Developing stories
Luis Ballesteros, Michael Useem & Tyler Wry
Academy of Management Journal, forthcoming
Abstract:
Corporations have become increasingly influential within societies around the world, while the relative capacity of national governments to meet large social needs has waned. Consequentially, firms are being asked to adopt responsibilities that have traditionally fallen to governments, aid agencies, and other types of organizations. There are questions, though, about whether or not this is beneficial for society. We study this in the context of disaster relief and recovery; an area where companies account for a growing share of aid as compared to traditional providers. Drawing on the dynamic capabilities literature, we argue that firms are better-equipped than other types of organizations to sense areas of need following a disaster, seize response opportunities, and reconfigure resources for fast, effective relief efforts. As such, we predict that — while traditional aid providers are important for disaster recovery — relief will arrive faster, and nations will recover more fully when locally active firms account for a larger share of disaster aid. We test our predictions with a proprietary dataset comprising information on every natural disaster and reported aid donation worldwide from 2003 to 2013. Our analysis uses a novel, quasi-experimental technique known as the synthetic control method and shows that nations benefit greatly from corporate involvement when disaster strikes.
---------------------
Knowledge Elites and Modernization: Evidence from Revolutionary France
Mara Squicciarini & Nico Voigtländer
NBER Working Paper, October 2016
Abstract:
This paper examines the role of knowledge elites in modernization. At the eve of the French Revolution, in the spring of 1789, King Louis XVI solicited lists of grievances (Cahiers de Doléances), in which the public could express complaints and suggestions for reforms of the Ancien Regime. We show that the demand for mass education and democratization was particularly high in regions that had a thick knowledge elite, measured by subscribers to the famous Encyclopédie in the 1770s. Historical evidence suggests that this pattern is driven by the spirit of enlightenment of French knowledge elites. Pre-revolution literacy, in contrast, is not correlated with demand for mass education or with the density of knowledge elites. After the French Revolution, knowledge elites played a key role in implementing schooling reforms at the local level. We show that by the mid-19th century, schooling rates were significantly higher in regions with thicker knowledge elites. The same is true of other proxies for modernization, such as association membership, Republican votes, and the share of French-speaking pupils. Our results highlight an important interaction between local culture (the spirit of enlightenment) and nation-wide institutions in economic development: the French Revolution opened a window of opportunity for local elites to pursue their agenda of modernization.
---------------------
Adam Smith, Watch Prices, and the Industrial Revolution
Morgan Kelly & Cormac Ó Gráda
Quarterly Journal of Economics, November 2016, Pages 1727-1752
Abstract:
Although largely absent from modern accounts of the Industrial Revolution, watches were the first mass produced consumer durable, and were Adam Smith’s pre-eminent example of technological progress. In fact, Smith makes the notable claim that watch prices may have fallen by up to 95 per cent over the preceding century; a claim that this paper attempts to evaluate. We look at changes in the reported value of over 3,200 stolen watches from criminal trials in the Old Bailey in London from 1685 to 1810. Before allowing for quality improvements, we find that the real price of watches in nearly all categories falls steadily by 1.3 per cent per year, equivalent to a fall of 75 per cent over a century, showing that sustained innovation in the production of a highly complex artefact had already appeared in one important sector of the British economy by the early eighteenth century.
---------------------
Daniel Oto-Peralías & Diego Romero-Ávila
Journal of Economic Growth, December 2016, Pages 409–464
Abstract:
This paper shows that a historical process that ended more than five centuries ago, the Reconquest, is very important to explain Spanish regional economic development down to the present day. An indicator measuring the rate of Reconquest reveals a heavily negative effect on current income differences across the Spanish provinces. A main intervening factor in the impact the Reconquest has had is the concentration of economic and political power in a few hands, excluding large segments of the population from access to economic opportunities when Spain entered the industrialization phase. The timing of the effect is consistent with this argument. A general implication of our analysis is that large frontier expansions may favor a political equilibrium among the colonizing agents that is biased toward the elite, creating the conditions for an inegalitarian society, with negative consequences for long-term economic development.
