Out of the hole
The Historical Slave Trade and Firm Access to Finance in Africa
Lamar Pierce & Jason Snyder
Review of Financial Studies, January 2018, Pages 142–174
Abstract:
Access to finance helps explain the link between the historical African slave trade and current gross domestic product. We first present mistrust, weakened institutions, and ethnic fractionalization as plausible historical channels linking the slave trade to modern finance and development. We then show (i) the slave trade is consistently linked to reduced access to the formal and trade credit needed by modern firms, (ii) this shortage particularly reduces capital investment in smaller firms not in business groups, and (iii) the slave trade cannot explain most other business obstacles, suggesting that long-term societal shocks are exceptionally important for finance.
Chinese aid and local corruption
Ann-Sofie Isaksson & Andreas Kotsadam
Journal of Public Economics, forthcoming
Abstract:
Considering the mounting criticisms concerning Chinese aid practices, the present paper investigates whether Chinese aid projects fuel local-level corruption in Africa. To this end, we geographically match a new geo-referenced dataset on the subnational allocation of Chinese development finance projects to Africa over the 2000–2012 period with 98,449 respondents from four Afrobarometer survey waves across 29 African countries. By comparing the corruption experiences of individuals who live near a site where a Chinese project is being implemented at the time of the interview to those of individuals living close to a site where a Chinese project will be initiated but where implementation had not yet started at the time of the interview, we control for unobservable time-invariant characteristics that may influence the selection of project sites. The empirical results consistently indicate more widespread local corruption around active Chinese project sites. The effect is seemingly not driven by an increase in economic activity, but rather seems to signify that the Chinese presence impacts norms. Moreover, Chinese aid stands out from World Bank aid in this respect. In particular, whereas the results indicate that Chinese aid projects fuel local corruption but have no observable impact on short term local economic activity, they suggest that World Bank aid projects stimulate local economic activity without any consistent evidence of it fuelling local corruption.
The Effect of Transport Infrastructure on the Location of Economic Activity: Railroads and Post Offices in the American West
Charles Hodgson
Journal of Urban Economics, March 2018, Pages 59–76
Abstract:
This paper uses data on the locations of historical US Post Offices to study the effect of railroad construction between 1868 and 1889 on the geographical distribution of towns in the American West. I estimate the probability of survival and expected lifetime of a post office as flexible functions of the distance to the railroad. Existing post offices that were bypassed by the railroad at between 5 and 10 km were 20 to 50 percentage points less likely to remain in operation until 2010 than control post offices over 50 km from the railroad. Given the historically close correspondence between the location of post offices and the location of towns, these results provide evidence that the railroads generated an agglomeration shadow - towns that were “almost” connected to the railroad were more likely to decline than those that remained isolated. I show that the short distances over which the forces of agglomeration act in this setting mean that it is difficult to detect the agglomerative effects of railroad construction using alternative methodologies based on census population data.
Late marriage as a contributor to the industrial revolution in England
James Foreman-Peck & Peng Zhou
Economic History Review, forthcoming
Abstract:
Was the European marriage pattern an important contributor to England's precocious economic development? This article examines this question by embedding the possibility in a historically substantiated demographic-economic model, supported by both cross-section and long time series evidence. Persistent high mortality and powerful mortality shocks in the fourteenth and fifteenth centuries lowered life expectations. Subsequently increased life expectancy reduced the number of births necessary to achieve a given family size. Fewer births were achieved by a higher age at first marriage of females. Later marriage not only constrained population growth but also provided greater opportunities for female informal learning, especially through ‘service’. In a period when the family was the principal institution for socializing future workers, such learning was a significant contributor to the intergenerational transmission and accumulation of human capital. This article shows how, over the centuries, the gradual induced rise of human capital raised productivity and eventually brought about the industrial revolution. Without the contribution of late marriage to human capital accumulation broadly interpreted, real wages in England would not have increased strongly in the early nineteenth century and would have been much lower than actually achieved for several centuries.
Fecundity, Fertility and the Formation of Human Capital
Marc Klemp & Jacob Weisdorf
Economic Journal, forthcoming
Abstract:
Exploiting a genealogy of English individuals living in the 16th to the 19th centuries, this study shows that lower parental reproductive capacity positively affected the socio-economic achievements of offspring. Using the time interval between the date of marriage and the first birth as a measure of reproductive capacity, we find that parental fecundity positively affected the number of siblings and that children of parents with lower fecundity were more likely to become literate and employed in skilled and high-income professions. This suggests there was a trade-off between child quantity and quality in England during the industrial revolution, supporting leading theories of the origins of modern economic growth.
