too. Our model imposes a Malthusian constraint on food, but introduces a second good to the analysis that affects living standards without affecting population growth. We show that technological change does a good job explaining historical consumption patterns and population dynamics, including the Neolithic Revolution, the Industrial Revolution, and the Great Divergence. Our theory stands in contrast to models that assume a single composite good and a Malthusian constraint. These models generate negligible growth prior to the Industrial Revolution. However, recent revisions to historical data show that historical living standards - though obviously much lower than today's - varied over time and space much more than previously thought. These revisions include updates to Maddison's dataset, which served as the basis for many papers taking long-run stagnation as a point of departure. This new evidence suggests that the assumption of long-run stagnation is problematic. Our model shows that when we give theoretical accounting of these new observations the Industrial Revolution is much less puzzling.

The Arrival of Fast Internet and Employment in Africa
Jonas Hjort & Jonas Poulsen
NBER Working Paper, July 2017

To show how fast Internet affects employment in Africa, we exploit the gradual arrival of submarine Internet cables and maps of the terrestrial cable network. Robust difference-in-differences estimates from three datasets covering 12 countries show large positive effects on employment rates, with little job displacement across space. A decrease in workers’ likelihood of holding unskilled jobs is offset by a bigger increase in employment in higher-skill occupations. Less educated workers’ employment rate also rises. Firm level data available for some countries indicate that increased firm entry, productivity, and exporting lead to higher job-creation (and/or -saving). Average incomes and wealth rise.

The Mobile Phone Revolution: Have Mobile Phones and the Internet Reduced Corruption in Sub-Saharan Africa?
Daniel Kanyam, Genti Kostandini & Susana Ferreira
World Development, forthcoming

There is a growing consensus that information and communication technology (ICT) systems (here mobile phones and the internet) offer remarkable opportunities for promoting good governance, increasing transparency, and reducing corruption. Thus, many development practitioners, policy makers, and various international organizations who are committed to promoting transparency and good governance have embraced the view that mobile phones can be used as a social accountability tool in the fight against corruption. This study empirically investigates the impact of mobile phone penetration, internet adoption, and the interaction effect between the two on corruption, by focusing specifically on Sub-Saharan Africa (SSA). The results reveal that cell phones are powerful tools for reducing corruption. Results of panel Granger causality tests show that there is unidirectional causality from mobile phone penetration to corruption, and from internet adoption to corruption. To deal with the problem of endogeneity, a dynamic panel data (DPD) model is employed.

Corrupting cooperation and how anti-corruption strategies may backfire
Michael Muthukrishna et al.
Nature Human Behaviour, July 2017

Understanding how humans sustain cooperation in large, anonymous societies remains a central question of both theoretical and practical importance. In the laboratory, experimental behavioural research using tools like public goods games suggests that cooperation can be sustained by institutional punishment - analogous to governments, police forces and other institutions that sanction free-riders on behalf of individuals in large societies. In the real world, however, corruption can undermine the effectiveness of these institutions. Levels of corruption correlate with institutional, economic and cultural factors, but the causal directions of these relationships are difficult to determine. Here, we experimentally model corruption by introducing the possibility of bribery. We investigate the effect of structural factors (a leader’s punitive power and economic potential), anti-corruption strategies (transparency and leader investment in the public good) and cultural background. The results reveal that (1) corruption possibilities cause a large (25%) decrease in public good provisioning, (2) empowering leaders decreases cooperative contributions (in direct opposition to typical institutional punishment results), (3) growing up in a more corrupt society predicts more acceptance of bribes and (4) anti-corruption strategies are effective under some conditions, but can further decrease public good provisioning when leaders are weak and the economic potential is poor. These results suggest that a more nuanced approach to corruption is needed and that proposed panaceas, such as transparency, may actually be harmful in some contexts.

China's Lost Generation: Changes in Beliefs and their Intergenerational Transmission
Gerard Roland & David Yang
NBER Working Paper, May 2017

Beliefs about whether effort pays off govern some of the most fundamental choices individuals make. This paper uses China’s Cultural Revolution to understand how these beliefs can be affected, how they impact behavior, and how they are transmitted across generations. During the Cultural Revolution, China’s college admission system based on entrance exams was suspended for a decade until 1976, effectively depriving an entire generation of young people of the opportunity to access higher education (the “lost generation”). Using data from a nationally representative survey, we compare cohorts who graduated from high school just before and after the college entrance exam was resumed. We find that members of the “lost generation” who missed out on college because they were born just a year or two too early believe that effort pays off to a much lesser degree, even 40 years into their adulthood. However, they invested more in their children’s education, and transmitted less of their changed beliefs to the next generation, suggesting attempts to safeguard their children from sharing their misfortunes.

