Dustbin of History
The Evolution of Ideology, Fairness and Redistribution
Alberto Alesina, Guido Cozzi & Noemi Mantovan
Economic Journal, forthcoming
Abstract:
Ideas about what is "fair" influence preferences for redistribution. We study the dynamic evolution of different economies in which redistributive policies, perception of fairness, inequality and growth are jointly determined. We show how including beliefs about fairness can keep two otherwise identical countries in different development paths for a very long time. We show how different initial conditions regarding how "fair" is the same level of inequality can lead to two permanently different steady states. We also explore how bequest taxation can be an efficient way of redistributing wealth to correct "unfair" past accumulation of inequality.
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Why Was the Arab World Poised for Revolution? Schooling, Economic Opportunities, and the Arab Spring
Filipe Campante & Davin Chor
Journal of Economic Perspectives, Spring 2012, Pages 167-88
Abstract:
What underlying long-term conditions set the stage for the Arab Spring? In recent decades, the Arab region has been characterized by an expansion in schooling coupled with weak labor market conditions. This pattern is especially pronounced in those countries that saw significant upheaval during the first year of the Arab Spring uprisings. We argue that the lack of adequate economic opportunities for an increasingly educated populace can help us understand episodes of regime instability such as the Arab Spring.
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The World our Grandchildren Will Inherit: The Rights Revolution and Beyond
Daron Acemoglu
NBER Working Paper, April 2012
Abstract:
Following on Keynes's Economic Possibilities for Our Grandchildren, this paper develops conjectures about the world we will leave to our grandchildren. It starts by outlining the 10 most important trends that have defined our economic, social, and political lives over the last 100 years. It then provides a framework for interpreting these trends, emphasizing the role of the expansion of political and civil rights and institutional changes in this process. It then uses this framework for extrapolating these 10 trends into the next 100 years.
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Alberto Alesina, Stelios Michalopoulos & Elias Papaioannou
Harvard Working Paper, March 2012
Abstract:
This study explores the consequences and origins of contemporary differences in wellbeing across ethnic groups within countries. First, we construct country-level measures of ethnic inequality combining anthropological data on the spatial distribution of ethnic/linguistic groups with satellite images on light density at night. Second, we show that ethnic inequality is strongly negatively correlated with per capita income; this result pertains even when we condition on fractionalization, income inequality, and numerous other country characteristics. Third, when we explore the roots of ethnic inequality, we find that differences in geographic endowments across ethnic homelands explain a sizable portion of contemporary ethnic inequality. Fourth, we show that deeply rooted inequality in geographic endowments across ethnic regions in inversely related to contemporary development. Fifth, we show that the strong negative correlation between ethnic inequality and well-being obtains also when we solely explore within country variation using micro data from the Afrobarometer surveys.
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China's life satisfaction, 1990-2010
Richard Easterlin et al.
Proceedings of the National Academy of Sciences, forthcoming
Abstract:
Despite its unprecedented growth in output per capita in the last two decades, China has essentially followed the life satisfaction trajectory of the central and eastern European transition countries - a U-shaped swing and a nil or declining trend. There is no evidence of an increase in life satisfaction of the magnitude that might have been expected to result from the fourfold improvement in the level of per capita consumption that has occurred. As in the European countries, in China the trend and U-shaped pattern appear to be related to a pronounced rise in unemployment followed by a mild decline, and an accompanying dissolution of the social safety net along with growing income inequality. The burden of worsening life satisfaction in China has fallen chiefly on the lowest socioeconomic groups. An initially highly egalitarian distribution of life satisfaction has been replaced by an increasingly unequal one, with decreasing life satisfaction in persons in the bottom third of the income distribution and increasing life satisfaction in those in the top third.
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Well-being and economic freedom: Evidence from the States
Ariel Belasen & R.W. Hafer
Intelligence, May-June 2012, Pages 306-316
Abstract:
There is ample evidence that well-being, measured in various ways for a large number of countries, is positively related to the level of general intelligence. Pesta at al. (2010a) verify this close relationship between well-being and IQ across states. There also is evidence that well-being is positively related to economic freedom across countries. The purpose of this study is to determine whether economic freedom and well-being are related at the state level. Our regression analysis indicates that, across the 50 states, improvements in economic freedom lead to higher levels of well-being after controlling for other economic factors. We also find that the relationship between well-being and economic freedom differs significantly across regions in the United States.
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Medieval Universities, Legal Institutions, and the Commercial Revolution
Davide Cantoni & Noam Yuchtman
NBER Working Paper, April 2012
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 not affected by excluding cities close to universities or cities belonging to territories that included universities. Universities provided training in newly-rediscovered Roman and Canon law; students with legal training served in positions that reduced the uncertainty of trade in medieval Europe. 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.