Do gender gaps in education and health affect economic growth? A cross-country study from 1975 to 2010
Bidisha Mandal, Raymond Batina & Wen Chen
Health Economics, forthcoming
Abstract:
We use system-generalized method-of-moments to estimate the effect of gender-specific human capital on economic growth in a cross-country panel of 127 countries between 1975 and 2010. There are several benefits of using this methodology. First, a dynamic lagged dependent econometric model is suitable to address persistence in per capita output. Second, the generalized method-of-moments estimator uses dynamic properties of the data to generate appropriate instrumental variables to address joint endogeneity of the explanatory variables. Third, we allow the measurement error to include unobserved country-specific effect and random noise. We include two gender-disaggregated measures of human capital — education and health. We find that gender gap in health plays a critical role in explaining economic growth in developing countries. Our results provide aggregate evidence that returns to investments in health systematically differ across gender and between low-income and high-income countries.
Longevity, Education, and Income: How Large is the Triangle?
Hoyt Bleakley
NBER Working Paper, January 2018
Abstract:
While health affects economic development and wellbeing through a variety of pathways, one commonly suggested mechanism is a "horizon" channel in which increased longevity induces additional education. A recent literature devotes much attention to how much education responds to increasing longevity, while this study asks instead what impact this specific channel has on wellbeing (welfare). I note that death is like a tax on human-capital investments, which suggests the use of a standard public-economics tool: triangles. I construct estimates of the triangle gain if education adjusts to lower adult mortality. Even for implausibly large responses of education to survival differences, almost all of today's low-human-development countries, if switched instantaneously to Japan's survival curve, would place a value on this channel of less than 15% of income. Calibrating the model with well-identified micro- and cohort-level studies, I find that the horizon triangle for the typical low-income country is instead less than a percent of lifetime income. Gains from increased survival in the 20th-century are similarly sized.
Test Scores, Noncognitive Skills and Economic Growth
Pau Balart, Matthijs Oosterveen & Dinand Webbink
Economics of Education Review, forthcoming
Abstract:
Many studies have found a strong association between economic outcomes of nations and their performance on international cognitive tests. This association is often interpreted as evidence for the importance of cognitive skills for economic growth. However, noncognitive skills also affect performance on cognitive tests. Following Borghans and Schils (2012), we exploit exogenous variation in the ordering of questions asked by the Programme for International Student Assessment (PISA) to decompose student performance into two components: the starting performance and the decline in performance during the test. The latter component is interpreted as a measure of noncognitive skills. Students from different countries exhibit differences in performance at the start of the test and in their rates of deterioration in performance during the test. Both components have a positive and statistically significant association with economic growth, and the estimated effects are quite similar and robust. Our results show that noncognitive skills are also important for the relationship between test scores and economic growth.
Finance and urbanization in early nineteenth-century New York
Howard Bodenhorn & David Cuberes
Journal of Urban Economics, March 2018, Pages 47–58
Abstract:
Using information on the location of commercial banks in early nineteenth-century New York State we show that the opening of a bank had a significant positive effect on town population growth after the bank opened. Our results are robust to different samples of cities, control groups, time spans, as well as omitting New York City or small towns. To identify this relationship we exploit the legislative granting of corporate bank charters and argue that lobbying introduced enough exogenous variation in bank location choices that the location of banks in this period was different from what it would have been under a system of free entry based on entrepreneurial expectations of a towns’ future population. Using a generalized difference-in-difference approach, we show that towns that petition for and received a bank between 1821 and 1835 saw their population increase more rapidly than those that petitioned for and did not receive a bank. Because urbanization and modernization were correlated in the nineteenth century, these results are broadly consistent with the finance-growth nexus identified elsewhere in the economics and economic history literatures.
Subnational diversity in Sub-Saharan Africa: Insights from a new dataset
Boris Gershman & Diego Rivera
Journal of Development Economics, forthcoming
Abstract:
This paper presents a new dataset on subnational ethnolinguistic and religious diversity in Sub-Saharan Africa covering 36 countries and almost 400 first-level administrative units. We use population censuses and large-scale household surveys to compile detailed data on the ethnolinguistic composition of each region and match all reported ethnicities to Ethnologue, a comprehensive catalog of world languages. This matching allows us to standardize the notion of an ethnolinguistic group and account for relatedness between language pairs, a correlate of shared history and culture, when calculating diversity indices. Exploiting within-country variation provided by our new dataset, we find that local public goods provision, as reflected in metrics of education, health, and electricity access, is negatively related to ethnolinguistic diversity, but only if the underlying basic languages are first aggregated into larger families or if linguistic distances between groups are taken into consideration. In other words, only deep-rooted diversity, based on cleavages formed in the distant past, is strongly inversely associated with a range of regional development indicators. Furthermore, we show that subnational diversity has been remarkably persistent over the past two-three decades implying that population sorting in the short to medium run is unlikely to bias our main findings.
Do Management Interventions Last? Evidence from India
Nicholas Bloom et al.
