Into the 21st century
Generating Skilled Self-Employment in Developing Countries: Experimental Evidence from Uganda
Christopher Blattman, Nathan Fiala & Sebastian Martinez
Quarterly Journal of Economics, forthcoming
Abstract:
We study a government program in Uganda designed to help the poor and unemployed become self-employed artisans, increase incomes, and thus promote social stability. Young adults in Uganda's conflict-affected north were invited to form groups and submit grant proposals for vocational training and business start-up. Funding was randomly assigned among screened and eligible groups. Treatment groups received unsupervised grants of $382 per member. Grant recipients invest some in skills training but most in tools and materials. After four years half practice a skilled trade. Relative to the control group, the program increases business assets by 57%, work hours by 17%, and earnings by 38%. Many also formalize their enterprises and hire labor. We see no impact, however, on social cohesion, anti-social behavior, or protest. Impacts are similar by gender, but are qualitatively different for women because they begin poorer (meaning the impact is larger relative to their starting point) and because women's work and earnings stagnate without the program but take off with it. The patterns we observe are consistent with credit-constraints.
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Coal and the European Industrial Revolution
Alan Fernihough & Kevin Hjortshøj O'Rourke
NBER Working Paper, January 2014
Abstract:
We examine the importance of geographical proximity to coal as a factor underpinning comparative European economic development during the Industrial Revolution. Our analysis exploits geographical variation in city and coalfield locations, alongside temporal variation in the availability of coal-powered technologies, to quantify the effect of coal availability on historic city population sizes. Since we suspect that our coal measure could be endogenous, we use a geologically derived measure as an instrumental variable: proximity to rock strata from the Carboniferous era. Consistent with traditional historical accounts of the Industrial Revolution, we find that coal had a strong influence on city population size from 1800 onward. Counterfactual estimates of city population sizes indicate that our estimated coal effect explains at least 60% of the growth in European city populations from 1750 to 1900. This result is robust to a number of alternative modelling assumptions regarding missing historical population data, spatially lagged effects, and the exclusion of the United Kingdom from the estimation sample.
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Does Diversity Lead to Diverse Opinions? Evidence from Languages and Stock Markets
Yen-Cheng Chang et al.
China Academy of Financial Research Working Paper, December 2013
Abstract:
An oft-cited premise for why diverse societies, be it ethnic, linguistic or religious, can grow faster than homogeneous ones is that they bring about diverse opinions, which foster problem solving and creativity. We provide evidence for this premise using a linguistic measure of diversity across Chinese provinces and stock market measures of diverse opinions. This cross-province variation in linguistic diversity is correlated with the extent of hilly terrain in a province but is uncorrelated with financial development in that province. Households in provinces with more linguistic diversity have more diverse opinions as measured by greater trading of and disagreement on stock message boards about local stocks. Linguistic diversity is also correlated with small private enterprise diversity. An analogous cross-country regression suggests that our conclusion extrapolates beyond China.
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Crime and Growth Convergence: Evidence from Mexico
Ted Enamorado, Carlos Rodriguez-Castelan & Luis López-Calva
World Bank Working Paper, December 2013
Abstract:
Scholars have often argued that crime deters growth, but the empirical literature assessing such effect is scarce. By exploiting cross-municipality income and crime data for Mexico -- a country that experienced a high increase in crime rates over the past decade -- this study circumvents two of the most common problems faced by researchers in this area. These are: (i) the lack of a homogenous, consistently comparable measure of crime and (ii) the small sample problem in the estimation. Combining income data from poverty maps, administrative records on crime and violence, and public expenditures data at the municipal level for Mexico (2005-2010), the analysis finds evidence indicating that drug-related crimes indeed deter growth. It also finds no evidence of a negative effect on growth from crimes unrelated to drug trafficking.