---------------------
Carmine Guerriero
Journal of Law and Economics, May 2016, Pages 313-358
Abstract:
Although property rights are key, their determinants are still poorly understood. When property is fully protected, some potential buyers with valuation higher than that of original owners are inefficiently excluded from trade because of transaction costs. When property rights are weak, low-valuation potential buyers inefficiently expropriate original owners. The trade-off between these two misallocations implies that the protection of property will be stronger the more heterogeneous the potential buyer’s preferences are. This implication holds true when part of the population has more political influence on institutional design, when transaction costs are determined by either market power or asymmetric information, and when the disincentive effect of weak property rights is taken into account. Moreover, it is consistent with the relationships between measures of ethnolinguistic, genetic, and religious diversity and novel data on the rules on adverse possession and on government takings of real property in 126 jurisdictions.
---------------------
The Middle-Income Trap: More Politics than Economics
Richard Doner & Ben Ross Schneider
World Politics, October 2016, Pages 608-644
Abstract:
Economists have identified the existence of a middle-income (mi) trap but have yet to analyze the politics of this trap. The authors argue that countries in the mi trap face two major institutional and political challenges. First, the policies necessary to upgrade productivity — as in human capital and innovation — require enormous investment in institutional capacity. Second, these institutional challenges come at a time when political capacity for building these institutions is weak, due primarily to the fragmentation of potential support coalitions. Politics are stalled in particular by fractured social groups, especially business and labor, and more generally by inequality. These conditions result in large measure from previous trajectories of growth. The empirical analysis concentrates on nine of the larger mi countries.
---------------------
Direct Democracy and Resource Allocation: Experimental Evidence from Afghanistan
Andrew Beath, Fotini Christia & Ruben Enikolopov
Journal of Development Economics, January 2017, Pages 199–213
Abstract:
Direct democracy is designed to better align policy outcomes with citizen preferences. To test this proposition, we randomized whether 250 villages across Afghanistan selected projects by secret-ballot referenda or by consultation meetings. We find that referenda reduce the influence of local elites over both project type and location. Consistent with previous experimental results, we also find that referenda improve villagers’ perceptions of the local economy and of the quality of local governance. However, we find no systematic evidence that selecting projects via referenda increases the average impact of such projects.
---------------------
Colonial Revenue Extraction and Modern Day Government Quality in the British Empire
Rasmus Broms
World Development, forthcoming
Abstract:
The relationship between the extent of government revenue a government collects, primarily in the form of taxation, and its overall quality has increasingly been identified as a key factor for successful state building, good institutions, and — by extension — general development. Initially deriving from historical research on Western Europe, this process is expected to unfold slowly over time. This study tests the claim that more extensive revenue collection has long-lasting and positive consequences for government quality in a developmental setting. Using fiscal records from British colonies, results from cross-colony/country regression analyses reveal that higher colonial income-adjusted revenue levels during the early twentieth century can be linked to higher government quality today. This relationship is substantial and robust to several specifications of both colonial revenue and modern day government quality, and remains significant under control for a range of rivaling explanations. The results support the notion that the current institutional success of former colonies can be traced back to the extent of historical revenue extraction.
---------------------
Rights Without Resources: The Impact of Constitutional Social Rights on Social Spending
Adam Chilton & Mila Versteeg
University of Virginia Working Paper, October 2016
Abstract:
Over the past decades, constitutions around the world have come to protect a growing number of social rights. This constitutionalization of social rights has generally been met with approval from academics, human rights activists, policy-makers, and development economists alike. But despite this widespread support, there is hardly any evidence on whether the inclusion of rights in constitutions actually changes how governments provide social services to their citizens. We take up this question by studying the effect of adopting the constitutional right to education and healthcare on government spending. Using data on 186 countries’ constitutional rights, we employ a variety of empirical tests to examine if the rights to education and healthcare are associated with increases in government spending. Our results suggest that the adoption of these social rights is not associated with statistically significant or substantively meaningful increases in government spending on education or healthcare.
---------------------
Does household financial access facilitate law compliance? Evidence from Mexico
Emilio Gutiérrez & Kensuke Teshima
Economics Letters, December 2016, Pages 120–124
Abstract:
We investigate the impact of financial access on law compliance (whether workers are registered in a mandated social security system). In contrast to previous studies that focus on firms’ access to credit, we investigate workers’ access to credit. Exploiting the geographic variation in financial access due to Banco Azteca’s opening in Mexico in 2002 that changed financial access by poor people almost overnight, we find that financial access increased the probability of getting formalized.
