Latest development
Economic Freedom of the World: An Accounting of the Literature
Joshua Hall & Robert Lawson
Contemporary Economic Policy, forthcoming
Abstract:
The Economic Freedom of the World (EFW) index was first produced by Gwartney, Block, and Lawson (Economic Freedom of the World: 1975-1995; 1996) and has been updated annually since. During this period, the EFW index has been cited in hundreds of academic articles. Here, we provide an accounting and description of this literature. Of 402 articles citing the EFW index, 198 used the index as an independent variable in an empirical study. Over two-thirds of these studies found economic freedom to correspond to a "good" outcome such as faster growth, better living standards, more happiness, etc. Less than 4% of the sample found economic freedom to be associated with a "bad" outcome such as increased income inequality. The balance of evidence is overwhelming that economic freedom corresponds with a wide variety of positive outcomes with almost no negative tradeoffs.
----------------------
The Impact of Political Cycle: Evidence from Coalmine Accidents in China
Huihua Nie, Minjie Jiang & Xianghong Wang
Journal of Comparative Economics, forthcoming
Abstract:
This paper examines the impact of political cycle on coalmine accidents in China. The political cycle is formed by the major local meetings of legislative bodies held every year in all provinces of China. This is because the government has a strong incentive to maintain social stability during the meetings and to focus on economic growth in other times. We test how such cycles affect coalmine fatality using monthly data at the provincial level between 2000 and 2010. We find that the number of accidents and casualties were significantly lowered during the local events of "two sessions" after controlling for other time fixed effects. The temporary reduction of accidents seemed to have been achieved by controlling production rather than by improving safety measures. The magnitude of the cycle for accidents is enlarged in provinces where media exposure is stronger and where the vice governor in charge of safety is faced with a possible extension to another term in the current post.
----------------------
Financial dependence and growth: Diminishing returns to improvement in financial development
Leilei Shen
Economics Letters, forthcoming
Abstract:
This paper examines how much financial development facilitates economic growth by nonparametrically estimating the effect of financial development on reducing the costs of external finance to firms. The data reveal substantial evidence of diminishing returns to improvement in financial development.
----------------------
The Time Trend of Life Satisfaction in China
Jiayuan Li & John Raine
Social Indicators Research, forthcoming
Abstract:
The overtime changes of life satisfaction have been recognized as an important topic in happiness studies. Unfortunately, most of prior research is confined to Western industrialized countries. A few studies focused on the case of China yet fail to reach a general agreement. This research aims to synthesize multiple national representative samples implemented in China by standardizing the happiness scores. The transformation of datasets yields more observation points and grounds the analysis in much larger samples, which helps to represent a country as vast as China. The analysis shows that in the past two decades, Chinese people has been experiencing a marked decline of life satisfaction, in spite of tremendous economic and societal progress.
----------------------
Law, Stock Markets, and Innovation
James Brown, Gustav Martinsson & Bruce Petersen
Journal of Finance, forthcoming
Abstract:
We study a broad sample of firms across 32 countries and find that strong shareholder protections and better access to stock market financing lead to substantially higher long-run rates of R&D investment, particularly in small firms, but are unimportant for fixed capital investment. Credit market development has a modest impact on fixed investment but no impact on R&D. These findings connect law and stock markets with innovative activities key to economic growth, and show that legal rules and financial developments affecting the availability of external equity financing are particularly important for risky, intangible investments not easily financed with debt.
----------------------
Mass Media and Public Policy: Global Evidence from Agricultural Policies
Alessandro Olper & Johan Swinnen
World Bank Economic Review, forthcoming
Abstract:
Mass media play a crucial role in information distribution and in the political market and public policy making. Theory predicts that information provided by the mass media reflects the media's incentives to provide news to different groups in society and affects these groups' influence in policy making. We use data on agricultural policy from 69 countries spanning a wide range of development stages and media markets to test these predictions. Our empirical results are consistent with theoretical hypotheses that public support for agriculture is affected by the mass media. In particular, an increase in media (television) diffusion is associated with policies that benefit the majority to a greater extent and is correlated with a reduction in agriculture taxation in poor countries and a reduction in the subsidization of agriculture in rich countries, ceteris paribus. The empirical results are consistent with the hypothesis that increased competition in commercial media reduces transfers to special interest groups and contributes to more efficient public policies.
----------------------
The Political Dynamics of Economic Growth
Kunal Sen
World Development, July 2013, Pages 71-86
Abstract:
We argue that an understanding of the political drivers of economic growth needs an explanation of the political dynamics around the transition from one growth phase to another, and that the political drivers of early stage growth accelerations are different from that of growth maintenance. Informal institutions are likely to play a role in growth acceleration, while formal institutions of credible commitment, the provisioning of public goods and the overcoming of co-ordination failures will be more important in growth maintenance. We present empirical evidence drawn from country case-studies and cross-country econometric analysis that provides support to our theoretical propositions.
----------------------
Evidence of traditional knowledge loss among a contemporary indigenous society
Victoria Reyes-García et al.