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American Colonial Incomes, 1650-1774
Peter Lindert & Jeffrey Williamson
NBER Working Paper, January 2014
Abstract:
New data now allow conjectures on the levels of real and nominal incomes in the thirteen American colonies. New England was the poorest region, and the South was the richest. Colonial per capita incomes rose only very slowly, and slowly for five reasons: productivity growth was slow; population in the low-income (but subsistence-plus) frontier grew much faster than that in the high-income coastal settlements; child dependency rates were high and probably even rising; the terms of trade was extremely volatile, presumably suppressing investment in export sectors; and the terms of trade rose very slowly, if at all, in the North, although faster in the South. All of this checked the growth of colony-wide per capita income after a 17th century boom. The American colonies led Great Britain in purchasing power per capita from 1700, and possibly from 1650, until 1774, even counting slaves in the population. That is, average purchasing power in America led Britain early, when Americans were British. The common view that American per capita income did not overtake that of Britain until the start of the 20th century appears to be off the mark by two centuries or longer.
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Slavery, Statehood, and Economic Development in Sub-Saharan Africa
Dirk Bezemer, Jutta Bolt & Robert Lensink
World Development, May 2014, Pages 148–163
Abstract:
Although Africa’s indigenous systems of slavery have been extensively described in the historical literature, comparatively little attention has been paid to analyzing its long term impact on economic and political development. Based on data collected from anthropological records we conduct an econometric analysis. We find that indigenous slavery is robustly and negatively associated with current income levels, but not with income levels immediately after independence. We explore one channel of transmission from indigenous slavery to income growth consistent with this changing effect over time and find evidence that indigenous slavery impeded the development of capable and accountable states in Africa.
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Agriculture, Transportation and the Timing of Urbanization: Global Analysis at the Grid Cell Level
Mesbah Motamed, Raymond Florax & William Masters
U.S. Department of Agriculture Working Paper, November 2013
Abstract:
This paper addresses the timing of a location's historical transition from rural to urban activity. We test whether urbanization occurs sooner in places with higher agricultural potential and comparatively lower transport costs, using worldwide data that divide the earth's surface at half-degree intervals into 62,290 cells. From an independent estimate of each cell's rural and urban population history over the last 2,000 years, we identify the date at which each cell achieves various thresholds of urbanization. Controlling for unobserved heterogeneity across countries through fixed effects and using a variety of spatial econometric techniques, we find a robust association between earlier urbanization and agro-climatic suitability for cultivation, having seasonal frosts, better access to the ocean or navigable rivers, and lower elevation. These geographic correlations become smaller in magnitude as urbanization proceeds, and there is some variance in effect sizes across continents. Aggregating cells into countries, we show that an earlier urbanization date is associated with higher per capita income today.
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Do Firms Want to Borrow More? Testing Credit Constraints Using a Directed Lending Program
Abhijit Banerjee & Esther Duflo
Review of Economic Studies, forthcoming
Abstract:
This article uses variation in access to a targeted lending program to estimate whether firms are credit constrained. While both constrained and unconstrained firms may be willing to absorb all the directed credit that they can get (because it may be cheaper than other sources of credit), constrained firms will use it to expand production, while unconstrained firms will primarily use it as a substitute for other borrowing. We apply these observations to firms in India that became eligible for directed credit as a result of a policy change in 1998, and lost eligibility as a result of the reversal of this reform in 2000, and to smaller firms that were already eligible for the preferential credit before 1998 and remained eligible in 2000. Comparing the trends in the sales and the profits of these two groups of firms, we show that there is no evidence that directed credit is being used as a substitute for other forms of credit. Instead, the credit was used to finance more production–there was a large acceleration in the rate of growth of sales and profits for these firms in 1998, and a corresponding decline in 2000. There was no change in trends around either date for the small firms. We conclude that many of the firms must have been severely credit constrained, and that the marginal rate of return to capital was very high for these firms.