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The Road Not Taken: Pre-Revolutionary Cuban Living Standards in Comparative Perspective
Marianne Ward & John Devereux
Journal of Economic History, March 2012, Pages 104-132
Abstract:
We examine Cuban GDP over time and across space. We find that Cuba was once a prosperous middle-income economy. On the eve of the revolution, incomes were 50 to 60 percent of European levels. They were among the highest in Latin America at about 30 percent of the United States. In relative terms, Cuba was richer earlier on. Income per capita during the 1920s was in striking distance of Western Europe and the Southern United States. After the revolution, Cuba slipped down the world income distribution. Current levels of income per capita appear below their pre-revolutionary peaks.
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The merger of populations, the incidence of marriages, and aggregate unhappiness
Oded Stark, Franz Rendl & Marcin Jakubek
Journal of Evolutionary Economics, April 2012, Pages 331-344
Abstract:
Let a society's unhappiness be measured by the aggregate of the levels of relative deprivation of its members. When two societies of equal size, F and M, merge, unhappiness in the merged society is shown to be higher than the sum of the levels of unhappiness in the constituent societies when apart; merger alone increases unhappiness. But when societies F and M merge and marriages are formed such that the number of households in the merged society is equal to the number of individuals in one of the constituent societies, unhappiness in the merged society is shown to be lower than the aggregate unhappiness in the two constituent societies when apart. This result obtains regardless of which individuals from one society form households with which individuals from the other, and even when the marriages have not (or not yet) led to income gains to the married couples from increased efficiency, scale economies, and the like. While there are various psychological reasons for people to become happier when they get married as opposed to staying single, the very formation of households reduces social distress even before any other happiness-generating factors kick in.
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Education and Military Rivalry
Philippe Aghion, Torsten Persson & Dorothee Rouzet
NBER Working Paper, May 2012
Abstract:
Using data from the last 150 years in a small set of countries, and from the postwar period in a large set of countries, we show that large investments in state primary education systems tend to occur when countries face military rivals or threats from their neighbors. By contrast, we find that democratic transitions are negatively associated with education investments, while the presence of democratic political institutions magnifies the positive effect of military rivalries. These empirical results are robust to a number of statistical concerns and continue to hold when we instrument military rivalries with commodity prices or rivalries in a certain country's immediate neighborhood. We also present historical case studies, as well as a simple model, that are consistent with the econometric evidence.
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Hoyt Bleakley & Jeffrey Lin
Quarterly Journal of Economics, May 2012, Pages 587-644
Abstract:
Many cities in North America formed at obstacles to water navigation, where continued transport required overland hauling or portage. Portage sites attracted commerce and supporting services, and places where the falls provided water power attracted manufacturing during early industrialization. We examine portage sites in the U.S. South, Mid-Atlantic, and Midwest, including those on the fall line, a geomorphological feature in the southeastern United States marking the final rapids on rivers before the ocean. Although their original advantages have long since become obsolete, we document the continuing importance of historical portage sites. We interpret these results as path dependence and contrast explanations based on sunk costs interacting with decreasing versus increasing returns to scale.
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Economic Geography and Economic Development in Sub-Saharan Africa
Maarten Bosker & Harry Garretsen
World Bank Economic Review, forthcoming
Abstract:
Sub-Saharan Africa's (SSA) physical geography is often blamed for its poor economic performance. A country's geographical location does, however, not only determine its agricultural conditions or disease environment. It also pins down a country's relative position vis-à-vis other countries, affecting its ease of access to foreign markets. This paper assesses the importance of market access for manufactures in explaining the observed income differences between SSA countries over the period 1993-2009. We construct yearly, theory-based measures of each SSA country's market access using the information contained in bilateral manufacturing trade flows. Using these measures, we find a robust positive effect of market access on economic development that has increased in importance during the last decade. Interestingly, when further unraveling this finding, access to other SSA markets in particular turns out to be important.
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Productivity and the Welfare of Nations
Susanto Basu et al.
NBER Working Paper, April 2012
Abstract:
We show how to relate the welfare of a country's infinitely-lived representative consumer to observable aggregate data. To a first order, welfare is summarized by total factor productivity and by the capital stock per capita. These variables suffice to calculate welfare changes within a country, as well as welfare differences across countries. The result holds regardless of the type of production technology and the degree of market competition. It applies to open economies as well, if total factor productivity is constructed using domestic absorption, instead of gross domestic product, as the measure of output. It also requires that total factor productivity be constructed with prices and quantities as perceived by consumers, not firms. Thus, factor shares need to be calculated using after-tax wages and rental rates and they will typically sum to less than one. These results are used to calculate welfare gaps and growth rates in a sample of developed countries with high-quality total factor productivity and capital data. Under realistic scenarios, the U.K. and Spain had the highest growth rates of welfare during the sample period 1985-2005, but the U.S. had the highest level of welfare.
