Findings

Joining the modern world

Kevin Lewis

March 22, 2017

The Long-Term Effect of Demographic Shocks on the Evolution of Gender Roles: Evidence from the Transatlantic Slave Trade

Edoardo Teso

Harvard Working Paper, July 2016

Abstract:
How do demographic shocks affect the long-run evolution of female labor force participation and gender norms? This paper focuses on the emergence of a female biased sex ratio in Africa as a consequence of the transatlantic slave trade. This historical shock affected the division of labor along gender lines, as women substituted for the missing men by taking up areas of work that were traditionally male prerogatives. By exploiting variation in the degree to which different ethnic groups were affected by the transatlantic slave trade, I show that a temporary historical shock to the division of labor can have a persistent effect on the role of women in society: women whose ancestors were more exposed to the transatlantic slave trade are today more likely to be in the labor force, have lower levels of fertility, and are more likely to participate in household decisions. The marriage market and the cultural transmission of internal norms across generations represent important mechanisms explaining persistence.

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The Macrogenoeconomics of Comparative Development

Quamrul Ashraf & Oded Galor

NBER Working Paper, February 2017

Abstract:
The importance of evolutionary forces for comparative economic performance across societies has been the focus of a vibrant literature, highlighting the roles played by the Neolithic Revolution and the prehistoric “out of Africa” migration of anatomically modern humans in generating worldwide variations in the composition of human traits. This essay surveys this literature and examines the contribution of a recent hypothesis regarding the evolutionary origins of comparative economic development, set forth in Nicholas Wade’s A Troublesome Inheritance: Genes, Race and Human History, to this important line of research.

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The Effect of Aid on Growth: Evidence from a Quasi-Experiment

Sebastian Galiani et al.

Journal of Economic Growth, March 2017, Pages 1–33

Abstract:
The literature on aid and growth has not found a convincing instrumental variable to identify the causal effects of aid. This paper exploits an instrumental variable based on the fact that, since 1987, eligibility for aid from the International Development Association (IDA) has been based partly on whether or not a country is below a certain threshold of per capita income. The paper finds evidence that other donors tend to reinforce rather than compensate for reductions in IDA aid following threshold crossings. Overall, aid as a share of gross national income (GNI) drops about 59 % on average after countries cross the threshold. Focusing on the 35 countries that have crossed the income threshold from below between 1987 and 2010, a positive, statistically significant, and economically sizable effect of aid on growth is found. A 1 percentage point increase in the aid to GNI ratio from the sample mean raises annual real per capita growth in gross domestic product by approximately 0.35 percentage points.

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Spatial Competition, Innovation and Institutions: The Industrial Revolution and the Great Divergence

Klaus Desmet, Avner Greif & Stephen Parente

Stanford Working Paper, February 2017

Abstract:
Why do some countries industrialize much earlier than others? One widely-accepted answer is that markets need to be large enough for producers to find it profitable to bear the fixed cost of introducing modern technologies. This insight, however, has limited explanatory power, as illustrated by England having industrialized nearly two centuries before China. This paper argues that a market-size-only theory is insufficient because it ignores that many of the modern technologies associated with the Industrial Revolution were fiercely resisted by skilled craftsmen who expected a reduction in earnings. Once we take into account the incentives to resist by factor suppliers’ organizations such as craft guilds, we theoretically show that industrialization no longer depends on market size, but on the degree of spatial competition between the guilds’ jurisdictions. We substantiate the relevance of our theory for the timing of industrialization in England and China (i) by providing historical and empirical evidence on the relation between spatial competition, craft guilds and innovation, and (ii) by showing that a model of our theory calibrated to historical data on spatial competition correctly predicts the timing of industrialization in both countries. The theory can therefore account for both the Industrial Revolution and the Great Divergence.

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The Historical State, Local Collective Action, and Economic Development in Vietnam

Melissa Dell, Nathaniel Lane & Pablo Querubin

NBER Working Paper, March 2017

Abstract:
This study examines how the historical state conditions long-run development, using Vietnam as a laboratory. Northern Vietnam (Dai Viet) was ruled by a strong centralized state in which the village was the fundamental administrative unit. Southern Vietnam was a peripheral tributary of the Khmer (Cambodian) Empire, which followed a patron-client model with weaker, more personalized power relations and no village intermediation. Using a regression discontinuity design across the Dai Viet-Khmer boundary, the study shows that areas historically under a strong state have higher living standards today and better economic outcomes over the past 150 years. Rich historical data document that in villages with a strong historical state, citizens have been better able to organize for public goods and redistribution through civil society and local government. This suggests that the strong historical state crowded in village-level collective action and that these norms persisted long after the original state disappeared.

