In Search of Reforms for Growth: New Stylized Facts on Policy and Growth Outcomes
NBER Working Paper, September 2019
The lack of growth response to "Washington Consensus" policy reforms in the 1980s and 1990s led to widespread doubts about the value of such reforms. This paper updates these stylized facts by analyzing moderate to extreme levels of inflation, black market premiums, currency overvaluation, negative real interest rates and abnormally low trade shares to GDP. It finds three new stylized facts: (1) policy outcomes worldwide have improved a lot since the 1990s, (2) improvements in policy outcomes and improvements in growth across countries are correlated with each other, and (3) growth has been good after reform in Africa and Latin America, in contrast to the "lost decades" of the 80s and 90s. This paper makes no claims about causality. However, if the old stylized facts on disappointing growth accompanying reforms led to doubts about economic reforms, new stylized facts should lead to some positive updating of such beliefs.
Contingencies in the relationship between economic freedom and human development: The role of generalized trust
Journal of Institutional Economics, forthcoming
An increasing volume of literature has shown that human development is related to economic institutions. But previous literature has not considered that the effects of economic institutions on human development are contingent on culture. In this study, we contend that the effects of economic freedom (as an indicator of economic institutions) on human development are dependent on generalized trust (as an indicator of culture). Using panel analysis on a sample of 29 OECD countries during 1990-2015, we find that generalized trust positively moderates the relationship between economic freedom and human development. The policy implication is that free market institutions foster human development only in high trust societies, not in low trust countries.
Clarifications of a Puzzle: The Decline in Nutritional Status at the Onset of Modern Economic Growth in the United States
John Komlos & Brian A'Hearn
Journal of Economic History, December 2019, Pages 1129-1153
Bodenhom, Guinnane, and Mroz (2017) are critical of anthropometric research using based on non-random samples. Declining height trends in military and prison data, they argue, are artifacts of negative selection during favorable labor market conditions. We study height trends in the United States in the antebellum decades, which coincided with the onset of modem economic growth. We find that neither the historical evidence nor their own statistical analysis support their views. The decline in physical stature in the decades before the Civil War was real, as Zimran (2019) has also shown.
Assessing the impact of the "one-child policy" in China: A synthetic control approach
Stuart Gietel-Basten, Xuehui Han & Yuan Cheng
PLoS ONE, November 2019
There is great debate surrounding the demographic impact of China's population control policies, especially the one-birth restrictions, which ended only recently. We apply an objective, data-driven method to construct the total fertility rates and population size of a 'synthetic China', which is assumed to be not subjected to the two major population control policies implemented in the 1970s. We find that while the earlier, less restrictive 'later-longer-fewer' policy introduced in 1973 played a critical role in driving down the fertility rate, the role of the 'one-child policy' introduced in 1979 and its descendants was much less significant. According to our model, had China continued with the less restrictive policies that were implemented in 1973 and followed a standard development trajectory, the path of fertility transition and total population growth would have been statistically very similar to the pattern observed over the past three decades.
Multinationals, Monopsony and Local Development: Evidence from the United Fruit Company
Esteban Mendez-Chacon & Diana Van Patten
University of California Working Paper, November 2019
This paper studies the short- and long-run effects of large firms on economic development. We use evidence from one of the largest multinationals of the 20th Century: The United Fruit Company (UFC). The firm was given a large land concession in Costa Rica - one of the so-called 'Banana Republics' - from 1889 to 1984. Using administrative census data with census-block geo-references from 1973 to 2011, we implement a geographic regression discontinuity (RD) design that exploits a quasi-random assignment of land. We find that the firm had a positive and persistent effect on living standards. Regions within the UFC were 26% less likely to be poor in 1973 than nearby counterfactual locations, with only 63% of the gap closing over the following 3 decades. Company documents explain that a key concern at the time was to attract and maintain a sizable workforce, which induced the firm to invest heavily in local amenities that likely account for our result. We then build a dynamic spatial model in which a firm's labor market power within a region depends on how mobile workers are across locations and run counterfactual exercises. The model is consistent with observable spatial frictions and the RD estimates, and shows that the firm increases aggregate welfare by 2.9%. This effect is increasing in worker mobility: If workers were half as mobile, the firm would have decreased aggregate welfare by 6%. The model also shows that a local monopsonist compensates workers mostly through local amenities keeping wages low, and leads to higher welfare levels than a counterfactual with perfectly competitive labor markets in all regions, if we assume amenities have productivity spillovers.
