Second and Third Worlds

Kevin Lewis

May 25, 2022

The Mechanics of the Industrial Revolution
Morgan Kelly, Joel Mokyr & Cormac O Grada
Journal of Political Economy, forthcoming

Although there are many competing explanations for the Industrial Revolution, there has been no effort to evaluate them econometrically. This paper analyses how the very different patterns of growth across the 41 counties of England between the 1760s and 1830s can be explained by a wide range of potential variables. We show that although spatial standard error corrections are of limited practical utility, semiparametric regressions that include a spatial smoothing spline return reliable results. For textiles we find that industrialization occurred in areas that began with low wages but high mechanical skills, whereas other variables such as literacy, banks and proximity to coal have little explanatory power. Against the view that living standards were stagnant during the Industrial Revolution, we find that real wages rose sharply in the industrializing north and declined in the previously prosperous south. 

The Impact of Institutions on Innovation
Alexander Donges, Jean-Marie Meier & Rui Silva
Management Science, forthcoming

We study the impact of inclusive institutions on innovation using novel, hand-collected, county-level data for Imperial Germany. We use the timing and geography of the French occupation of different German regions after the French Revolution of 1789 as an instrument for institutional quality. We find that the number of patents per capita in counties with the longest occupation was more than double that in unoccupied counties. Among the institutional changes brought by the French, the introduction of the Code civil, ensuring equality before the law, and the promotion of commercial freedom through the abolition of guilds and trade licenses had a stronger effect on innovation than the abolition of serfdom, which increased labor market mobility, and agricultural reforms that broke up the power of rural elites. The effect of institutions on innovation is particularly pronounced for high-tech innovation, suggesting that innovation might be a key channel through which institutions ultimately affect economic growth. Our findings highlight inclusive institutions as a first-order determinant of innovation. 

The Modern State and the Rise of the Business Corporation
Taisu Zhang & John Morley
Yale Law Journal, forthcoming

This article argues that the rise of the modern state was a necessary condition for the rise of the business corporation. A typical business corporation pools together a large number of strangers to share ownership of residual claims in a single enterprise with guarantees of asset partitioning. We show that this arrangement requires the support of a powerful state with the geographical reach, coercive force, administrative power, and legal capacity necessary to enforce the law uniformly among the corporation’s various owners. Other historical forms of rule enforcement—customary law or commercial networks like the Law Merchant—are theoretically able to support many forms of property rights and contractual relations, but not the business corporation. Strangers cannot cooperate on the scale and legal complexity of a typical corporation without a functionally modern state and legal apparatus to enforce the terms of their bargain. In contrast, social acquaintances operating within a closely-knit community could, in theory, enforce corporate charters without state assistance, but will generally not want to do so due to the institutional costs of asset partitioning in such communities. We show that this hypothesis is consistent with the experiences of six historical societies: late Imperial China, the 19th century Ottoman Empire, the early United States, early modern England, the late medieval Italian city states, and ancient Rome. We focus especially on the experience of late Imperial China, which adopted a modern corporation statute in response to societal demand, but failed to see much growth in the use of the corporate form until the state developed the capacity and institutions necessary to uniformly enforce the new law. Our thesis complicates existing historical accounts of the rise of the corporation, which tend to emphasize the importance of economic factors over political and legal factors and view the state as a source of expropriation and threat rather than support. Our thesis has extensive implications for the way we understand corporations, private law, states, and the nature of modernity. 

Land property rights and rural enterprise growth: Evidence from land titling reform in China
Di Bu & Yin Liao
Journal of Development Economics, forthcoming

We exploit a large-scale land titling reform in China that clearly entitles rural households to land rights by issuing uniform land use certificates and study how this impacted entrepreneurship in rural areas. We find that the reform significantly increases business creation in rural areas without decreasing the quality of new entrants or incumbent businesses. It also spurs entrepreneurship among professional and large farmers and attracts more urban residents to start new businesses in rural areas. Additional analysis provides evidence that increased land and labor availability and productivity, and improved social trust may serve as the mechanisms underlying these effects. Altogether, these results reveal that well-defined land property rights have enabled more enterprise growth in rural areas. 

A Life History Approach to Artistic Endeavours and Production: The Case of Metal Music
Farid Pazhoohi et al.
Evolutionary Psychological Science, June 2022, Pages 189–195 

According to life history theory, as resources and energy are not infinite, individuals show behavioural and psychological variations on a fast-slow continuum associated to their life strategies. Fast strategies are associated with short-term gains and more opportunistic attitudes, while slow strategies are associated with delayed gratification and investment in long-term goals and plans. Art production, including music making, is a costly activity, demanding time and money for training, as well as an investment in a non-secure future. Hypothesizing that artistic production is an indicator of slow life strategy and should be more prevalent in safer and more affluent environments, we investigate whether music production is more prevalent and successful in higher socioeconomic environments. Across two studies, we investigated the effects of parasite stress and Human Development Index (HDI) on different indicators of metal music production (i.e. number of bands and labels) across the USA and the world. We found that HDI is a better predictor of metal music production than parasite stress. Our results suggest that individuals from harsher environments (including poorer health, education and wealth) are less likely to be able to afford resources to engage in artistic activities that include delayed gratifications. 