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Social Closure, Surnames and Crime

Paolo Buonanno & Paolo Vanin

Journal of Economic Behavior & Organization, forthcoming

Abstract:
This paper studies the effect of social closure on crime and tax evasion rates using disaggregated data for Italian municipalities. We propose an original and innovative measure of social closure based on the diversity of surname distribution, which reflects a community's history of migration and inbreeding. We find that, all else equal, communities with a history of social closure have lower crime rates and higher tax evasion rates than more open communities. The effect of social closure is likely to be causal, it is relevant in magnitude, statistically significant, and robust to changes in the set of included controls, in the specific measures of dependent and independent variables, in the specification of the regression equation, and in the possible sample splits. Our findings are consistent with the idea that social closure strengthens social sanctions and social control, thus leading to more cooperative outcomes in local interactions, but it reduces cooperation on a larger scale.

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Agricultural Diversity, Structural Change and Long-run Development: Evidence from the U.S.

Martin Fiszbein

NBER Working Paper, February 2017

Abstract:
This paper examines the role of agricultural diversity in the process of development. Using data from U.S. counties and exploiting climate-induced variation in agricultural production patterns, I show that mid-19th century agricultural diversity had positive long-run effects on population density and income per capita. Examining the effects on development outcomes over time, I find that early agricultural diversity fostered structural change during the Second Industrial Revolution. Besides stimulating industrialization, agricultural diversity boosted manufacturing diversification, patent activity, and new labor skills, as well as knowledge- and skill-intensive industries. These results are consistent with the hypothesis that diversity spurs the acquisition of new ideas and new skills because of the presence of cross-sector spillovers and complementarities.

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Flexible Supply of Apprenticeship in the British Industrial Revolution

Nadav Ben Zeev, Joel Mokyr & Karine van der Beek

Journal of Economic History, March 2017, Pages 208-250

Abstract:
We use annual information on apprenticeships in England between 1710–1805 to estimate the dynamic supply-responsiveness in this market in the presence of the increasingly powerful technological shocks as the Industrial Revolution proceeded apace. Using both an Instrumental Variable method and a dynamic Vector Autoregression framework (VAR) system to identify the long-run response functions, we find evidence of an elastic supply, sufficiently high as to allow quantities to rise considerably in response to demand shocks. This finding lends support to the view that Britain's apprenticeship institution was the source of its advantage in skilled mechanical labor, so critical to its economic success.

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Technology-Skill Complementarity in Early Phases of Industrialization

Raphaël Franck & Oded Galor

NBER Working Paper, February 2017

Abstract:
The research explores the effect of industrialization on human capital formation. Exploiting exogenous regional variations in the adoption of steam engines across France, the study establishes that, in contrast to conventional wisdom that views early industrialization as a predominantly deskilling process, the industrial revolution was conducive for human capital formation, generating wide-ranging gains in literacy rates and educational attainment.

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Reform Support in Times of Crisis: The Role of Family Ties

Elias Brumm & Johannes Brumm

Economic Inquiry, forthcoming

Abstract:
We argue that an important determinant of voters' support for economic reform is the strength of family ties. While the “crisis hypothesis” predicts that crises facilitate reform, we show in a political economy model that this relation can break down, and even reverse, when agents take into account the effect of reform on their family members. Applied to southern European countries with strong family ties, the model rationalizes why the extremely high (youth) unemployment following the Great Recession has not led to more substantial labor market reforms. In such countries austerity might block rather than foster additional structural reforms.

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Who governs or how they govern: Testing the impact of democracy, ideology and globalization on the well-being of the poor

Eunyoung Ha & Nicholas Cain

Social Science Journal, forthcoming

Abstract:
This paper examines the effects of regime type, government ideology and economic globalization on poverty in low- and middle-income countries around the world. We use panel regression to estimate the effect of these explanatory variables on two different response variables: national poverty gap (104 countries from 1981 to 2005) and child mortality rate (132 countries from 1976 to 2005). We find consistent and significant results for the interactive effect of democracy and government ideology: strong leftist power under a democratic regime is associated with a reduction in both the poverty gap and the child mortality rate. Democracy, on its own, is associated with a lower child mortality rate, but has no effect on the poverty gap. Leftist power under a non-democratic regime is associated with an increase in both poverty measures. Trade reduces both measures of poverty. Foreign direct investment has a weak and positive effect on the poverty gap. From examining factors that influence the welfare of poor people in less developed countries, we conclude that who governs is as important as how they govern.