There's No Such Thing As Free Land: The Homestead Act and Economic Development
Itzchak Tzachi Raz & Ross Mattheis
Harvard Working Paper, November 2019
The 1862 Homestead Act provided free land conditional on five years of residency and cultivation to settlers on the American West. In total, 10% of the land in the United States was granted to 1.6 million individuals. This study examines the impact of the Act on long-run development. Using spatial regression discontinuity and instrumental variable designs, we find that areas with greater historical exposure to homesteading are poorer today. The effect is stronger in urban locations and driven by non-agricultural sectors. Homesteading regions are also more rural and less geographically mobile. Using newly geo-referenced historical census data, we document the path of regional divergence starting from the initial settlement. We find that homesteading regions were slower to transition out of agriculture. We hypothesize that the transitory distortions caused by the Act's residency and cultivation requirements induced a selection process that set homesteading regions on divergent paths of development. Settlers with lower productivity as laborers selected into homesteading, and those with greater agricultural skills were more likely to survive as homesteaders on the frontier. This, in turn, inhibited the development of non-agricultural sectors and the subsequent benefits of agglomeration.
Rule of Law and Female Entrepreneurship
Nava Ashraf, Alexia Delfino & Edward Glaeser
NBER Working Paper, October 2019
Commerce requires trust, but trust is difficult when one group consistently fears expropriation by another. If men have a comparative advantage at violence and there is little rule-of-law, then unequal bargaining power can lead women to segregate into low-return industries and avoid entrepreneurship altogether. In this paper, we present a model of female entrepreneurship and rule of law that predicts that women will only start businesses when they have both formal legal protection and informal bargaining power. The model's predictions are supported both in cross-national data and with a new census of Zambian manufacturers. In Zambia, female entrepreneurs collaborate less, learn less from fellow entrepreneurs, earn less and segregate into industries with more women, but gender differences are ameliorated when women have access to adjudicating institutions, such as Lusaka's "Market Chiefs" who are empowered to adjudicate small commercial disputes. We experimentally induce variation in local institutional quality in an adapted trust game, and find that this also reduces the gender gap in trust and economic activity.
A Simple Combinatorial Model of World Economic History
Roger Koppl et al.
Syracuse University Working Paper, November 2018
We use a simple combinatorial model of technological change to explain the Industrial Revolution. The Industrial Revolution was a sudden large improvement in technology, which resulted in significant increases in human wealth and life spans. In our model, technological change is combining or modifying earlier goods to produce new goods. The underlying process, which has been the same for at least 200,000 years, was sure to produce a very long period of relatively slow change followed with probability one by a combinatorial explosion and sudden takeoff. Thus, in our model, after many millennia of relative quiescence in wealth and technology, a combinatorial explosion created the sudden takeoff of the Industrial Revolution.
The Lazarus drug: The impact of antiretroviral therapy on economic growth
Journal of Development Economics, forthcoming
Does better population health lead to growth in per capita income? Theory is ambiguous and empirical evidence is very limited. In 2001, a steep fall in antiretroviral (ARV) drug prices triggered rapid and massive expansion of ARV therapy coverage in lower-income countries. Exploiting the sharp resultant changes in population health, I show that ARV therapy coverage expansion led to growth in GDP per capita. The positive effects on growth most likely persist for around four years. ARV therapy coverage expansion could explain around a third of the sub-Saharan African "growth miracle".
