Backwater
Dani Rodrik
NBER Working Paper, February 2015
Abstract:
I document a significant deindustrialization trend in recent decades, that goes considerably beyond the advanced, post-industrial economies. The hump-shaped relationship between industrialization (measured by employment or output shares) and incomes has shifted downwards and moved closer to the origin. This means countries are running out of industrialization opportunities sooner and at much lower levels of income compared to the experience of early industrializers. Asian countries and manufactures exporters have been largely insulated from those trends, while Latin American countries have been especially hard hit. Advanced economies have lost considerable employment (especially of the low-skill type), but they have done surprisingly well in terms of manufacturing output shares at constant prices. While these trends are not very recent, the evidence suggests both globalization and labor-saving technological progress in manufacturing have been behind these developments. Premature deindustrialization has potentially significant economic and political ramifications, including lower economic growth and democratic failure.
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Stefan Voigt, Jerg Gutmann & Lars Feld
European Journal of Political Economy, forthcoming
Abstract:
Over 10 years ago, Feld and Voigt (2003) introduced an indicator for objectively measuring the actual independence of the judiciary and demonstrated its utility in a large cross-section of countries. The indicator has been widely used, but also criticized. Many new indicators for judicial independence have been developed since. Yet, all of them are based on subjective evaluations by experts or confined to measuring the legally prescribed level of independence. This paper presents more recent data on de jure and de facto judicial independence (JI) and strongly confirms previous results that de jure JI is not systematically related to economic growth, whereas de facto JI is highly significantly and robustly correlated with growth. In addition, we show that the effect of de facto JI depends on the institutional environment, but not on a country’s initial per capita income.
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Institutions Do Not Rule: Reassessing the Driving Forces of Economic Development
Jinfeng Luo & Yi Wen
Federal Reserve Working Paper, January 2015
Abstract:
We use cross-country data and instrumental variables widely used in the literature to show that (i) institutions (such as property rights and the rule of law) do not explain industrialization and (ii) agrarian countries and industrial countries have entirely different determinants for income levels. In particular, geography, rather than institutions, explains the income differences among agrarian countries, while institutions appear to matter only for income variations in industrial economies. Moreover, we find it is the stage of economic development (or the absence/presence of industrialization) that explains a country’s quality of institutions rather than vice versa. The finding that institutions do not explain industrialization but are instead explained by industrialization lends support to the well-received view among prominent economic historians — that institutional changes in 17th and 18th century England did not cause the Industrial Revolution.
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Two Italies? Genes, intelligence and the Italian North–South economic divide
Vittorio Daniele
Intelligence, March–April 2015, Pages 44–56
Abstract:
The thesis that socio-economic disparities between Southern and Northern Italian regions are explained by genetic differences in the average IQ is examined (Lynn, 2010a, 2012). Historical data on income, infant mortality and life expectancy, offer scant support to a possible nexus between IQ differences and socio-economic development. The ancient history of Southern Italy is also inconsistent with a supposed Phoenician and Arab adverse genetic impact on the average IQ of Southern populations. The paper proposes that regional IQ differences reflect North–South disparities in education and socio-economic development levels. The significant increases in mean scholastic achievement tests, registered in the Italian South in the period 2003–2012, support this conclusion.
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Manufacturing Growth and the Lives of Bangladeshi Women
Rachel Heath & Mushfiq Mobarak
Journal of Development Economics, July 2015, Pages 1–15
Abstract:
We study the effects of explosive growth in the Bangladeshi ready-made garments industry on the lives on Bangladeshi women. We compare the marriage, childbearing, school enrollment and employment decisions of women who gain greater access to garment sector jobs to women living further away from factories, to years before the factories arrive close to some villages, and to the marriage and enrollment decisions of their male siblings. Girls exposed to the garment sector delay marriage and childbirth. This stems from (a) young girls becoming more likely to be enrolled in school after garment jobs (which reward literacy and numeracy) arrive, and (b) older girls becoming more likely to be employed outside the home in garment-proximate villages. The demand for education generated through manufacturing growth appears to have a much larger effect on female educational attainment compared to a large-scale government conditional cash transfer program to encourage female schooling.