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Why Did Universities Precede Primary Schools? A Political Economy Model Of Educational Change
Fali Huang
Economic Inquiry, April 2012, Pages 418-434
Abstract:
Universities were first established in Europe around the twelfth century, although primary schools did not appear until the nineteenth. This paper accounts for this phenomenon using a political economy model of educational change on who are educated (the elite or the masses) and what is taught (general or specific/vocational education). A key assumption is that general education is more effective than specific education in enhancing one's skills in a broad range of tasks, including political rent-seeking. Its findings suggest that specific education for the masses is compatible with the elite rule, whereas mass general education is not, which refines the conventional association between education and democracy.
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Linking Advertising, Materialism, and Life Satisfaction
Joseph Sirgy et al.
Social Indicators Research, May 2012, Pages 79-101
Abstract:
This paper develops theory related to advertising, materialism, and life satisfaction by formally testing explanations related to the antecedents and consequences of materialism. Survey data were collected from seven major cities each in a different country (Australia, Bosnia/Herzegovina, Germany, Egypt, Korea, Turkey, and the USA) using a probability sample (cluster sampling method involving income stratification). The results showed that the extent to which advertising is perceived to be materialistic contributes to materialism. Materialism, in turn, leads to the frequent use of various standards of comparison in making judgments about standard of living. As judgments about standard of living increase, standard of living is evaluated more negatively. In turn, negative self-evaluations contribute significantly to dissatisfaction with life.
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Capitalist Development and Civil War
Michael Mousseau
International Studies Quarterly, forthcoming
Abstract:
Capitalism has emerged as a force for peace in studies of interstate conflict. Is capitalism also a force for peace within nations? This article shows how a market-capitalist economy - one where most citizens normally obtain their livelihoods contracting in the market - creates citizen-wide preferences for universal freedom, peace, and the democratic rule of law. Prior research has corroborated the theory's predictions linking market-capitalism with liberal preferences, human rights, and peace among nations. Here, Granger tests of causality show that market-capitalism causes higher income, but higher income does not cause market-capitalism, and from 1961 to 2001 not a single civil war, insurgency, or rebellion occurred in any nation with a market-capitalist economy. Market-capitalism is the strongest variable in the civil conflict literature, and many of the most robust relationships in this literature are spurious - including income, state capacity, and oil-export dependency.
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Pelle Ahlerup & Ola Olsson
Journal of Economic Growth, June 2012, Pages 71-102
Abstract:
The level of ethnic diversity is believed to have significant consequences for economic and political development within countries. In this article, we provide a theoretical and empirical analysis of the determinants of ethnolinguistic diversity in the world. We introduce a model of cultural and genetic drift where new groups endogenously emerge among peripheral populations in response to an insufficient supply of collective goods. In line with our model, we find that the duration of human settlements since prehistoric times has a strong positive association with current levels of ethnolinguistic diversity. Diversity is further negatively correlated with the length of modern state experience and with distance from the equator. Our results are thus consistent with both "evolutionary" and "constructivist" hypotheses of ethnolinguistic fractionalization.
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Contract Enforcement: A Political Economy Model of Legal Development
Fali Huang
Journal of Law, Economics, and Organization, forthcoming
Abstract:
In an effort to understand why the relative usage of relational and legal contracts differs across societies, this article builds a political economy model of legal development where legal quality of contract enforcement is a costly public good. It finds that legal investment tends to be too small under elite rule but too large under majority rule in comparison with the socially optimal level. Furthermore, elite rule, low legal quality, and high-income inequality may form a self-perpetuating circle that hinders economic development. In contrast to the conventional view, this article suggests that the often-observed association between heavy reliance on relational contracts and under development is most likely caused by the presence of elite rule rather than by a more collective-oriented culture per se because it is optimal for societies better at using relational contracts to start legal investment relatively late and to have lower quality of legal enforcement.
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Secure Property as a Bottom-Up Process: Firms, Stakeholders, and Predators in Weak States
Stanislav Markus
World Politics, April 2012, Pages 242-277
Abstract:
How do property rights become secure? How does rule of law take hold in an economy? The author uses an original survey of 516 firms in Russia and Ukraine, as well as interview-based case studies, to reexamine these fundamental issues of political economy. Most states in the developing world lack the requisite time horizons and institutional capacity to make the credible commitments emphasized in the literature. In this context, the author argues that firms can enforce their property rights without resort to mafias by forming alliances with stakeholders such as foreign actors, community residents, and labor. These stakeholders can impose costs on the potential aggressors through diverse political strategies, allowing firms to defend their property rights not only from private predators but also from the state. The article evaluates this "bottomup" theory of secure property rights against existing state-based theorizing.
