Backcountry
Daron Acemoglu et al.
NBER Working Paper, March 2014
Abstract:
We provide evidence that democracy has a significant and robust positive effect on GDP. Our empirical strategy relies on a dichotomous measure of democracy coded from several sources to reduce measurement error and controls for country fixed effects and the rich dynamics of GDP, which otherwise confound the effect of democracy on economic growth. Our baseline results use a linear model for GDP dynamics estimated using either a standard within estimator or various different Generalized Method of Moments estimators, and show that democratizations increase GDP per capita by about 20% in the long run. These results are confirmed when we use a semiparametric propensity score matching estimator to control for GDP dynamics. We also obtain similar results using regional waves of democratizations and reversals to instrument for country democracy. Our results suggest that democracy increases future GDP by encouraging investment, increasing schooling, inducing economic reforms, improving public good provision, and reducing social unrest. We find little support for the view that democracy is a constraint on economic growth for less developed economies.
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Plagues, Wages, and Economic Change in the Islamic Middle East, 700-1500
Şevket Pamuk & Maya Shatzmiller
Journal of Economic History, March 2014, Pages 196-229
Abstract:
This study establishes long-term trends in the purchasing power of the wages of unskilled workers and develops estimates for GDP per capita for medieval Egypt and Iraq. Wages were heavily influenced by two long-lasting demographic shocks, the Justinian Plague and the Black Death and the slow population recovery that followed. As a result, they remained above the subsistence minimum for most of the medieval era. We also argue that the environment of high wages that emerged after the Justinian Plague contributed to the Golden Age of Islam by creating demand for higher income goods.
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Should one hire a corrupt CEO in a corrupt country?
Maxim Mironov
Journal of Financial Economics, forthcoming
Abstract:
This paper examines the interaction between the propensity to corrupt (PTC) and firm performance. Using a unique data set of Moscow traffic violations, I construct the PTC of every Muscovite with a driver's license. Next, I determine the PTC for the top management of 58,157 privately held firms. I find that a 1 standard deviation increase in management PTC corresponds to a 3.6% increase in income diversion and that firms with corrupt management significantly outperform their counterparts. This study contributes to the literature that characterizes corruption using objective (instead of perception-based) measures and provides evidence regarding the positive aspects of corruption at the firm level.
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Institutions, Human Capital, and Development
Francisco Gallego, Daron Acemoglu & James Robinson
Annual Review of Economics, 2014
Abstract:
In this paper we revisit the relationship between institutions, human capital and development. We argue that empirical models that treat institutions and human capital as exogenous are misspecified both because of the usual omitted variable bias problems and because of differential measurement error in these variables, and that this misspecification is at the root of the very large returns of human capital, about 4 to 5 times greater than that implied by micro (Mincerian) estimates, found in some of the previous literature. Using cross-country and cross-regional regressions, we show that when we focus on historically-determined differences in human capital and control for the effect of institutions, the impact of institutions on long-run development is very robust, while the estimates of the effect of human capital are much diminished and become consistent with micro estimates. Using historical and cross-country regression evidence, we also show that there is no support for the view that differences in the human capital endowments of early European colonists have been a major factor in the subsequent institutional development of these polities.
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Medieval Universities, Legal Institutions, and the Commercial Revolution
Davide Cantoni & Noam Yuchtman
Quarterly Journal of Economics, forthcoming
Abstract:
We present new data documenting medieval Europe's "Commercial Revolution" using information on the establishment of markets in Germany. We use these data to test whether medieval universities played a causal role in expanding economic activity, examining the foundation of Germany's first universities after 1386 following the Papal Schism. We find that the trend rate of market establishment breaks upward in 1386 and that this break is greatest where the distance to a university shrank most. There is no differential pre-1386 trend associated with the reduction in distance to a university, and there is no break in trend in 1386 where university proximity did not change. These results are robust to estimating a variety of specifications that address concerns about the endogeneity of university location. Universities provided training in newly-rediscovered Roman and canon law; students with legal training served in positions that reduced the uncertainty of trade in the Middle Ages. We argue that training in the law, and the consequent development of legal and administrative institutions, was an important channel linking universities and greater economic activity in medieval Germany.
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From Wood to Coal May Well Be from Malthus to Solow
Egemen Eren & Daniel Garcia-Macia
Stanford Working Paper, July 2013
Abstract:
Why did the Industrial Revolution happen in England and at that time, but not somewhere else and around a different time? By using an endogenous growth model of directed technical change and natural resources, we provide an explanation of the Industrial Revolution as a transition from wood to coal as the main source of energy. We calibrate the model to historical data on energy uses and growth in England. Switching to the wood and coal stocks of France, the model matches the income gap between the two countries in 1600 and slightly overpredicts the gap in their 1600-1900 growth rates.
