Advance
How Important Are Banks for Development? National Banks in the United States, 1870-1900
Scott Fulford
Review of Economics and Statistics, forthcoming
Abstract:
Do banks matter for growth, and if so, how? This paper examines the effects of national banks in the United States from 1870 to 1900. I use the discontinuity in entry caused by a large minimum size requirement to identify the effects of banking. For the counties on the margin between getting a bank and not, gaining a bank increased production per person by 10%. National banks in rural areas improved agriculture over manufacturing, moving counties toward geographic comparative advantage. Since these banks made few long-term loans, the evidence suggests that the provision of working capital and liquidity matters for growth.
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Barriers to Prosperity: Parasitic and Infectious Diseases, IQ, and Economic Development
Jakob Madsen
World Development, February 2016, Pages 172-187
Abstract:
IQ scores differ substantially across nations. This study argues that cross-country variations in IQ scores, to a large extent, reflect the burden of parasitic and infectious diseases (PIDs) and iron and iodine deficiency (IID) in infancy and in utero. Furthermore, it is shown that the prevalence of health insults, through the channel of cognitive ability, is influential for the level as well as the growth in productivity across the world. Using data for 181 countries and an instrumental variable approach, regressions reveal that the prevalence of PID-IIDs is influential for growth and income inequalities globally.
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Does democracy reduce corruption?
Ivar Kolstad & Arne Wiig
Democratization, forthcoming
Abstract:
While democracy is commonly believed to reduce corruption, there are obvious endogeneity problems in measuring the impact of democracy on corruption. This article attempts to address the endogeneity of democracy by exploiting the thesis that democracies seldom go to war against each other. We instrument for democracy using a dummy variable reflecting whether a country has been at war with a democracy in the period 1946-2008, while controlling for the extent to which countries have been at war in general. We find that democracy to a significant extent reduces corruption, and the effect is considerably larger than suggested by estimations not taking endogeneity into account. Democracy may hence be more important in combating corruption than previous studies would suggest.
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The monetary mechanism of stateless Somalia
William Luther
Public Choice, October 2015, Pages 45-58
Abstract:
A peculiar monetary institution emerged during the period of interregnum in Somalia from January 1991 to August 2012. Without a functioning government to restrict the supply of notes in circulation, Somalis found it profitable to contract with foreign printers and import forgeries. The exchange value of the largest denomination Somali shillings note fell from US $0.30 in 1991 to US $0.03 in 2008. However, the purchasing power eventually stabilized at the cost of producing additional notes.
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Donor Political Economies and the Pursuit of Aid Effectiveness
Simone Dietrich
International Organization, forthcoming
Abstract:
In response to corruption and inefficient state institutions in recipient countries, some foreign aid donors outsource the delivery of aid to nonstate development actors. Other donor governments continue to support state management of aid, seeking to strengthen recipient states. These cross-donor differences can be attributed in large measure to different national orientations about the appropriate role of the state in public service delivery. Countries that place a high premium on market efficiency (for example, the United States, United Kingdom, Sweden) will outsource aid delivery in poorly governed recipient countries to improve the likelihood that aid reaches the intended beneficiaries of services. In contrast, states whose political economies emphasize a strong state in service provision (for example, France, Germany, Japan) continue to support state provision. This argument is borne out by a variety of tests, including statistical analysis of dyadic time-series cross-section aid allocation data and individual-level survey data on a cross-national sample of senior foreign aid officials. To understand different aid policies, one needs to understand the political economies of donors.
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Public Sector Corruption and Natural Hazards
Monica Escaleras & Charles Register
Public Finance Review, forthcoming
Abstract:
Public sector corruption has been shown to increase death rates and damages from natural disasters. We consider whether natural hazards can lead to rising levels of public sector corruption. This might seem unlikely since natural hazards are predetermined, naturally occurring events. However, when the distinction between hazards and disasters is considered, it becomes clear that corruption may well increase the likelihood that any new hazard will become a disaster, increasing the existing level of corruption within a given country. Based on standard estimation techniques, we find a statistically significant, positive relation between predetermined natural hazards and public sector corruption.
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Slavery, Economic Freedom & Income Levels in the Former Slave-Exporting States of Africa
Travis Wiseman
Mississippi State University Working Paper, October 2015
Abstract:
This paper investigates the relationships between slavery, economic freedom and economic development across former slave-exporting states in Africa, using country-level slave export data from Nunn (2008a), the Fraser Institute's Economic Freedom of the World index, and per capita real GDP from the Maddison Project database. Recent studies document a negative link between slavery and present-day income. This study takes an additional step, aiming to connect slavery, institutions, and economic performance by testing whether the early institutions of slavery work through current institutions to affect modern incomes. I attempt to support this relationship using slave exports as an instrument for institutions in 2SLS income regressions. Results demonstrate a strong, positive relationship between economic freedom and present-day income. Further, based on tests of over-identifying restrictions, I cannot safely reject instrument validity. These findings, taken together, suggest that institutions likely serve as a conduit for the influence of slavery on incomes today.
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Democracy and policy stability
Pushan Dutt & Ahmed Mushfiq Mobarak
International Review of Economics & Finance, forthcoming
Abstract:
We explain stable growth performance in democracies by characterizing political systems in terms of the distribution of political power across groups, and show when the qualities of policy alternatives are uncertain, greater democracy (decentralization of authority) leads to more stable policy choices. We empirically test this mechanism by creating measures of the inter-temporal variability in fiscal and trade policies. In an array of specifications (cross-sectional, panel with fixed-effects, matching models, instrumental variables, difference-in-difference), we show that policy choices are significantly more stable over time in democracies. This mechanism explains a large part of the negative link between democracy and output volatility.