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Ethnic fractionalization and unemployment
Horst Feldmann
Economics Letters, forthcoming
Abstract:
Using data on 74 countries and a large number of controls, this paper finds that a higher degree of ethnic fractionalization is correlated with a higher unemployment rate. This is probably mainly because fractionalization reduces labor market efficiency.
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Democratization after Civil War: A Brush-Clearing Exercise
Virginia Page Fortna & Reyko Huang
International Studies Quarterly, forthcoming
Abstract:
Why do some states emerging from civil war take significant strides toward democracy while others do not? The existing literature comes to contradictory and puzzling findings, many of which, we argue, are driven by methodological problems. We examine the determinants of democratization in the short, medium, and long term after civil wars ending between 1945 and 1999. Other than a short-term effect of negotiated settlements, we find little support for the prominent claim that the outcome of the war shapes the prospects for postwar democratization. Neither does peacekeeping foster democratization. Meanwhile, consistent with the more general democratization literature, we find that economic development aids democratization while oil wealth hinders it. In short, we find the determinants of democratization to be much the same for post-civil war societies as for other societies.
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Signal Left, Turn Right: Central Rhetoric and Local Reform in China
Haifeng Huang
Political Research Quarterly, forthcoming
Abstract:
How have local governments in China been able to break through central policy restrictions in a unitary and authoritarian political system? Why is China's official discourse in the reform era often so conservative and unfavorable to reform? The author argues the two issues are components of a signaling game between China's central government and local officials, in which local officials know that the center may be reformist, but the reformist center imitates the rhetoric of a conservative center to control the pace of local liberalization. The result is a gradualist reform of "signaling left, turning right," with glaring incongruity of speech and actions in the process.
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Christoph Steinhardt
Political Studies, June 2012, Pages 434-454
Abstract:
Although China is an outlier in terms of generalized trust, it has attracted little scholarly attention so far. Employing survey data from Mainland China, Hong Kong and Taiwan, this article seeks to address this gap. The article makes use of the comparative leverage provided by political and socio-cultural variation to investigate two plausible reasons for the high levels of measured trust in Mainland China: a spillover from high institutional confidence; and problems of measurement validity. The study finds a comparatively strong link between institutional confidence and trust in Mainland China, which suggests that high confidence in institutions contributes to high levels of generalized trust in this context. By situating the Chinese case in the debate on the institutional foundation of generalized trust, the article suggests a heuristic to interpret this finding and points out its theoretical implications. The findings on measurement validity are mixed. While the results do not suggest that political fear causes a significant distortion in measured trust levels, the study finds circumstantial evidence for a culturally induced response bias to the standard item in Mainland China. This would have crucial implications for comparative research on generalized trust beyond the Chinese context.
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The Effects of Democratization on Economic Policy: Evidence from China
Monica Martínez-Bravo et al.
Johns Hopkins University Working Paper, February 2012
Abstract:
This study investigates the effect of the introduction of elections on public goods and redistribution in the context of rural China. Our study collects a unique survey to document the history of political reforms and economic policies in 217 villages for the years 1980-2005. To establish causality, we exploit the staggered timing of the introduction of elections. Our results show that elections increase public goods expenditure by 27%, and farmland by 20-27% for median village households. The increase in public goods is paralleled by an increase in local taxes and the change in land allocation is paralleled by a reduction in income inequality. In addition, elections reduce the enforcement of unpopular upper-government policies such as family planning and the expropriation of village land. We argue that these empirical findings provide strong support for the characterization of democracy in recent theories of democratization.
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A panel data test for poverty traps
Antonio Galvao, Gabriel Montes-Rojas & Jose Olmo
Applied Economics, Spring 2012, Pages 1943-1952
Abstract:
This article develops a threshold panel data nonlinearity test for poverty traps. The new testing strategy extends the work on nonlinearity tests for panel data by considering threshold nonlinearities in the fixed-effects components. Monte Carlo simulations are conducted to evaluate the finite-sample performance of these tests. The tests are applied to the relationship between Gross Domestic Product (GDP) per capita and capital stock per capita. Our application to a panel of countries for the period 1973 to 2007 uncovers the presence of two regimes determined by the level of capital stock per capita. The conclusions from our test also support the existence of a poverty trap determined by a capital stock per capita level at the 11% quantile of its pooled worldwide distribution.
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Stability, Transition, and Regime Approval in Post-Fidel Cuba
Jonathan Benjamin-Alvarado & Gregory Petrow
Political Science Quarterly, Spring 2012, Pages 73-103
Abstract:
Jonathan Benjamin-Alvarado and Gregory A. Petrow examine Gallup World Poll data from Cuba to evaluate both the level of Cuban regime approval, as well as its causes. They conclude that Cubans are satisfied overall with their leaders, and that part of this satisfaction stems from equating the regime with the state.