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Education, Complaints, and Accountability
Juan Botero, Alejandro Ponce & Andrei Shleifer
Journal of Law and Economics, November 2013, Pages 959-996
Abstract:
Better-educated countries have better governments, an empirical regularity that holds in both dictatorships and democracies. Possible reasons for this fact are that educated people are more likely to complain about misconduct by government officials and that more frequent complaints encourage better behavior from officials. Newly assembled individual-level survey data from the World Justice Project show that, within countries, better-educated people are more likely to report official misconduct. The results are confirmed using other survey data on reporting crime and corruption. Citizens' complaints might thus be an operative mechanism that explains the link between education and the quality of government.
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Regulation of Speech and Media Coverage of Corruption: An Empirical Analysis of the Mexican Press
Piero Stanig
American Journal of Political Science, forthcoming
Abstract:
Restrictions to media freedom, in the form of repressive defamation legislation, are thought to affect the amount of information about corruption that the media report. Exploiting variation in regulation of speech across states in a federal country, Mexico, and using a novel data set based on content analysis of the local press, I estimate the effect of lack of freedom on the coverage devoted to acts of malfeasance by public officials. Corruption receives significantly less attention in states with a more repressive defamation law. Instrumental variable models corroborate the interpretation of the negative association between regulation and coverage as a causal "chilling effect."
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Who Cooks the Books in China, and Does it Pay?
Toby Stuart & Yanbo Wang
University of California Working Paper, February 2014
Abstract:
We document the extent of fraudulent reporting among 467 private Chinese technology companies. Comparing the financial statements of companies that concurrently apply for government-funded innovation grants and that file financial statements with a second state agency, we demonstrate a systematic gap in reported profit figures in the two sets of books. We find: (i) over half the companies report materially different profit numbers to the two agencies; (ii) companies founded by individuals with political connections and those that have received investments from venture capital firms are much more likely to commit fraud, and (iii) it pays to cheat; net of ties to the government, we estimate that companies which "cook" their books have considerably higher odds of being awarded an innovation grant. Especially given the prevalence of fraud, we conclude that the prognostic factors for the propensity to commit fraud can be a source of performance differential for emerging market companies.
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Social Media, Internet and Corruption
Chandan Kumar Jha & Sudipta Sarangi
Louisiana State University Working Paper, January 2014
Abstract:
In this paper we study the relationship between multi-way means of communication and corruption. Unlike traditional platforms like TV or print media, which only provide a one-way channel of communication, the internet and social media platforms provide for two-way flow of information. Using Facebook as a proxy for social media, we show that Facebook penetration and corruption are negatively associated. The same holds for internet penetration. We then exploit variations in cross-country technological adoption in the field of communication in 1500 AD to address endogeneity concerns. We show that internet penetration and Facebook penetration have a causal and negative impact on corruption. Our results also suggest that these effects are sizable making them effective tools against corruption.
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Mass Media and Public Education: The Effects of Access to Community Radio in Benin
Philip Keefer & Stuti Khemani
Journal of Development Economics, forthcoming
Abstract:
Prior research on mass media and government accountability has not examined the effects of citizen media access on broad public services, such as education. At the same time, research has abstracted from the potentially influential role of mass media on parental investments in children's education. We address both issues using a "natural experiment" in radio access in Benin and find that school children's literacy rates are higher in villages exposed to a larger number of community radio stations. There is no evidence that this effect operates through greater government responsiveness. Instead, households with greater media access make larger private investments in their children's education.
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The Six-Shooter Marketplace: 19th-Century Gunfighting as Violence Expertise
Jonathan Obert
Studies in American Political Development, April 2014, Pages 49-79
Abstract:
How are new forms of violence expertise organized and exploited? Most scholars view this as primarily a question of state-building; that is, violence experts use their skills in an attempt to regulate economic transactions or to extract and redistribute resources via protection rents either for themselves or at the behest of political elites. In an alternative view, this article demonstrates that historical gunfighters active in the late 19th-century American Southwest were actually market actors - the possessors of valuable skills cultivated through participation in the Civil War and diffused through gunfighting and reputation building in key market entrepôts. Neither solely state-builders nor state-resisters, as they have traditionally been interpreted, gunfighters composed a professional class that emerged in the 1870s and 1880s and who moved frequently between wage-paying jobs, seizing economic opportunities on both sides of the law and often serving at the behest of powerful economic, rather than political, actors. I establish this claim by examining a dataset of over 250 individuals active in the "gunfighting system" of the post-bellum West, demonstrating that the social connections forged through fighting, and diffused through social networks, helped generate a form of organized violence that helped bring "law and order" to the frontier but as a byproduct of market formation rather than as state-building.
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Economic growth, financial crisis, and property rights: Observer bias in perception-based measures
Thomas Stubbs, Lawrence King & David Stuckler
International Review of Applied Economics, May/June 2014, Pages 401-418
Abstract:
Recent years have seen an increasing number of empirical papers using subjective indicators in cross-country quantitative analyses of growth. We evaluate potential observer biases in the three most commonly employed subjective measures of property rights - taken from the Heritage Foundation, Fraser Institute, and World Economic Forum. Drawing on cross-national data for 156 countries during the years 2000 - 2010, we use Granger causality tests to assess whether exposure to recent information on economic performance introduces bias to coding of property rights scores. Further, we evaluate whether the Great Recession led observers to change property rights scores in advanced nations. We find consistent evidence that observers who provide subjective coding of property rights scores rated nations more positively when their economic performance was positive, and more negatively during the recent global financial crisis. Taken together, our findings suggest that coding of commonly employed property rights measures are subject to substantial observer bias.