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Business Literacy and Development: Evidence from a Randomized Controlled Trial in Rural Mexico
Gabriela Calderon, Jesse Cunha & Giacomo De Giorgi
NBER Working Paper, December 2013
Abstract:
A large share of the poor in developing countries run small enterprises, often earning low incomes. This paper explores whether the poor performance of businesses can be explained by a lack of basic business skills. We randomized the offer of a free, 48-hour business skills course to female entrepreneurs in rural Mexico. We find that those assigned to treatment earn higher profits, have larger revenues, serve a greater number of clients, are more likely to use formal accounting techniques, and more likely to be registered with the government. Indirect treatment effects on those entrepreneurs randomized out of the program, yet living in treatment villages, are economically meaningful, yet imprecisely measured. We present a simple model of experience and learning that helps interpret our results, and consistent with the theoretical predictions, we find that "low-quality" entrepreneurs are the most likely to quit their business post-treatment, and that the positive impacts of the treatment are increasing in entrepreneurial quality.
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National Institutions and Subnational Development in Africa
Stelios Michalopoulos & Elias Papaioannou
Quarterly Journal of Economics, February 2014, Pages 151-213
Abstract:
We investigate the role of national institutions on subnational African development in a novel framework that accounts for both local geography and cultural-genetic traits. We exploit the fact that the political boundaries on the eve of African independence partitioned more than 200 ethnic groups across adjacent countries subjecting similar cultures, residing in homogeneous geographic areas, to different formal institutions. Using both a matching type and a spatial regression discontinuity approach we show that differences in countrywide institutional structures across the national border do not explain within-ethnicity differences in economic performance, as captured by satellite images of light density. The average noneffect of national institutions on ethnic development masks considerable heterogeneity partially driven by the diminishing role of national institutions in areas further from the capital cities.
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Relying on the Private Sector: The Income Distribution and Public Investments in the Poor
Katrina Kosec
Journal of Development Economics, March 2014, Pages 320–342
Abstract:
What drives governments with similar revenues to provide very different amounts of goods with private sector substitutes? Education is a prime example. I use exogenous shocks to Brazilian municipalities’ revenue during 1995–2008 generated by non-linearities in federal transfer laws to demonstrate two things. First, municipalities with higher income inequality or higher median income allocate less of a revenue shock to education and are less likely to expand public school enrollment. They are more likely to invest in public infrastructure that is broadly enjoyed, like parks and roads, or to save the shock. Second, I find no evidence that the quality of public education suffers as a result. If anything, unequal and high-income areas are more likely to improve public school inputs and test scores following a revenue shock, given their heavy use of private education. I further provide evidence that an increase in public sector revenue lowers private school enrollment.
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Does Too Much Finance Harm Economic Growth?
Siong Hook Law & Nirvikar Singh
Journal of Banking & Finance, April 2014, Pages 36–44
Abstract:
This study provides new evidence on the relationship between finance and economic growth using an innovative dynamic panel threshold technique. The sample consists of 87 developed and developing countries. The empirical results indicate that there is a threshold effect in the finance-growth relationship. In particular, we find that the level of financial development is beneficial to growth only up to a certain threshold; beyond the threshold level further development of finance tends to adversely affect growth. These findings reveal that more finance is not necessarily good for economic growth and highlight that an “optimal” level of financial development is more crucial in facilitating growth.
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Do Elections Matter for Economic Performance?
Paul Collier & Anke Hoeffler
Oxford Bulletin of Economics and Statistics, forthcoming
Abstract:
In mature democracies, elections discipline leaders to deliver good economic performance. Since the fall of the Soviet Union, most developing countries also hold elections, but these are often marred by illicit tactics. Using a new global data set, this article investigates whether these illicit tactics are merely blemishes or substantially undermine the economic efficacy of elections. We show that illicit tactics are widespread, and that they reduce the incentive for governments to deliver good economic performance. Our analysis also suggests that in societies with regular free and fair elections, leaders do not matter for economic growth.
