Backward
Deals and Delays: Firm-level Evidence on Corruption and Policy Implementation Times
Caroline Freund, Mary Hallward-Driemeier & Bob Rijkers
World Bank Economic Review, forthcoming
Abstract:
Whether demands for bribes for particular government services are associated with expedited or delayed policy implementation underlies debates around the role of corruption in private sector development. The “grease the wheels” hypothesis, which contends that bribes act as speed money, implies three testable predictions. First, on average, bribe requests should be negatively correlated with wait times. Second, this relationship should vary across firms, with those with the highest opportunity cost of waiting being more likely to pay and facing shorter delays. Third, the role of grease should vary across countries, with benefits larger where regulatory burdens are greatest. The data are inconsistent with all three predictions. According to the preferred specifications, ceteris paribus, firms confronted with demands for bribes take approximately 1.5 times longer to get a construction permit, operating license, or electrical connection than firms that did not have to pay bribes and, respectively, 1.2 and 1.4 times longer to clear customs when exporting and importing. The results are robust to controlling for firm fixed effects and at odds with the notion that corruption enhances efficiency.
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Sutirtha Bagchi & Jan Svejnar
Journal of Comparative Economics, forthcoming
Abstract:
A fundamental question in social sciences relates to the effect of wealth inequality on economic growth. Yet, in tackling the question, researchers have had to use income as a proxy for wealth. We derive a global measure of wealth inequality from Forbes magazine's listing of billionaires and compare its effect on growth to the effects of income inequality and poverty. Our results suggest that wealth inequality has a negative relationship with economic growth, but when we control for the fact that some billionaires acquired wealth through political connections, the relationship between politically connected wealth inequality and economic growth is negative, while politically unconnected wealth inequality, income inequality, and initial poverty have no significant relationship.
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Does Democracy Drive Income in the World, 1500–2000?
Jakob Madsen, Paul Raschky & Ahmed Skali
European Economic Review, forthcoming
Abstract:
Using data for political regimes, income and human capital for a sample of 141 countries over the periods 1820–2000 and 1500–2000, this research examines the income and growth effects of democracy when human capital, among other key variables, is controlled for. Linguistic distance-weighted foreign democracy is used as an instrument for domestic democracy. Democracy is found to be a significant determinant of income and growth and the result is robust to various estimation methods and covariates. We find that a one-standard deviation increase in democracy is associated with a 44–98% increase in per capita income.
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The Rise in Life Expectancy and Economic Growth in the 20th Century
Casper Worm Hansen & Lars Lønstrup
Economic Journal, May 2015, Pages 838–852
Abstract:
This research exploits conditional exogenous variation in mortality from the diffusion of modern medicine to study the effect of growth in life expectancy on the growth in GDP per capita. The empirical analysis establishes that countries that obtained higher growth rates of life expectancy due to this shock to mortality in the mid-twentieth century experienced lower growth rates of GDP per capita in the second half of the twentieth century. In addition, a negative relationship between initial level of life expectancy and the subsequent growth rate of GDP per capita is found.
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Empty Thrones: Medieval Politics, State Building and Contemporary Development in Europe
Avidit Acharya & Alexander Lee
Stanford Working Paper, May 2015
Abstract:
The development of modern state institutions is a major legacy of the medieval period in Europe. In this paper, we investigate the effects of medieval politics on contemporary economic development through their effect on the success or failure of medieval state building efforts. During the Middle Ages, most European polities operated under a norm that gave only the close male relatives of a deceased monarch a clear place in the line of succession. When no such heirs were available, succession disputes were more likely, with more distant relatives and female(-line) heirs laying competing claims to the throne. These disputes often produced violent conflicts that destroyed existing state institutions and stunted the subsequent development of the state. We therefore hypothesize that a shortage of male heirs to a European monarchy in the Middle Ages has a deleterious effect on levels of development across contemporary European regions ruled by that monarchy. We find that regions that were more likely to have a shortage of such heirs are today poorer than other regions. Our finding highlights the importance of the medieval period in European development, and show how luck works in combination with both institutions and norms in shaping development trajectories.
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Ewout Frankema, Jeffrey Williamson & Pieter Woltjer
NBER Working Paper, May 2015
Abstract:
This is the first study to present a unified quantitative account of African commodity trade in the long 19th century from the zenith of the Atlantic slave trade (1790s) to the eve of World War II (1939). Drawing evidence from a new dataset on export and import prices, volumes, composition and net barter terms of trade for five African regions, we show that Sub-Saharan Africa experienced a terms of trade boom that was comparable to other parts of the ‘global periphery’ from the late 18th century up to the mid-1880s, with an exceptionally sharp price boom in the four decades before the Berlin conference (1845-1885). We argue that this commodity price boom changed the economic context in favor of a European scramble for Africa. We also show that the accelerated export growth after the establishment of colonial rule deepened Africa’s specialization in primary commodities, even though the terms of trade turned into a prolonged decline after 1885.