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Keeping It in the Family: Lineage Organization and the Scope of Trust in Sub-Saharan Africa

Jacob Moscona, Nathan Nunn & James Robinson

NBER Working Paper, February 2017

Abstract:
We present evidence that the traditional structure of society is an important determinant of the scope of trust today. Within Africa, individuals belonging to ethnic groups that organized society using segmentary lineages exhibit a more limited scope of trust, measured by the gap between trust in relatives and trust in non-relatives. This trust gap arises because of lower levels of trust in non-relatives and not higher levels of trust in relatives. A causal interpretation of these correlations is supported by the fact that the effects are primarily found in rural areas where these forms of organization are still prevalent.

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Political freedom and corporate payouts

Omrane Guedhami, Chuck Kwok & Liang Shao

Journal of Corporate Finance, April 2017, Pages 514–529

Abstract:
We study the effect of a country's political freedom status on corporate payouts around the world. In both OLS and two-stage regressions, we find that firms in less free countries pay out more cash, suggesting that low political freedom is associated with a less friendly investment environment. Consistent with this view, we further find that firms reduce payouts when a country's political freedom status improves, while they tend to pay out past excess cash and cut future investment in the face of a deterioration in political freedom. In additional analysis, we also find that firms in less free countries do not pay out cash mainly to ease agency concerns: cash payouts in these countries are more volatile and hence less valuable.

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The Role of Constitutions on Poverty: A Cross-National Investigation

Lanse Minkler & Nishith Prakash

Journal of Comparative Economics, forthcoming

Abstract:
We construct and use a new historical data set on economics and social rights from the constitutions of 195 countries and an instrument variable strategy to answer two important questions. First, do economic and social rights provisions in constitutions reduce poverty, measured as headcount income and health outcomes? Second, does the strength of constitutional language of the economic and social rights matter? Constitutional provisions can be framed either more weakly as directive principles or more strongly as enforceable law. Our results suggest three findings. First, we do not find an association between constitutional rights generally framed and poverty. Second, we do not find an association between economic and social rights framed as directive principles and poverty. Third, we do find a strong negative association between economic and social rights framed as enforceable law and poverty when we use legal origins as our IV. These results persist for indices of constitutional rights and also when we restrict the sample to non-OECD countries. The policy implication is that constitutional provisions framed as enforceable law provide effective meta-rules with incentives for policymakers to initiate, fund, monitor and enforce poverty reduction policies.

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Early-Life Disease Exposure and Occupational Status: The Impact of Yellow Fever during the 19th Century

Martin Saavedra

Explorations in Economic History, forthcoming

Abstract:
Using city-of-birth data from the 100-percent sample of the 1880 Census merged to city-level fatality counts, I estimate the relationship between early-life yellow fever exposure and adult occupational status. I find that white males with immigrant mothers were less likely to become professionals and more likely to become unskilled laborers or report occupational nonresponse if they were born during yellow fever epidemics. They also reported occupations with lower 1900 occupational income scores. The children of U.S.-born mothers (who were less susceptible to the disease) were relatively unaffected. Furthermore, I find no evidence that epidemics 3 to 4 years after birth affect adult occupational status, and the results are robust to controlling for local trade during an individual's birth year.

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Inter-communal institutions in medieval trade

Mika Kallioinen

Economic History Review, forthcoming

Abstract:
This article examines the institutional structure of medieval overseas trade to explain why trade thrived even in the absence of the state. The literature has dealt mainly with intra-coalition or intra-community relations. However, the literature does not answer the question of how institutions could be created that could support interaction between a large number of distant communities and between merchants who did not necessarily know one another. This article presents such an institution that prevailed in the Baltic Sea region in the late middle ages, referred to here as the inter-communal conciliation mechanism. In case of a dispute, conciliation took place between town councils, rather than the merchants involved in the dispute, thus combining individual liability and communal enforcement. Exploration of the documents reveals a task-specific regularity of behaviour, which was the general practice among merchants to turn to the council of their own community when they had problems in a foreign town, instead of being obliged to solve disputes by themselves. This institution provided a permanent, centralized, and relatively impartial enforcement mechanism to respond to breaches. It was therefore well adapted to large, at least partially anonymous markets, such as the Baltic Sea region, with dozens of towns and thousands of merchants.

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Farmers at the heart of the ‘human capital revolution’? Decomposing the numeracy increase in early modern Europe

Franziska Tollnek & Joerg Baten

Economic History Review, forthcoming

Abstract:
Did the early development of skills and numerical abilities occur primarily in urban centres and among the elite groups of society? This study assesses the human capital of different occupational groups in the early modern period and partially confirms this finding: skilled and professional groups had higher levels of numeracy and literacy than persons in unskilled occupations. However, there was another large group that developed substantial human capital and represented around one-third of the total population: farmers. By analysing numeracy and literacy evidence from six countries in Europe and Latin America, we argue that farmers contributed significantly to the formation of human capital and, consequently, to modern economic growth.


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