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Lights, Camera,... Income!: Estimating Poverty Using National Accounts, Survey Means, and Lights
Maxim Pinkovskiy & Xavier Sala-i-Martin
NBER Working Paper, January 2014
Abstract:
In this paper we try to understand whether national accounts GDP per capita or survey mean income or consumption better proxy for true income per capita. We propose a data-driven method to assess the relative quality of GDP per capita versus survey means by comparing the evolution of each series to the evolution of satellite-recorded nighttime lights. Our main assumption, which is robust to a variety of specification checks, is that the measurement error in nighttime lights is unrelated to the measurement errors in either national accounts or survey means. We obtain estimates of weights on national accounts and survey means in an optimal proxy for true income; these weights are very large for national accounts and very modest for survey means. We conclusively reject the null hypothesis that the optimal weight on surveys is greater than the optimal weight on national accounts, and we generally fail to reject the null hypothesis that the optimal weight on surveys is zero. Using the estimated optimal weights, we compute estimates of true income per capita and $1/day poverty rates for the developing world and its regions. We get poverty estimates that are substantially lower and fall substantially faster than those of Chen and Ravallion (2010) or of the survey-based poverty literature more generally.
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Axel Dreher, Pierre-Guillaume Méon & Friedrich Schneider
Public Choice, January 2014, Pages 121-141
Abstract:
This paper assesses the relationship between institutions, output, and productivity when official output is corrected for the size of the shadow economy. Our results confirm the usual positive impact of institutional quality on official output and total factor productivity, and its negative impact on the size of the underground economy. However, once output is corrected for the shadow economy, the relationship between institutions and output becomes weaker. The impact of institutions on total (“corrected”) factor productivity becomes insignificant. Differences in corrected output must then be attributed to differences in factor endowments. These results survive several tests for robustness.
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The impact of drought in early fourteenth-century England
David Stone
Economic History Review, forthcoming
Abstract:
Climatic change is currently viewed as one of the main causes of the so-called crisis of the early fourteenth century. It is well established that England saw increased storminess and heavy rainfall in this period, but this article suggests that the impact of drought — which became a common feature of the English climate during the 1320s and early 1330s — has been overlooked. Based primarily on a detailed analysis of account rolls for over 60 of the best-documented manors in this period, the article establishes that drought brought devastating harvest failure and caused severe outbreaks of a number of diseases, plausibly including enteric infections, malaria, and winter and spring fevers. As a result, mortality surged and population levels fell in communities in affected regions, which were mainly confined to the southern and eastern counties of England. The article concludes that such regional variation significantly affects our understanding of demographic, agricultural, and even fiscal trends in this period. Although we should not disregard the human factors influencing the impact of environmental shocks, England was plainly struck with indubitable force by extreme weather in this pivotal phase of the medieval economy.
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Lauren Pandolfelli, John Shandra & Juhi Tyagi
Sociological Quarterly, Winter 2014, Pages 119–142
Abstract:
We conduct a cross-national analysis to test the dependency theory hypothesis that International Monetary Fund structural adjustment adversely impacts maternal mortality in sub-Saharan Africa. We use generalized least square random effects regression models and modified two-step Heckman models that correct for endogeneity using data on 37 African nations with up to four time points (1990, 1995, 2000, and 2005). We find support for our hypothesis, which indicates that sub-Saharan African nations that receive an International Monetary Fund structural adjustment loan tend to have higher levels of maternal mortality than sub-Saharan African nations that do not receive such a loan. This finding remains stable when controlling for endogeneity related to whether or not a sub-Saharan African nation receives a structural adjustment loan. We conclude by discussing the theoretical implications, methodological implications, policy suggestions, and possible directions for future research.
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A World of Cities: The Causes and Consequences of Urbanization in Poorer Countries
Edward Glaeser
NBER Working Paper, December 2013
Abstract:
Historically, urban growth required enough development to grow and transport significant agricultural surpluses or a government effective enough to build an empire. But there has been an explosion of poor mega-cities over the last thirty years. A simple urban model illustrates that in closed economies, agricultural prosperity leads to more urbanization but that in an open economy, urbanization increases with agricultural desperation. The challenge of developing world mega-cities is that poverty and weak governance reduce the ability to address the negative externalities that come with density. This paper models the connection between urban size and institutional failure, and shows that urban anonymity causes institutions to break down. For large cities with weak governments, draconian policies may be the only way to curb negative externalities, suggesting a painful tradeoff between dictatorship and disorder. A simple model suggests that private provision of infrastructure to reduce negative externalities is less costly when city populations are low or institutions are strong, but that public provision can cost less in bigger cities.