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The “Peter Pan Syndrome” in Emerging Markets: The Productivity-Transparency Trade-off in IT Adoption
K. Sudhir & Debabrata Talukdar
Marketing Science, forthcoming
Abstract:
Firms invest in technology to increase productivity. Yet in emerging markets, where a culture of informality is widespread, information technology (IT) investments leading to greater transparency can impose a cost through higher taxes and the need for regulatory compliance. The tendency of firms to avoid productivity-enhancing technologies and remain small to avoid transparency has been dubbed the “Peter Pan Syndrome.” We examine whether firms make the trade-off between productivity and transparency by examining IT adoption in the Indian retail sector. We find that computer technology adoption is lower when firms are motivated to avoid transparency. Specifically, technology adoption is lower when there is greater corruption, but higher when there is better enforcement and auditing. So, firms have a higher productivity gain threshold to adopt computers in corrupt business environments that suffer from patchy and variable enforcement of the tax laws. Not accounting for this motivation to hide from the formal sector underestimates productivity gains from computer adoption. Thus, in addition to their direct effects on the economy, enforcement, auditing, and corruption can have indirect effects through their negative impact on adoption of productivity-enhancing technologies that also increase operational transparency.
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The Culture of Corruption, Tax Evasion, and Economic Growth
Maksym Ivanyna, Alexandros Moumouras & Peter Rangazas
Economic Inquiry, forthcoming
Abstract:
This study uses a dynamic general equilibrium model to quantify the effects of corruption and tax evasion on fiscal policy and economic growth. The model is calibrated to match estimates of tax evasion in developing countries. The calibrated model is able to generate reasonable predictions for net tax rates, the corruption associated with public investment projects, and the negative correlation between corruption and tax revenue. The presence of corruption and evasion is shown to have significant, but not large, negative effects on economic growth. The relatively moderate effects help explain the absence of a robust negative correlation between growth and corruption in cross-country data. The model also implies that cracking down on tax evasion before addressing corruption can be a bad idea and that higher wages for public officials can improve welfare.
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The mortality cost of political connections
Raymond Fisman & Yongxiang Wang
Review of Economic Studies, forthcoming
Abstract:
We study the relationship between the political connections of Chinese firms and workplace fatalities. In our preferred specification we find that the worker death rate for connected companies is two to three times that of unconnected firms (depending on the sample employed), a pattern that holds for within-firm estimations. The connections-mortality relationship is attenuated in provinces where safety regulators’ promotion is contingent on meeting safety targets. In the absence of fatalities, connected firms receive fewer reports of major violations for safety compliance, whereas in years of fatal accidents the rate of reported violations is identical. Moreover, fatal accidents produce negative returns at connected companies and are associated with the subsequent departure of well-connected executives. These results provide suggestive evidence that connections enable firms to avoid (potentially costly) compliance measures, rather than using connections to avoid regulatory response after accidents occur. Our findings emphasize the social costs of political connections, and suggest that appropriate regulatory incentives may be useful in mitigating these costs.
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Debt into Growth: How Sovereign Debt Accelerated the First Industrial Revolution
Jaume Ventura & Hans-Joachim Voth
NBER Working Paper, June 2015
Abstract:
Why did the country that borrowed the most industrialize first? Earlier research has viewed the explosion of debt in 18th century Britain as either detrimental, or as neutral for economic growth. In this paper, we argue instead that Britain’s borrowing boom was beneficial. The massive issuance of liquidly traded bonds allowed the nobility to switch out of low-return investments such as agricultural improvements. This switch lowered factor demand by old sectors and increased profits in new, rising ones such as textiles and iron. Because external financing contributed little to the Industrial Revolution, this boost in profits in new industries accelerated structural change, making Britain more industrial more quickly. The absence of an effective transfer of financial resources from old to new sectors also helps to explain why the Industrial Revolution led to massive social change – because the rich nobility did not lend to or invest in the revolutionizing industries, it failed to capture the high returns to capital in these sectors, leading to relative economic decline.