Marketization process predicts trust decline in China
Ziqiang Xin & Sufei Xin
Journal of Economic Psychology, October 2017, Pages 120-129

Although previous literature has revealed the predictive effect of trust on economic development, whether the level of China’s market economy development predicts changes in trust across birth cohorts remains unknown. Study 1, a cross-temporal meta-analysis of 82 studies (N = 34,151), indicated that Chinese college students’ scores on the Interpersonal Trust Scale (ITS) decreased significantly from 1998 to 2011, and that the decline in interpersonal trust across birth cohorts was negatively associated with and predicated by the marketization index. Study 2 found that the levels of marketization of different provinces in China were negatively associated with the levels of trust in these provinces. The present research first proposed that the marketization process in China may predict or correlate with a trend of declining trust, and then demonstrated the validity of the proposal based on both longitudinal and cross-sectional evidence.

Painting too “Rosie” a picture: The impact of external threat on women’s economic welfare
Jaroslav Tir & Maureen Bailey
Conflict Management and Peace Science, forthcoming

Why is the economic status of women better in one country than another? We maintain that the answer lies in part in the extent of external threat to the homeland territory a country faces. To respond to the threat, states centralize their decision-making, invest more in the military and decrease citizens’ liberties. Associated restrictions and emphases on more “masculine” values create an environment where women’s welfare takes a back seat to the ostensible priority of defending the homeland. Utilizing measures of women’s unemployment from across the world, 1981-2001, we demonstrate that higher levels of territorial threat decrease women’s economic welfare.

“Gimme Shelter”: The Role of Democracy and Institutional Quality in Disaster Preparedness
Tove Ahlbom Persson & Marina Povitkina
Political Research Quarterly
, forthcoming

Natural disasters cause suffering for millions of people around the globe every year, and as climate change unfolds, the likelihood of natural catastrophes is increasing. While weather shocks such as earthquakes, tornadoes, and floods are beyond our control, the governments’ capacity to protect populations largely determines the degree of human suffering in disasters. Democracies, with freedom of speech, broad public participation, and representation, are believed to protect their populations better than nondemocratic regimes. However, democratic institutions are insufficient for securing protection from disasters in contexts of corruption, poor planning, and public administration incompetence. We argue that the effect of democracy on the extent of human suffering in disasters is contingent on the ability of governments to implement their tasks or the quality of implementing institutions. We test this interaction hypothesis using time-series cross-sectional data from the Varieties of Democracy project, the Quality of Government dataset, and the Centre for Research on the Epidemiology of Disasters. The results show that more democracy is associated with fewer people being affected by natural disasters only in settings where institutional quality is high. When institutional quality is low, more people seem to suffer in democracies than in authoritarian states.

What are the costs of violence?
Anke Hoeffler
Politics, Philosophy & Economics
, forthcoming

This article presents estimates of the global cost of collective and interpersonal violence for the period of one year. This includes war, terrorism, homicides, assaults and domestic violence against women and children. The cost of conventionally defined interpersonal violence, that is, homicides and assault, are about 7.5 times higher than the cost due to war and terrorism. I also estimate the costs of non-fatal domestic violence against children and women and suggest that these costs are much higher than the combined costs of homicide, assault, terrorism and war. The main reason is that the prevalence of these types of violence is very high: possibly as many as 16 per cent of all children are punished using violent methods and about 12 per cent of all women experience intimate partner violence. Richer societies have lower levels of violence, and there is evidence that prevalence rates have been declining over time. However, it is often unclear why this is the case. Much of the evidence from violence reducing interventions comes from high-income countries, and it is uncertain whether these programs would be similarly effective in low- and middle-income countries. However, although further research is needed to examine the effectiveness of violence-reducing interventions, it appears likely that some interventions would constitute a very effective use of resources.

Ecological Origins of Freedom: Pathogens, Heat Stress, and Frontier Topography Predict More Vertical but Less Horizontal Governmental Restriction
Lucian Gideon Conway et al.
Personality and Social Psychology Bulletin, forthcoming

What kinds of physical environments make for free societies? The present research investigates the effect of three different types of ecological stressors (climate stress, pathogen stress, and frontier topography) on two measurements of governmental restriction: Vertical restriction involves select persons imposing asymmetrical laws on others, while horizontal restriction involves laws that restrict most members of a society equally. Investigation 1 validates our measurements of vertical and horizontal restriction. Investigation 2 demonstrates that, across both U.S. states and a sample of nations, ecological stressors tend to cause more vertically restrictive societies but less horizontally restrictive societies. Investigation 3 demonstrates that assortative sociality partially mediates ecological stress→restriction relationships across nations, but not in U.S. states. Although some stressor-specific effects emerged (most notably, cold stress consistently showed effects in the opposite direction), these results in the main suggest that ecological stress simultaneously creates opposing pressures that push freedom in two different directions.

Statehood Experience, Legal Traditions, and Climate Change Policies
James Ang & Per Fredriksson
Economic Inquiry, July 2017, Pages 1511-1537

This study investigates how the implementation of modern climate change policies is related to former colonies' length of state history and their legal heritage. We argue that countries with longer statehood experience around the time of colonization were better equipped to implement the legal philosophies transplanted by their colonial powers. Therefore, the implications of receiving British common law versus French civil law should be particularly important in countries with a greater accumulated history of statehood. Using a cross-section of up to 78 former colonies, our results provide support for this hypothesis. In particular, our estimates demonstrate that common law countries have weaker modern climate change policies than civil law countries and the difference is inflated by a longer statehood experience, measured by the length of state history from 1 to 1800 AD. Legal origin has no effect in areas which, by the time of colonization, had no statehood experience. Finally, we report similar results for the pattern of labor market regulations.