Institutional Transplant and Cultural Proximity: Evidence from Nineteenth-Century Prussia
Giampaolo Lecce & Laura Ogliari
Journal of Economic History, December 2019, Pages 1060-1093
This article presents evidence that cultural proximity between the exporting and the receiving countries positively affects the adoption of new institutions and the resulting long-term economic outcomes. We obtain this result by combining new information on pre-Napoleonic principalities with county-level census data from nineteenth-century Prussia. We exploit a quasi-natural experiment generated by radical Napoleonic institutional reforms and the deeply rooted cultural heterogeneity across Prussian counties. We show that institutional reforms in counties that are culturally more similar to France, in terms of religious affiliation, generate better long-term economic performance.
The Creation and Evolution of Entrepreneurial Public Markets
Shai Bernstein, Abhishek Dev & Josh Lerner
Journal of Financial Economics, forthcoming
This paper explores the creation and evolution of new stock exchanges around the world geared toward entrepreneurial companies, known as second-tier exchanges. Using hand-collected novel data, we show the proliferation of these exchanges in many countries, their significant volume of Initial Public Offerings (IPOs), and lower listing requirements. Shareholder protection strongly predicted exchange success, even in countries with high levels of venture capital activity, patenting, and financial market development. Better shareholder protection allowed younger, less-profitable, but faster-growing, companies to raise more capital. These results highlight the importance of institutions in enabling the provision of entrepreneurial capital to young companies.
The Legacy of Colonial Language Policies and Their Impact on Student Learning: Evidence from an Experimental Program in Cameroon
David Laitin, Rajesh Ramachandran & Stephen Walter
Economic Development and Cultural Change, October 2019, Pages 239-272
The relative educational returns on colonial versus indigenous language instruction in sub-Saharan countries have yet to be decisively estimated. To address this unanswered question, this paper provides an impact assessment of an experiment in Cameroon in which the first 3 years of schooling were conducted in a local language instead of in English. Test results in examinations in both English and math reveal that treated students exhibit gains of 1.1-1.4 of a standard deviation in grades 1 and 3 compared with the control students. It also increases the probability of being present in grades 3 and 5 by 22 and 14 percentage points, respectively. However, by the end of fifth grade, 2 years after reverting to the English stream, treated students still exhibit gains of 0.40-0.60 of a standard deviation, although the absolute scores for both groups are low enough to suggest limited learning is taking place.
Muslim Trade and City Growth Before the Nineteenth Century: Comparative Urbanization in Europe, the Middle East and Central Asia
Lisa Blaydes & Christopher Paik
British Journal of Political Science, forthcoming
Scholars have long sought to understand when and why the Middle East fell behind Europe in its economic development. This article explores the importance of historical Muslim trade in explaining urban growth and decline in the run-up to the Industrial Revolution. The authors examine Eurasian urbanization patterns as a function of distance to Middle Eastern trade routes before and after 1500 CE - the turning point in European breakthroughs in seafaring, trade and exploration. The results suggest that proximity to historical Muslim trade routes was positively associated with urbanization in 1200 but not in 1800. These findings speak to why Middle Eastern and Central Asian cities - which had long benefited from their central location between Europe and Asia - declined as Europeans found alternative routes to the East and opened trade opportunities in the New World.
Patronage for Productivity: Selection and Performance in the Age of Sail
Hans-Joachim Voth & Guo Xu
University of California Working Paper, August 2019
Patronage is a byword for poor performance, yet it remains pervasive. We study the selection effects of patronage in the world's most successful navy - the British Royal Navy between 1690 and 1849. Using newly collected data on the battle performance of more than 5,800 naval officers promoted - with and without family ties - to the top of the navy hierarchy, we find that connected promotees outperformed unconnected ones. There was substantial heterogeneity among the admirals in charge of promotions. Discretion over appointments thus created scope for "good" and "bad" patronage. Because most admirals promoted on the basis of merit and did not favor their kin, the overall selection effect of patronage was positive.