---------------------
Carolyn Coburn et al.
Sociological Forum, forthcoming
Abstract:
The theory of organized hypocrisy asserts that an organization depends upon its external environment for both financial support and conferred legitimacy, which can lead to conflicting policy agendas. We apply the theory of organized hypocrisy to World Bank structural adjustment and investment lending for reproductive health, hypothesizing these two lending policies should have differential effects on maternal mortality. We estimate a two-way fixed effects regression model with robust standard errors clustered by country to examine the effect of World Bank reproductive health lending on maternal mortality within sub-Saharan African nations over the period 1990–2010. We find that in every model the coefficients for World Bank structural adjustment lending in the health sector are positive and significant while the coefficients for World Bank investment lending in the reproductive health sector are negative and significant. The findings lend support to the theory that the World Bank is pursuing contradictory agendas, embodied by its lending policies, which can have differential effects on maternal mortality.
---------------------
Edward Glaeser, Giacomo Ponzetto & Andrei Shleifer
NBER Working Paper, September 2016
Abstract:
A central challenge in securing property rights is the subversion of justice through legal skill, bribery, or physical force by the strong — the state or its powerful citizens — against the weak. We present evidence that the less educated and poorer citizens in many countries feel their property rights are least secure. We then present a model of a farmer and a mine which can pollute his farm in a jurisdiction where the mine can subvert law enforcement. We show that, in this model, injunctions or other forms of property rules work better than compensation for damage or liability rules. The equivalences of the Coase Theorem break down in realistic ways. The case for injunctions is even stronger when parties can invest in power. Our approach sheds light on several controversies in law and economics, but also applies to practical problems in developing countries, such as low demand for formality, law enforcement under uncertain property rights, and unresolved conflicts between environmental damage and development.
---------------------
Migration, Diversity, and Economic Growth
Vincenzo Bove & Leandro Elia
World Development, January 2017, Pages 227–239
Abstract:
When migrants move from one country to another, they carry a new range of skills and perspectives, which nurture technological innovation and stimulate economic growth. At the same time, increased heterogeneity may undermine social cohesion, create coordination, and communication barriers, and adversely affect economic development. In this article we investigate the extent to which cultural diversity affects economic growth and whether this relation depends on the level of development of a country. We use novel data on bilateral migration stocks, that is the number of people living and working outside the countries of their birth over the period 1960–2010, and compute indices of fractionalization and polarization. In so doing, we explore the effect of immigration on development through its effect on the composition of the destination country. We find that overall both indices have a distinct positive impact on real GDP per capita and that the effect of diversity seems to be more consistent in developing countries.
---------------------
The Devil is in the Details: The Successes and Limitations of Bureaucratic Reform in India
Iqbal Dhaliwal & Rema Hanna
Journal of Development Economics, January 2017, Pages 1–21
Abstract:
Using a biometric technology to monitor the attendance of public health workers in India resulted in a 15 percent increase in staff presence, particularly for lower-level staff. The monitoring program led to a reduction in low-birth weight babies, highlighting the importance of improving provider presence. But, despite the government initiating this reform, there was ultimately a low demand by the government to use the higher quality attendance data available in real time to enforce their existing human resource policies (e.g. leave or salary deductions) due to logistical challenges and a not unrealistic fear of generating staff discord or increase in staff attrition, especially among doctors, who showed the least improvement in attendance. While we observed some gains from this type of monitoring program, technological solutions by themselves will not improve attendance of government staff without a willingness to use the data generated to enforce existing penalties.