Income Elasticity and the Global Value of a Statistical Life
Kip Viscusi & Clayton Masterman
Vanderbilt University Working Paper, May 2017

Countries throughout the world use estimates of the value of a statistical life (VSL) to monetize fatality risks in benefit-cost analyses. However, the vast majority of countries lack reliable revealed preference or stated preference estimates of the VSL. This article proposes that the best way to calculate a VSL for countries with insufficient or unreliable data is to transfer a base VSL from the United States calculated using labor market estimates from Census of Fatal Occupational Injuries data, coupled with adjustments for differences in income between the United States and the country of interest. This approach requires estimation of two critical inputs: a base U.S. VSL and the income elasticity of the VSL. Drawing upon previous meta-analyses that include adjustments for publication selection biases, we adopt a base VSL of $9.6 million. Based on a sample of 953 VSL estimates from 68 labor market studies of the VSL, we estimate the income elasticity of the VSL within the United States to be from 0.5 to 0.7 and to be just above 1.0 for non-U.S. countries. Quantile regression reveals that much of the disparity income elasticities is attributable to income differences between the United States and other countries, as the income elasticity increases for lower income populations. Using income classifications from the World Bank, we calculate average VSLs in lower income, lower-middle income, upper-middle income, and upper income countries to be $125,000, $380,000, $1.3 million, and $5.7 million, respectively. We also present VSL estimates for all 189 countries for which World Bank income data are available, yielding a VSL range from $104,000 to $23.2 million.

Endogenous Enforcement Institutions
Gani Aldashev & Giorgio Zanarone
Journal of Development Economics, September 2017, Pages 49-64

Faster courts favor economic development in States with sufficiently constrained executive power, whereas they harm development in States where political power is relatively unconstrained. We document this novel pattern across developing countries, and build a simple model of the State as a self-enforcing social contract, which illustrates how power, and institutions that constrain or complement it, affect development. We show a tradeoff between the two facets of power - enforcement and expropriation. As the ruler’s power grows, his temptation to shirk on enforcement diminishes while the temptation to expropriate grows. Consequently, private enforcement optimally evolves into State enforcement. Moreover, faster courts relax the ruler’s incentive constraint on enforcement but tighten his non-expropriation incentive constraint; thus, the effect on development depends on which incentive constraint binds in equilibrium. Our results are consistent with the observed cross-country patterns and with historical evidence on transition from the “Law Merchant” enforcement system to the State.

The Economic Impact of China's Anti-Corruption Campaign
Nan Chen & Zemin (Zachary) Zhong
University of California Working Paper, June 2017

Political corruption is a major problem in governance and is pervasive especially in developing countries. Depending on pre-existing distortions, corruption may benefit economic growth by "greasing the wheel", or it may distort supply of public goods and create inefficiency. Empirically testing the effect of corruption on efficiency and distribution is difficult due to the evasive nature of corruption. We take an alternative approach by investigating the economic impacts of governments' anti-corruption efforts. Our analysis is performed in the context of China's recent anti-corruption campaign under the new president Xi Jinping, the largest of its kind in recent history. As an important initiative of this campaign, the CPC's Provincial Committee of Discipline Inspection (PCDI) send inspection teams to investigate county-level government for potential corruption. The variation in the timing of PCDI visit allows us to use a difference-in-difference design to identify the impact of anti-corruption on local economy. Using a unique administrative dataset of vehicle registration, we find that PCDI visits cause car sales to drop by 3.4% at county level. The effect is surprisingly uniformly distributed across different price tiers. Luxury brands exhibit a similar drop as domestic brands, suggesting corruption's impact permeates a wide income spectrum. Over time, the effect is strengthening: We observe a 2% drop in the first three months of PCDI visit, and a 10% drop one year afterwards. The especially large impact cannot be explained by decline in government officials' consumption behavior, suggesting anti-corruption efforts also affect the private sector.

Ethnic politics and the diffusion of mobile technology in Africa
Roland Hodler & Paul Raschky
Economics Letters, October 2017, Pages 78-81

This paper explores the extrinsic and intrinsic motivations driving individual level responses to reputational threats in the context of the director labor market. Integrating work on reputation with self-determination and identity theories, we theorize that negative attention from the media and star equity analysts threatens directors' reputations, motivating proactive behavior to mitigate both the external and internal consequences of reputation damage. Using a sample of directors of S&P 1500 firms between 2003 and 2014, we argue and find that negative media coverage and downgrades by star equity analysts are positively related to director exit, even after controlling for firm performance, overall media visibility, and negative events such as lawsuits and financial restatements. We also find that director status intensifies the effect of negative media coverage on exit, serving as the board chair attenuates the effect of star analyst downgrades on exit, and director tenure intensifies the effects of both negative media coverage and star downgrades on exit. In post-hoc testing, we provide further evidence of director reputation maintenance by demonstrating the counterintuitive finding that negative attention from the media and star analysts also increases directors' likelihood of joining the boards of other S&P 1500 firms.

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