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Is corruption bad for economic growth? Evidence from Asia-Pacific countries
Chiung-Ju Huang
North American Journal of Economics and Finance, forthcoming
Abstract:
This study utilizes the bootstrap panel Granger causality approach, which incorporates both cross-sectional dependence and heterogeneity across countries, to investigate whether corruption negatively impacts economic growth in thirteen Asia-Pacific countries over the 1997-2013 period. The empirical results show that there is a significantly positive causality running from corruption to economic growth in South Korea, a significantly positive causality running from economic growth to corruption in China and no significant causality between corruption and economic growth for the remaining countries. According to the empirical results, we do not support the common perception that corruption is bad for economic growth for all thirteen Asia-Pacific. On the contrary, results of this study suggest that the "grease the wheels" hypothesis is supported for South Korea. Additionally, results of this study indicate that for most Asia-Pacific countries, policy makers' use of anti-corruption policies to promote a country's economic development may not be effective. Finally, results of this study also suggest that for China, increase in economic growth leads to an increase in corruption.
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Property rights and the first great divergence: Europe 1500-1800
Cem Karayalcin
International Review of Economics & Finance, forthcoming
Abstract:
Recent literature on developing countries has revived interest in structural change involving the reallocation of resources from agriculture to industry. Here, we focus on the first such historically important structural transformation in which some parts of Europe escaped from the Malthusian trap centuries earlier than the Industrial Revolution, while others stagnated. There is as yet no consensus as to the causes of this First Great Divergence. The paper advances the thesis that what lies at the root of different paths is the type of property rights inherited. As populations everywhere in Europe recovered from the catastrophes of the late medieval period, what mattered for the direction taken was the size of the landlord class and their landholdings. In western Europe where peasant proprietors tilled small plots, increases in population levels led to lower real wages. Given the low incomes of landlords and peasants, demand for manufactured goods remained low. At the other extreme, in eastern Europe, second serfdom kept wages low, and rents high. Yet given the small size of the land-owning class, these rents could not generate enough demand for high-end manufacturing processes either. Northwestern Europe, being in the middle in terms both of the size of the landholding classes and their properties, prospered as wages failed to decline even when population levels rapidly rose. Combined demand from landlords and workers kindled an expansion of the manufacturing sector.
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Measuring Changes in the Bilateral Technology Gaps between China, India and the U.S. 1979 - 2008
Keting Shen, Jing Wang & John Whalley
NBER Working Paper, October 2015
Abstract:
Popular literature suggests a rapid narrowing of the technology gap between China and the U.S. based on large percentage increases in Chinese patent applications, and equally large increases in college registrants and completed PhDs (especially in sciences) in China in recent years. Little literature attempts to measure the technology gap directly using estimates of country aggregate technologies. This gap is usually thought to be smaller than differences in GDP per capita since the later reflect both differing factor endowments and technology parameters. This paper assesses changes in China's technology gaps both with the U.S. and India between 1979 and 2008, comparing the technology level of these economies using a CES production framework in which the technology gap is reflected in the change of technology parameters. Our measure is related to but differs from the Malmquist index. We determine the parameter values for country technology by using calibration procedures. Our calculations suggest that the technology gap between China and the U.S. is significantly larger than that between India and the U.S. for the period before 2008. The pairwise gaps between the U.S. and China, and the U.S. and India remain large while narrowing at a slower rate than GDP per worker. Although China has a higher growth rate of total factor productivity than India over the period, the bilateral technology gap between China and India is still in India's favor. India had higher income per worker than China in the 1970's, and China's much more rapid physical and human capital accumulation has allowed China to move ahead, but a bilateral technology gap remains.
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Media, Institutions, and Government Action: Prevention vs. Palliation in the Time of Cholera
Chongwoo Choe & Paul Raschky
European Journal of Political Economy, forthcoming
Abstract:
This paper studies how media and the quality of institutions affect government action taken before and after a natural disaster. Provided that more media activity is focused on post-disaster action, we show that more media activity and better democratic institutions both contribute positively to the palliative effort after the disaster, although corruption has a negative effect that decreases as media activity increases. On the preventive effort, however, media and democracy both have a negative effect, as does corruption. We provide empirical evidence based on major cholera epidemics and other natural disasters around the world, which largely support these hypotheses.
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Demography, Urbanization and Development: Rural Push, Urban Pull and...Urban Push?
Remi Jedwab, Luc Christiaensen & Marina Gindelsky
Journal of Urban Economics, forthcoming
Abstract:
Developing countries have urbanized rapidly since 1950. To explain urbanization, standard models emphasize rural-urban migration, focusing on rural push factors (agricultural modernization and rural poverty) and urban pull factors (industrialization and urban-biased policies). Using new historical data on urban birth and death rates for 7 countries from Industrial Europe (1800-1910) and 35 developing countries (1960-2010), we argue that a non-negligible part of developing countries' rapid urban growth and urbanization may also be linked to demographic factors, i.e. rapid internal urban population growth, or an urban push. High urban natural increase in today's developing countries follows from lower urban mortality, relative to Industrial Europe, where higher urban deaths offset urban births. This compounds the effects of migration and displays strong associations with urban congestion, providing additional insight into the phenomenon of urbanization without growth.