---------------------
Intra-Elite Competition and Long-Run Fiscal Development
Pablo Beramendi, Mark Dincecco & Melissa Rogers
Duke University Working Paper, September 2016
Abstract:
We offer a new rationale to help explain cross-national differences in long-run fiscal development. Higher public goods provision can translate into productivity gains in an industrializing society. Thus, capitalist elites -- unlike agricultural elites, who rely on traditional production methods -- may prefer to invest in greater fiscal capacity. Furthermore, to pay for this investment, capitalist elites may prefer to shoulder a higher tax burden through progressive direct taxation, which they may view as the least-worst economic option. To test the predictions of our argument, we exploit an original fiscal database that spans 30-plus developed and developing nations over 1870-2010. We find a positive, significant, and robust relationship between intra-elite competition among agricultural and capitalist elites and the size and structure of fiscal states. Our results show that fiscal development may take place even in the absence of interstate military competition and warfare.
---------------------
Lifting the iron curtain: School-age education and entrepreneurial intentions
Oliver Falck, Robert Gold & Stephan Heblich
Journal of Economic Geography, forthcoming
Abstract:
We exploit Germany’s reunification to identify how school-age education affects entrepreneurial intentions. We look at university students in reunified Germany who were born before the Iron Curtain fell. During school age, all students in the West German control group received formal and informal education in a free-market economy, while East German students did or did not receive free-market education. Difference-in-differences estimations show that school-age education in a free-market economy increases entrepreneurial intentions. An event study supports the common-trends assumption. Results remain robust in matched samples and when we exploit within-student variation in occupational intentions to control for unobserved individual characteristics.
---------------------
Has climate change driven urbanization in Africa?
Vernon Henderson, Adam Storeygard & Uwe Deichmann
Journal of Development Economics, January 2017, Pages 60–82
Abstract:
This paper documents strong but differentiated links between climate and urbanization in large panels of districts and cities in Sub-Saharan Africa, which has dried substantially in the past fifty years. The key dimension of heterogeneity is whether cities are likely to have manufacturing for export outside their regions, as opposed to being exclusively market towns providing local services to agricultural hinterlands. In regions where cities are likely to be manufacturing centers (25% of our sample), drier conditions increase urbanization and total urban incomes. There, urban migration provides an “escape” from negative agricultural moisture shocks. However, in the remaining market towns (75% of our sample), cities just service agriculture. Reduced farm incomes from negative shocks reduce demand for urban services and derived demand for urban labor. There, drying has little impact on urbanization or total urban incomes. Lack of structural transformation in Africa inhibits a better response to climate change.
---------------------
Erwin Bulte et al.
Journal of Economic Behavior & Organization, forthcoming
Abstract:
The experimental literature has shown the tendency for experimental trading markets to converge to neoclassical predictions. Yet, the extent to which theory explains the equilibrating forces in markets remains under-researched, especially in the developing world. We set up a laboratory in 94 villages in rural Sierra Leone to mimic a real market. We implement several treatments, varying trading partners and the anonymity of trading. We find that when trading with co-villagers average efficiency is somewhat lower than predicted by theory (and observed in different contexts), and markets do not fully converge to theoretical predictions across rounds of trading. When participants trade with strangers efficiency is reduced more. Anonymizing trade within the village does not affect efficiency. This points to the importance of behavioral norms for trade. Intra-village social relationships or hierarchies, instead, appear less important as determinants of trading outcomes. This is confirmed by analysis of the trader-level data, showing that individual earnings in the experiment do not vary with one’s status or position in local networks.
---------------------
Mobile Phones, Civic Engagement, and School Performance in Pakistan
Minahil Asim & Thomas Dee
NBER Working Paper, October 2016
Abstract:
The effective governance of local public services depends critically on the civic engagement of local citizens. However, recent efforts to promote effective citizen oversight of the public-sector services in developing countries have had mixed results. This study discusses and evaluates a uniquely designed, low-cost, scalable program designed to improve the governance and performance of primary and middle schools in the Punjab province of Pakistan. The School Council Mobilization Program (SCMP) used mobile-phone calls to provide sustained and targeted guidance to local school-council members on their responsibilities and authority. We examine the effects of the SCMP on school enrollment, student and teacher attendance, and school facilities using a “difference in difference in differences” (DDD) design based on the targeted implementation of the SCMP. We find that this initiative led to meaningful increases in primary-school enrollment, particularly for young girls (i.e., a 12.4 percent increase), as well as targeted improvements in teacher attendance and school facilities, most of which were sustained in the months after the program concluded.