NBER Working Paper, January 2018
Abstract:
Beginning in 2008, we ran a randomized controlled trial that changed management practices in a set of Indian weaving firms (Bloom et al. 2013). In 2017 we revisited the plants and found three main results. First, while about half of the management practices adopted in the original experimental plants had been dropped, there was still a large and significant gap in practices between the treatment and control plants. Likewise, there remained a significant performance gap between treatment and control plants, suggesting lasting impacts of effective management interventions. Second, while few management practices had demonstrably spread across the firms in the study, many had spread within firms, from the experimental plants to the non-experimental plants, suggesting limited spillovers between firms but large spillovers within firms. Third, managerial turnover and the lack of Director time were two of the most cited reasons for the drop in management practices in experimental plants, highlighting the importance of key employees.
Nonlinear effects of cognitive ability on economic productivity: A country-level analysis
Thomas Coyle et al.
Journal of Individual Differences, Winter 2018, Pages 39-47
Abstract:
Cognitive capitalism theory argues that the positive effects of cognitive ability on economic productivity should increase nonlinearly, with increases in ability amplifying increases in productivity. The theory was tested using country-level indicators of cognitive ability and productivity. Cognitive ability was based on international student assessments (e.g., Program for International Student Assessment, PISA), and productivity was based on economic inputs (e.g., scientific achievements and competitiveness) and outputs (e.g., gross domestic product). As predicted, the effects of cognitive ability on all productivity measures increased nonlinearly at higher levels of ability, suggesting that higher ability levels disproportionately boost a nation’s productivity. The findings are discussed in light of standard theories of cognitive ability (e.g., Spearman’s law of diminishing returns and differentiation theories), and suggest that interventions that boost cognitive ability can have large, amplifying effects on economic productivity.
What Drives Opposition to Economic Reforms? The Role of Ex Ante Uncertainty
Alan Potter
Political Research Quarterly, forthcoming
Abstract:
The theoretical literature on support for pro-market economic reforms identifies uncertainty about the future consequences of reform as an important determinant of opposition to pro-market policies. However, this literature does not rigorously test the role of uncertainty on support for pro-market reforms. This paper addresses this gap by testing the role of uncertainty using a new geocoded dataset of state-owned enterprises in India and a difference-in-differences strategy. I find that voters who are threatened with privatization but do not experience the policy vote against the privatizing party whereas voters that actually experience privatization vote in favor of the privatizing party. These results provide strong empirical support for the role of uncertainty to explain opposition to economic reform programs.
Urbanization and mortality decline
Sanghamitra Bandyopadhyay & Elliott Green
Journal of Regional Science, forthcoming
Abstract:
We investigate the relationship between mortality decline and urbanization, which has hitherto been proposed by demographers but has yet to be tested rigorously in a global context. Using cross-national panel data, we find evidence of a robust negative correlation between crude death rates and urbanization. The use of instrumental variables suggest that this relationship is causal, while historical data from the early 20th century suggest that this relationship holds in earlier periods as well. Finally, we find robust evidence that mortality decline is correlated with urbanization through the creation of new cities rather than promoting urban growth in already-extant cities.
Climate and Creativity: Cold and Heat Trigger Invention and Innovation in Richer Populations
Evert Van de Vliert & Damian Murray
Creativity Research Journal, Winter 2018, Pages 17-28
Abstract:
Nobel laureates, technological pioneers, and innovative entrepreneurs are unequally distributed across the globe. Their density increases in regions toward the North Pole, toward the South Pole, and very close to the Equator. This geographic anomaly led us to explore whether stressful demands of climatic cold and climatic heat (imposed necessities) interact with economic wealth resources (available opportunities) in modulating creative culture — defined here as including both inventive idea generation and innovative idea implementation. Controlling for societal intellectualization, industrialization, and urbanization, results indicated that higher thermal demands, primarily cold stress and secondarily heat stress, hinder creativity in poorer populations but promote creativity in richer populations. Complementing their direct wealth-dependent effects, colder and hotter temperatures also exert indirect wealth-dependent effects on creative culture through lower prevalence of human-to-human transmitted parasitic diseases. Across 155 countries, the resulting ecotheory of creativity accounts for 79% of the variation in creative culture. The findings open up valuable perspectives on the creativity-related consequences of thermal climate — and climate change — in poor and rich populations.
UV radiation associates with state income through complex cognitive ability in the USA
Federico León & Andrés Burga-León
Journal of Individual Differences, Winter 2018, Pages 18-26
Abstract:
Economic development and national intelligence decline with proximity to the equator. Absolute latitude associates with both, income and IQ, but the nature of their relationship is ambiguous. This study applied structural equation modeling using secondary data pertaining to the 48 contiguous states of the United States of America to test the hypothesis that UV (ultraviolet) radiation associates with income through complex cognitive ability vis-a-vis the hypothesis that UV radiation associates with complex cognitive ability through income. The resulting evidence was consistent with the ability → income pathway and unsupportive of the income → ability model. The findings uphold the cognitive capitalism perspective and may throw light on the evolvement of regional differences in the USA.