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Old habits die hard (sometimes)
Tommy Murphy
Journal of Economic Growth, June 2015, Pages 177-222
Abstract:
Unified growth theory suggests the fertility decline was crucial for achieving long-term growth, yet the causes behind that decline are still not entirely clear from an empirical point of view. In particular for France, the first country to experience this demographic transition in the European context, the reasons why some areas of the country had lower fertility than others are poorly understood. Using département level data for the last quarter of the nineteenth century, this paper exploits the French regional variation to study the correlates of fertility, estimating various fixed-effects models. The findings confirm the importance of some of the forces suggested by standard fertility choice models. Education in general, female education in particular, for example, seems to be crucial. Results also highlight the relevance of non-economic factors (such as secularisation), for which I provide new measurements. The presence of spatial dependence also suggests that diffusion of fertility played a particular role.
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Globalization and the Ethnic Divide: Recent Longitudinal Evidence
Phanindra Wunnava, Aniruddha Mitra & Robert Prasch
Social Science Quarterly, forthcoming
Objective: This article investigates the impact of increasing global integration on economic growth, emphasizing its interaction with the level of ethnic heterogeneity in a society.
Methods: We perform a feasible generalized least squares estimation of a random effects model on a longitudinal sample of 103 countries taken over the period 1992–2005.
Results: We find that economic globalization has generally had a beneficial impact on economic growth. We also find that societies marked by greater ethnic heterogeneity have gained more from global integration. Further, while ethnic heterogeneity has been a significant impediment to growth over the sample period, religious and linguistic heterogeneity have not. Finally, we find that democracies have significantly outperformed autocracies over this period.
Conclusion: Our results suggest that globalization may have a role in redressing the detrimental impact of ethnic cleavages in a society.
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The more the merrier? Evidence on quality of life and population size using historical mines
Stefan Leknes
Regional Science and Urban Economics, September 2015, Pages 1–17
Abstract:
I investigate the relationship between population size and quality of life. The quantity and quality of consumer amenities will increase with urban scale if they are not offset by congestion effects. To deal with endogenous urban scale, I utilize a quasi-experimental design where I exploit the spatial distribution of mineral resources using Norwegian mines from the 12th to the 19th century. The findings suggest that cities become more attractive as a consequence of higher population size.
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Constitutional Rights and Education: An International Comparative Study
Sebastian Edwards & Alvaro Garcia Marin
Journal of Comparative Economics, forthcoming
Abstract:
We investigate whether the inclusion of educational rights in political constitutions affects the quality of education. We rely on data for 61 countries that participated in the 2012 PISA tests. Our results are strong and robust to the estimation technique (least squares or instrumental variables): there is no evidence that including the right to education in the constitution has been associated with higher test scores. The quality of education depends on socioeconomic, structural, and policy variables, such as expenditure per student, the teacher-pupil ratio, and families’ background. These results are important for emerging countries that are discussing the adoption of new constitutions, such as Thailand and Chile.
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Neighborhood Sanitation and Infant Mortality
Michael Geruso & Dean Spears
NBER Working Paper, May 2015
Abstract:
In the developing world, there has been significant policy interest in recent years in ending open defecation — that is, defecation in fields, behind homes, and near roads. This attention is in part motivated by a belief that the private demand for latrines and toilets is below the social optimum. We investigate the infant mortality externalities of poor sanitation by exploiting differences in the demand for latrines between Muslim and Hindu households in India: Indian Muslims, despite being poorer, are 25 percentage points more likely than Indian Hindus to use latrines or toilets. Instrumenting for local sanitation with the religious composition of neighborhoods, we show large infant mortality externalities of neighbors defecating in the open. Estimates of these neighbor effects are similar regardless of the household's own latrine use and own religion. Our findings are informative of the external harm generated by the roughly 1 billion people today who defecate in the open.
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To Kill and Tell? State Power, Criminal Competition, and Drug Violence
Angelica Duran-Martinez
Journal of Conflict Resolution, forthcoming
Abstract:
Violence is commonly viewed as an inherent attribute of the drug trade. Yet, there is dramatic variation in drug violence within countries afflicted by drug trafficking. This article advances a novel framework that explains how the interaction between two critical variables, the cohesion of the state security apparatus, and the competition in the illegal market determines traffickers’ incentives to employ violence. The analysis introduces a generally overlooked dimension of violence, its visibility. Visibility refers to whether traffickers publicly expose their use of violence or claim responsibility for their attacks. Drawing on fieldwork in five cities in Colombia and Mexico (Cali, Medellin, Ciudad Juárez, Culiacán, and Tijuana), 175 interviews, and a new data set on drug violence, I argue that violence becomes visible and frequent when trafficking organizations compete and the state security apparatus is fragmented. By contrast, violence becomes less visible and less frequent when the criminal market is monopolized and the state security apparatus is cohesive.