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The Black Man's Burden: The Cost of Colonization of French West Africa
Elise Huillery
Journal of Economic History, March 2014, Pages 1-38
Abstract:
Was colonization costly for France? Did French taxpayers contribute to colonies' development? This article reveals that French West Africa's colonization took only 0.29 percent of French annual expenditures, including 0.24 percent for military and central administration and 0.05 percent for French West Africa's development. For West Africans, the contribution from French taxpayers was almost negligible: mainland France provided about 2 percent of French West Africa's revenue. In fact, colonization was a considerable burden for African taxpayers since French civil servants' salaries absorbed a disproportionate share of local expenditures.
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The minimal impact of a large-scale financial education program in Mexico City
Miriam Bruhn, Gabriel Lara Ibarra & David McKenzie
Journal of Development Economics, May 2014, Pages 184-189
Abstract:
We conduct randomized experiments around a large-scale financial literacy course in Mexico City to understand the reasons for low take-up among a general population, and to measure the impact of this financial education course. Our results suggest that reputational, logistical, and specific forms of behavioral constraints are not the main reasons for limited participation, and that people do respond to higher benefits from attending in the form of monetary incentives. Attending training results in a 9 percentage point increase in financial knowledge, and a 9 percentage point increase in some self-reported measures of saving, but in no impact on borrowing behavior. Administrative data suggests that any savings impact may be short-lived. Our findings indicate that this course which has served over 300,000 people and has expanded throughout Latin America has minimal impact on marginal participants, and that people are likely making optimal choices not to attend this financial education course.
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Intermediaries in corruption: An experiment
Mikhail Drugov, John Hamman & Danila Serra
Experimental Economics, March 2014, Pages 78-99
Abstract:
Anecdotal evidence suggests that intermediaries are ubiquitous in corrupt activities; however, empirical evidence on their role as facilitators of corrupt transactions is scarce. This paper asks whether intermediaries facilitate corruption by reducing the moral or psychological costs of possible bribers and bribees. We designed bribery lab experiment that simulates petty corruption transactions between private citizens and public officials. The experimental data confirm that intermediaries lower the moral costs of citizens and officials and, thus, increase corruption. Our results have implications with respect to possible anti-corruption policies targeting the legitimacy of the use of intermediaries for the provision of government services.
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Abrahim Soleimani, William Schneper & William Newburry
Organization Science, forthcoming
Abstract:
Corporate reputation has roots in national beliefs about the role of the business corporation in society; these beliefs are constructed in accordance with the preferences of powerful stakeholders. Building on a stakeholder-power approach to corporate governance, we investigate whether differences in the legal rights and protections of shareholders, creditors, and workers across countries affect the general public's reputation assessments of business corporations. Using a sample of 593 of the largest publicly traded companies in the world from 32 countries during 2007 to 2011, we find that in societies where shareholders enjoy a high degree of legal rights, the impact of stock market returns on corporate reputation becomes more positive. Likewise, the negative relationship between earnings volatility and reputation becomes greater when creditor rights are stronger. Contrary to expectations, we found no evidence of an interaction effect between labor rights and corporate social performance on corporate reputation.
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Knowing the Right Person in the Right Place: Political Connections and Resistance to Change
Giorgio Bellettini, Carlotta Berti Ceroni & Giovanni Prarolo
Journal of the European Economic Association, forthcoming
Abstract:
We use a political economy model of Schumpeterian growth with entry to investigate how an incumbent politician can strategically use the level of red tape to acquire incumbency advantage. By setting sufficiently high red tape, the politician induces the incumbent firm in the intermediate sector to invest in political connections, which are valued also by voters, who recognize that bureaucratic costs can be reduced by connected firms. Within this framework, we study the Markov perfect equilibria of an infinitely repeated game among politicians, firms, and voters, and show that all equilibria are characterized by investments in political connections and the re-election of the incumbent politician. Political connections may prevent entry of advanced competitors and cause the economy to lag behind the technological frontier. Our model provides a possible explanation for the persistence of inefficient democracies and political barriers to technology development, where these reflect shared rather than conflicting interests.
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Alexander Libman & Anastassia Obydenkova
Publius, Spring 2014, Pages 298-323
Abstract:
A substantial portion of Elinor Ostrom's work critically examines the interplay between decentralization and efficient governance of commons. Ostrom's suggestion is to shift from the dichotomous view of decentralization versus centralization to a more complex picture, labeled "polycentric governance." This article applies this theory and uses a novel data set to test how the allocation of jurisdictions between the center and the regions affects forest governance in the Russian Federation. The main finding confirms the central argument of polycentricity; that is, the combination of federal involvement and the involvement of subnational interest groups improves the efficiency of forestry management. However, when either federal government or subnational nongovernmental actors dominate forest governance, the efficiency of forest management decreases.