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Cross-Country Differences in the Quality of Schooling
Nicolai Kaarsen
Journal of Development Economics, March 2014, Pages 215–224
Abstract:
This paper constructs a cross-country measure of the quality of education using a novel approach based on international test scores data. The first main finding is that there are large differences in education quality - one year of schooling in the U.S. is equivalent to three or more years of schooling in a number of low-income countries. I incorporate the estimated series for schooling quality in an accounting framework calibrated using evidence on Mincerian returns. This leads to the second important finding, which is that the fraction of income differences explained by the model rises substantially when one includes education quality; the increase is around 22 percentage points.
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Siddharth Chandra & Nita Rudra
British Journal of Political Science, forthcoming
Abstract:
This analysis challenges claims that regime type determines national economic performance, and hypothesizes that the level of public deliberation, rather than broad categories of regime type, is the driver of national economic performance across political systems; specifically, that negotiations, disagreements, and compromises between decentralized decision-making partisans (e.g., citizens, business representatives, professional associations, labor, and public administrators) are the underlying causal mechanism explaining the non-monotonic relationship between different types of political system and economic performance. Countries with high levels of public deliberation more often experience stable growth outcomes, while other countries can make radical changes in economic policy with uncertain outcome. The variation in public deliberation within regime type is significant, especially amongst authoritarian regimes. One startling implication is that, in certain situations, impressive gains in economic growth can be achieved only at the expense of active negotiation and participation in the policy-making process.
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Robin Harding & David Stasavage
Journal of Politics, January 2014, Pages 229-245
Abstract:
Does democracy affect the provision of basic services? We advance on existing empirical work on this subject by exploring the potential mechanisms through which a democratic transition may prompt a government to alter provision of basic services to its citizens. In an environment of weak state capacity, in which it is difficult for voters to attribute outcomes to executive actions, we suggest that electoral competition is most likely to lead to changes in policies where executive action is verifiable. Considering the context of African primary education as an example, we suggest that electoral competition will therefore give governments an incentive to abolish school fees, but it will have less effect on the provision of school inputs, precisely because executive actions on these issues are more difficult to monitor. We evaluate this claim by approaching it in three different ways, using cross-national as well as individual-level data, including an original data set on primary school fee abolitions. First we show that in Africa, democracies have higher rates of school attendance than nondemocracies. Moreover, evidence suggests that this is primarily due to the fact that democracies are more likely to abolish school fees, not to the fact that they provide more inputs. We then estimate the likelihood that a government will abolish school fees subsequent to an election, taking account of endogeneity concerns involving election timing. Finally, we use survey data from Kenya to provide evidence suggesting that citizens condition their voting intentions on an outcome that a politician can control directly, in this case abolishing school fees, but not on outcomes over which politicians have much more indirect influence, such as local school quality.
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Can Free Provision Reduce Demand for Public Services? Evidence from Kenyan Education
Tessa Bold et al.
World Bank Economic Review, forthcoming
Abstract:
In 2003 Kenya abolished user fees in all government primary schools. We show that this policy contributed to a shift in demand away from free schools, where net enrollment stagnated after 2003, toward fee-charging private schools, where both enrollment and fee levels grew rapidly after 2003. These shifts had mixed distributional consequences. Enrollment by poorer households increased, but segregation between socio-economic groups also increased. We find evidence that the shift in demand toward private schooling was driven by more affluent households who (i) paid higher ex ante fees and thus experienced a larger reduction in school funding, and (ii) exited public schools in reaction to increased enrollment by poorer children.
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The Impact of Armed Conflict on Economic Performance: Evidence from Rwanda
Pieter Serneels & Marijke Verpoorten
Journal of Conflict Resolution, forthcoming
Abstract:
Important gaps remain in the understanding of the economic consequences of civil war. Focusing on the conflict in Rwanda in the early 1990s, and using micro data, this article finds that households and localities that experienced more intense conflict are lagging behind in terms of consumption six years after the conflict, a finding that is robust to taking into account the endogeneity of violence. Significantly different returns to land and labor are observed between zones that experienced low- and high-intensity conflict which is consistent with the ongoing recovery. Distinguishing between civil war and genocide, the findings also provide evidence that these returns, and by implication the process of recovery, depend on the form of violence.