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The Distribution of Legal Traditions around the World: A Contribution to the Legal-Origins Theory
Daniel Oto-Peralías & Diego Romero-Ávila
Journal of Law and Economics, August 2014, Pages 561-628
Abstract:
The distribution of the common law was conditioned by a colonial strategy sensitive to the colonies’ level of endowments, exhibiting a more effective implantation of the legal system in initially sparsely populated territories with a temperate climate. This translates into a negative relationship of precolonial population density and settler mortality with legal outcomes for common-law countries. By contrast, the implantation of the French civil law was not systematically influenced by initial conditions, which is reflected in the lack of such a relationship for this legal family. The common law does not generally lead to legal outcomes superior to those provided by the French civil law when precolonial population density and/or settler mortality are high. The form of colonial rule in British colonies is found to mediate between precolonial endowments and postcolonial legal outcomes.
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Latin American Inequality: Colonial Origins, Commodity Booms, or a Missed 20th Century Leveling?
Jeffrey Williamson
NBER Working Paper, January 2015
Abstract:
Most analysts of the modern Latin American economy have held the pessimistic belief in historical persistence -- they believe that Latin America has always had very high levels of inequality, and that it’s the Iberian colonists’ fault. Thus, modern analysts see today a more unequal Latin America compared with Asia and most rich post-industrial nations and assume that this must always have been true. Indeed, some have argued that high inequality appeared very early in the post-conquest Americas, and that this fact supported rent-seeking and anti-growth institutions which help explain the disappointing growth performance we observe there even today. The recent leveling of inequality in the region since the 1990s seems to have done little to erode that pessimism. It is important, therefore, to stress that this alleged persistence is based on an historical literature which has made little or no effort to be comparative, and it matters. Compared with the rest of the world, inequality was not high in the century following 1492, and it was not even high in the post-independence decades just prior Latin America’s belle époque and start with industrialization. It only became high during the commodity boom 1870-1913, by the end of which it had joined the rich country unequal club that included the US and the UK. Latin America only became relatively high between 1913 and the 1970s when it missed the Great Egalitarian Leveling which took place almost everywhere else. That Latin American inequality has its roots in its colonial past is a myth.
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Oil, Governance and the (Mis)Allocation of Talent in Developing Countries
Christian Ebeke, Luc Désiré Omgba & Rachid Laajaj
Journal of Development Economics, May 2015, Pages 126–141
Abstract:
This paper sheds light on the relationship between oil rent and the allocation of talent, toward rent-seeking versus more productive activities, conditional on the quality of institutions. Using a sample of 69 developing countries, we demonstrate that oil resources orient university students toward specializations that provide better future access to rents when institutions are weak. The results are robust to various specifications, datasets on governance quality and estimation methods. Oil affects the demand for each profession through a technological effect, indicating complementarity between oil and engineering, manufacturing and construction; however, it also increases the ‘size of the cake’. Therefore, when institutions are weak, oil increases the incentive to opt for professions with better access to rents (law, business, and the social sciences), rather than careers in engineering, creating a deviation from the optimal allocation between the two types of specialization.
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Why we fell: Declinist writing and theories of imperial failure in the longue durée
Richard Lachmann & Fiona Rose-Greenland
Poetics, forthcoming
Abstract:
Great powers in transition produce intellectuals who explain that transition as decline. Our goal in this article is to compare how writers in ancient Rome and the contemporary United States understood the trajectories of their societies, and to account for why some of those authors saw decline as inevitable while others proposed policies to reverse the problems they diagnosed. In so doing, we trace the development of a key idea about society through the longue durée. We do not seek to determine whether each author's analysis is ‘correct.’ Rather, we want to explain how authors in each era constructed their arguments and to whom they directed their writings, and understand how modes of analysis and exposition have changed over the millennia. We find that ancient authors generally saw decline as inevitable and stemming primarily from moral causes. Modern authors can be divided into two groups. One sees decline stemming from a mix of moral and structural causes, and as potentially reversible. The other analyzes decline in structural terms and presents it as irreversible. Our findings have implications for sociological work on how ideas are constructed through time, and how social scientists grappling with macro-level change build on enduring ontologies.