Children's Sleep and Human Capital Production
Maulik Jagnani
Review of Economics and Statistics, forthcoming

This paper uses exogenous variation in sleep induced by sunset time to present the first human capital estimates of (i) the effects of child sleep from the developing world and (ii) the long-run effects of child sleep in any context. Later sunset reduces children's sleep: when the sun sets later, children go to bed later, but fail to compensate by waking-up later. Sleep-deprived children study less, and increase naptime and indoor leisure activities. Short-run sleep loss decreases children's test scores. Chronic sleep deficits translate into fewer years of education and lower primary and middle school completion rates among school-age children. 

The Dynamic Consequences of State-Building: Evidence from the French Revolution
Cédric Chambru, Emeric Henry & Benjamin Marx
University of Zurich Working Paper, February 2022

How do radical reforms of the state shape economic development over time? In 1790, France’s first Constituent Assembly overhauled the kingdom’s organization to set up new administrative entities and local capitals. In a subset of departments, new capitals were chosen quasi-randomly as the Assembly abandoned its initial plan to rotate administrative functions across multiple cities. We study how exogenous changes in local administrative presence affect the state’s coercive and productive capacity, as well as economic development in the ensuing decades. In the short run, proximity to the state increases taxation, conscription, and investments in law enforcement capacity. In the long run, the new capitals and their periphery obtain more public goods and experience faster economic development. One hundred years after the reform, capitals are 40% more populated than comparable cities in 1790. Our results shed new light on the intertemporal and redistributive impacts of state-building in the context of one of the most ambitious administrative reforms ever implemented. 

US foreign aid restrictions and maternal and children’s health: Evidence from the “Mexico City Policy”
Kerim Can Kavakli & Valentina Rotondi
Proceedings of the National Academy of Sciences, 2 May 2022

This paper analyzes the link between foreign aid for family planning services and a broad set of health outcomes. More specifically, it documents the harmful effects of the so-called “Mexico City Policy” (MCP), which restricts US funding for nongovernmental organizations that provide abortion-related services abroad. First enacted in 1985, the MCP is implemented along partisan lines; it is enforced only when a Republican administration is in office and quickly rescinded when a Democrat wins the presidency. Although previous research has shown that MCP causes significant disruption to family planning programs worldwide, its consequences for health outcomes, such as mortality and HIV rates, remain underexplored. The independence of the MCP’s implementation from the situation in recipient countries allows us to systematically study its impact. Using country-level data from 134 countries between 1990 and 2015, we first show that the MCP is associated with higher maternal and child mortality and HIV incidence rates. These effects are magnified by dependence on US aid while mitigated by funds from non-US donors. Next, we complement these results using individual-level data from 30 low- and middle-income countries and show that, under the MCP, women have less access to modern contraception and are less exposed to information on family planning and AIDS via in-person channels. Moreover, pregnant women are more likely to report that their pregnancy is not desired. Our findings highlight the importance of mitigating the harmful effects of MCP by redesigning or counteracting this policy. 

Imperial Rule and Long-Run Development: Evidence on the Role of Human Capital in Ottoman Europe
Bogdan Popescu & Mircea Popa
Comparative Political Studies, forthcoming

This study examines the effects of Ottoman imperial rule on long-run development in Europe. Using a novel geographical dataset that tracks territorial changes at the sub-national level over 600 years, we identify a negative effect of Ottoman rule on modern economic performance. Contemporary survey data provides strong support for a causal mechanism involving reduced human capital accumulation. This insight is confirmed by a regression discontinuity analysis using historical data from Romania. We uncover large causal effects of Ottoman rule on literacy rates from the 19th century, which persisted throughout the 20th century. We argue that the late adoption of the printing press in the empire was an important determinant of low human capital accumulation and illustrate this using data on the spread of the printing press. 

Using household grants to benchmark the cost effectiveness of a USAID workforce readiness program
Craig McIntosh & Andrew Zeitlin
Journal of Development Economics, forthcoming

We use a randomized experiment to benchmark a workforce training program to cash transfers in Rwanda. Conducted in a sample of poor and underemployed youth, this study measures the impact of the training program relative not only to a control group, but also to the counterfactual of simply disbursing the cost of the program directly to beneficiaries in cash. The training program was successful in improving a number of core outcomes, including productive hours, assets, savings, and subjective well-being. However, cost-equivalent cash transfers move all these outcomes as well as consumption, income, and wealth. At cost-equivalent levels, cash transfers prove superior across a number of economic outcomes, while training outperforms cash only in the production of business knowledge. Above cost-equivalent levels, we see limited benefits from increasing cash transfer amounts; going from $410 to $750 generates few benefits and an apparent decrease in labor hours. There is a surprising absence of complementarity between human and physical capital interventions, with an arm receiving both interventions doing slightly worse than what we would expect from the independent impacts of each of the two, though given diminishing returns to cash this combined arm outperforms a cash transfer of approximately equal cost. Heterogeneity in impacts and spillover effects are limited, suggesting that the relative impacts of these interventions will be similar across different targeting rules and saturation levels within this population.


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