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World Human Development: 1870–2007
Leandro Prados de la Escosura
Review of Income and Wealth, forthcoming
Abstract:
How has wellbeing evolved over time and across regions? How does the West compare to the Rest? What explains their differences? These questions are addressed using a historical index of human development. A sustained improvement in world wellbeing has taken place since 1870. The absolute gap between OECD and the Rest widened over time, but an incomplete catching up — largely explained by education — occurred between 1913 and 1970. As the health transition was achieved in the Rest, the contribution of life expectancy to human development improvement declined and the Rest fell behind in terms of longevity. Meanwhile, in the OECD, as longevity increased, healthy years expanded. A large variance in human development is noticeable in the Rest since 1970, with East Asia, Latin America, and North Africa catching up to the OECD, and Central and Eastern Europe and Sub-Saharan Africa falling behind.
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Public capital in resource rich economies: Is there a curse?
Sambit Bhattacharyya & Paul Collier
Oxford Economic Papers, January 2014, Pages 1-24
Abstract:
As poor countries deplete their natural resources, for increased consumption to be sustainable some of the revenues should be invested in other public assets. Further, since such countries typically have acute shortages of public capital, the finance from resource depletion is an opportunity for needed public investment. Using a new global panel dataset on public capital and resource rents covering the period 1970 to 2005 we find that, contrary to these expectations, resource rents significantly reduce the public capital stock. This is more direct evidence for a policy-based ‘resource curse’ than the conventional, indirect evidence from the relationships between resource endowments, growth and income. The adverse effect on public capital is mitigated by good institutions. We also find that rents from the depletion of non-renewable (mineral) resources reduce the public capital stock whereas rents from sustainable (forestry and agriculture) sources do not.
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Elise van Nederveen Meerkerk & Daniëlle Teeuwen
European Review of Economic History, February 2014, Pages 82-105
Abstract:
This article aims to compare the financing of two apparently entirely different systems of pre-industrial welfare: urban institutional welfare in the federal Dutch Republic and the national Elizabethan Poor Law in Britain. By analysing a new dataset on the income and expenditure of five Dutch towns, we conclude that, despite the absence of uniform legislation, Dutch poor relief was viable at least up until the 1790s, even in times of severe crises and declining real wages. This was obtained by the – in monetary terms – remarkably stable donations by Dutch citizens, mostly through regular collections, as well as careful financial management of the charitable funds.
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State Capacity and the Environmental Investment Gap in Authoritarian States
Hugh Ward, Xun Cao & Bumba Mukherjee
Comparative Political Studies, March 2014, Pages 309-343
Abstract:
We construct an n-period, constrained optimization model where the authoritarian ruler maximizes expected rents subject to budget constraint of available surplus. We show that the larger state capacity is in the previous period, the worse environmental quality will be in the next period: while infrastructural investment and environmental protection increase with state capacity, the former increases at a faster rate which enlarges the gap between the two — the environmental investment gap. Given infrastructural public goods typically damage the environment, the larger this gap is the worse the environmental quality would be. This follows from rulers’ optimizing logic of equating marginal returns once we assume the declining marginal productivity of factors of production of surplus. We model three types of air and water pollutants in autocracies as a function of state capacity and other relevant variables. State capacity is associated with higher levels of all three types of pollutants.
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Richard Eckaus
China Quarterly, forthcoming
Abstract:
The explanation offered here for the high rates of saving in China is that much of the saving has been “forced” in two Benthamite senses. Involuntary saving, the first of Bentham's meanings, includes taxes which finance investment. These have made up more than half of the total savings in China in recent years. There is also forced saving in China in the form of Bentham's second sense, conduced saving, resulting from bank loans which have financed investment. While the existence of a savings glut has been suggested for China, a better characterization would be that it has had a high rate of investment.