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Does Democracy Increase Growth More in New Countries?
Kevin Sylwester
Economics & Politics, forthcoming
Abstract:
Countries face governing challenges at their inception, albeit not of the same degree or type. Challenges such as creating governing structures and forming one nation from disparate groups can create uncertainty and so lower economic growth. Does democracy exacerbate or lessen such problems? This paper considers an empirical specification where the effect of democracy upon economic growth is allowed to vary over time. I find that democracy is more greatly associated with economic growth in newer countries. This suggests that democracy helps to mitigate governing challenges that can lower economic growth.
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Jakob Madsen & James Ang
Review of Economics and Statistics, forthcoming
Abstract:
It is well established in the literature that financial development (FD) is conducive to growth, and yet the channels through which FD affects growth are not well understood. Using a unique new panel data set for 21 OECD countries over the past 140 years, this paper examines the extent to which FD transmits to growth through ideas production, savings, investment, and schooling. Unionization and agricultural share are used as instruments for FD. The empirical results show that FD influences growth through all channels. Specifically, ideas production is found to be the most important channel through which FD impacts on growth.
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The physiological foundations of the wealth of nations
Carl-Johan Dalgaard & Holger Strulik
Journal of Economic Growth, March 2015, Pages 37-73
Abstract:
In the present paper we advance a theory of pre-industrial growth where body size and population size are endogenously determined. Despite the fact that parents invest in both child quantity and productivity enhancing child quality, a take-off does not occur due to a key “physiological check”: if human body size rises, subsistence requirements will increase. This mechanism turns out to be instrumental in explaining why income stagnates near an endogenously determined subsistence boundary. Key predictions of the model are examined using data for ethnic groups as well as for sub-national regions.
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Intelligence and shadow economy: A cross-country empirical assessment
Raufhon Salahodjaev
Intelligence, March–April 2015, Pages 129–133
Abstract:
This paper empirically assesses the influence of intelligence on a shadow economy, using data from 158 countries, over the period 1999–2007. The results provide strong evidence for the claim that intelligence is negatively associated with an underground economy. This paper establishes that, on average, a one standard deviation increase in IQ is associated with an 8.5 percentage point reduction in a shadow economy relative to GDP. The negative effect of intelligence remains intact when controlled for conventional antecedents of a shadow economy.
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Western Europe, state formation, and genetic pacification
Peter Frost & Henry Harpending
Evolutionary Psychology, March 2015, Pages 230-243
Abstract:
Through its monopoly on violence, the State tends to pacify social relations. Such pacification proceeded slowly in Western Europe between the 5th and 11th centuries, being hindered by the rudimentary nature of law enforcement, the belief in a man’s right to settle personal disputes as he saw fit, and the Church’s opposition to the death penalty. These hindrances began to dissolve in the 11th century with a consensus by Church and State that the wicked should be punished so that the good may live in peace. Courts imposed the death penalty more and more often and, by the late Middle Ages, were condemning to death between 0.5 and 1.0% of all men of each generation, with perhaps just as many offenders dying at the scene of the crime or in prison while awaiting trial. Meanwhile, the homicide rate plummeted from the 14th century to the 20th. The pool of violent men dried up until most murders occurred under conditions of jealousy, intoxication, or extreme stress. The decline in personal violence is usually attributed to harsher punishment and the longer-term effects of cultural conditioning. It may also be, however, that this new cultural environment selected against propensities for violence.
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The Rents From Trade and Coercive Institutions: Removing the Sugar Coating
Christian Dippel, Avner Greif & Daniel Trefler
NBER Working Paper, February 2015
Abstract:
The 19th century collapse of world sugar prices should have depressed wages in the British West Indies sugar colonies. It did not. We explain this by showing how lower prices weakened the power of the white planter elite and thus led to an easing of the coercive institutions that depressed wages e.g., institutions that kept land out of the hands of peasants. Using unique data for 14 British West Indies sugar colonies from 1838 to 1913, we examine the impact of the collapse of sugar prices on wages and incarceration rates. We find that in colonies that were poorly suited for sugar cane cultivation (an exogenous colony characteristic), the planter elite declined in power and the institutions they created and supported became less coercive. As a result, wages rose by 20% and incarceration rates per capita were cut in half. In contrast, in colonies that were highly suited for sugar cane there was little change in the power of the planter elite --- as a result, institutions did not change, the market-based mechanisms of standard trade theory were salient, and wages fell by 24%. In short, movements in the terms of trade induced changes in coercive institutions, changes that are central for understanding how the terms of trade affects wages.
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Why some countries are immune from the resource curse: The role of economic norms
Erdem Aytaç, Michael Mousseau & Ömer Faruk Örsün
Democratization, forthcoming
Abstract:
The political resource curse – the detrimental effect of natural resource dependence on democracy – is a well-established correlate of authoritarianism. A long-standing puzzle, however, is why some countries seem to be immune from it. We address this issue systematically by distinguishing two kinds of economies: contract-intensive, where individuals normally obtain their incomes in the marketplace; and clientelist, where individuals normally obtain their incomes in groups that compete over state rents. We theorize that the institutionalized patronage opportunities in clientelist economies are an important precondition for the resource curse, and that nations with contract-intensive economies are immune from it. Analysis of 150 countries from 1973 to 2000 yields robust support for this view. By introducing clientelist economy as a prerequisite for the resource curse, this study offers an important advance in understanding how nations democratize.
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Untouchability, Homicides and Water Access
Catherine Bros & Mathieu Couttenier
Journal of Comparative Economics, forthcoming
Abstract:
This paper contributes to a burgeoning literature on the role of social norms in preventing some groups from accessing public goods. We examine the case of untouchability rules in India that forbid sharing water with low castes. We show that homicide rates of low castes individuals at the district level are positively and significantly correlated with public access to water, while no such relationship can be found as far as higher caste homicide rates are concerned. This relationship, which is robust to many econometric specifications, is seen as a testimony of the upholding of untouchability practices, despite having been outlawed for more than 60 years by the Constitution of India. This paper provides the first quantitative assessment of the link between access to public goods, untouchability norms and violence at the sub-continent scale. Finally, this study underlines the need for policy makers to partly shift their attention from the quantitative allocation of public goods to the effective access to these goods.
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The Natural Selection of Infectious Disease Resistance and Its Effect on Contemporary Health
Justin Cook
Review of Economics and Statistics, forthcoming
Abstract:
This paper empirically tests the association between genetically determined resistance to infectious disease and cross-country health differences. A country-level measure of genetic diversity for the system of genes associated with the recognition and disposal of foreign pathogens is constructed. Genetic diversity within this system has been shown to reduce the virulence and prevalence of infectious diseases and is hypothesized to have been naturally selected from historical exposure to infectious pathogens. Base estimation shows a statistically strong, robust, and positive relationship between this constructed measure and country-level health outcomes in times prior to, but not after, the international epidemiological transition.
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The Role of Constitutions on Poverty: A Cross-National Investigation
Alanson Minkler & Nishith Prakash
University of Connecticut Working Paper, February 2015
Abstract:
In this paper we use novel historical data on economics and social rights from the constitutions of 201 countries and an instrument variable strategy to answer two important questions. First, do economic and social rights provisions in constitutions reduce poverty? Second, does the strength of constitutional language of the economic and social rights matter? Constitutional provisions can be framed either more weakly as directive principles or more strongly as enforceable law. We find three important results. First, we do not find an association between constitutional rights generally framed and poverty. Second, we do not find an association between economic and social rights framed as directive principles and poverty. Third, we do find a strong negative association between economic and social rights framed as enforceable law and poverty. When we use legal origins as our IV, we find evidence that this result is causal. Our results survive a variety of robustness checks. The policy implication is that constitutional provisions framed as enforceable law provide effective meta-rules with incentives for policymakers to initiate, fund, monitor and enforce poverty reduction policies.