Evolution and Human Behavior, forthcoming
Abstract:
As biological and linguistic diversity, the world's cultural diversity is on decline. However, to date there are no estimates of the rate at which the specific cultural traits of a group disappear, mainly because we lack empirical data to assess how the cultural traits of a given population change over time. Here we estimate changes in cultural traits associated to the traditional knowledge of wild plant uses among an Amazonian indigenous society. We collected data among 1151 Tsimane' Amerindians at two periods of time. Results show that between 2000 and 2009, Tsimane' adults experienced a net decrease in the report of plant uses ranging from 9% (for the female subsample) to 26% (for the subsample of people living close to towns), equivalent to 1% to 3% per year. Results from a Monte Carlo simulation show that the observed changes were not the result of randomness. Changes were more acute for men than for women and for informants living in villages close to market towns than for informants settled in remote villages. The Tsimane' could be abandoning their traditional knowledge as they perceive that this form of knowledge does not equip them well to deal with the new socio-economic and cultural conditions they face nowadays.
----------------------
Persistence of Politicians and Firms' Innovation
Giorgio Bellettini, Carlotta Berti Ceroni & Giovanni Prarolo
Economic Inquiry, forthcoming
Abstract:
We empirically investigate whether the persistence of politicians in political institutions affects the innovation activity of firms. We use 12,000 firm-level observations from three waves of the Italian Observatory over Small and Medium Enterprises, and introduce a measure of political persistence defined as the average length of individual political careers in political institutions of Italian municipalities. Using death of politicians as an exogenous source of variation of political persistence, we find a robust negative relation between political persistence and the probability of process innovation. This finding is consistent with the view that political stability may hinder firms' incentive to innovate to maintain their competitiveness, as long as they can extract rents from long-term connections with politicians.
----------------------
Peter Boone et al.
NBER Working Paper, April 2013
Abstract:
We conducted a survey covering 20% of villages with 200-1000 population in rural Guinea-Bissau. We interviewed household heads, care-givers of children, and their teachers and schools. We analysed results from 9,947 children, aged 7-17, tested for literacy and numeracy competency. Only 27% of children were able to add two single digits, and just 19% were able to read and comprehend a simple word. Our unannounced school checks found 72% of enrolled children in grades 1-4 attending their schools, but the schools were poorly equipped. Teachers were present at 86% of schools visited. Despite surveying 351 schools, we found no examples of successful schools where children reached reasonable levels of literacy and numeracy for age. Our evidence suggests that interventions that raise school quality in these villages, rather than those which target enrollment, may be most important to generate very sharp improvements in children's educational outcomes.
----------------------
Oligarchic land ownership, entrepreneurship, and economic development
Josef Falkinger & Volker Grossmann
Journal of Development Economics, March 2013, Pages 206-215
Abstract:
This paper develops a theory in which oligarchic ownership of land or other natural resources may impede entrepreneurship in the manufacturing sector and may thereby retard structural change and economic development. We show that, due to oligopsony power of owners in the agricultural labor market, higher ownership concentration depresses entrepreneurial investments by landless, credit-constrained households, whose investment possibilities depend on the income earned in the primary sector. We discuss historical evidence from Latin America, India, Taiwan and South Korea which supports our theory.
----------------------
Taxes, Theft, and Firm Performance
Maxim Mironov
Journal of Finance, forthcoming
Abstract:
This paper examines the interaction between income diversion and firm performance. Using unique Russian banking transaction data, I identify 42,483 spacemen, fly‐by‐night firms created specifically for income diversion. Next, I build a direct measure of income diversion for 45,429 companies and show that it is negatively related to firm performance. I identify the main reason for the observed effect as managerial diversion rather than tax evasion per se. I further show that stricter tax enforcement can improve firm performance: a one standard deviation increase in tax enforcement corresponds to an increase in the annual revenue growth rate of 2.6%.
----------------------
The Evolution of Property Rights: State Law or Informal Norms?
Ryan Bubb
NYU Working Paper, January 2013
Abstract:
This paper investigates the factors that have shaped the evolution of property rights institutions. Using a regression discontinuity design, I show that the divergent state laws of Ghana and Cote d'Ivoire have had little effect on de facto property rights institutions. In contrast, the data show that these states have had large impacts on other economic outcomes. Furthermore, I show that part of the substantial within-country variation in property rights institutions is explained by economic factors. Areas that are more suitable for growing cocoa have a greater prevalence of transfer rights. My findings highlight the importance of non-state sources of norms and show that these norms do, to some extent, evolve to accommodate the changing needs of society.
----------------------
Pandemics of the Poor and Banking Stability
Thomas Lagoarde-Segot & Patrick Leoni
Journal of Banking & Finance, forthcoming
Abstract:
We first develop a theoretical model that shows that the likelihood of a collapse of the banking industry of a developing country increases, as the joint prevalence of large pandemics such as AIDS and malaria increases. We also show that the optimal bank reserves increase as the prevalence increases. In the empirical part of the paper, we consider a large dataset of developing countries, and we exhibit a strong causality effect from combined prevalence to deposit turnover, as well as a strong causality effect from an increase of combined prevalence to an increase in bank reserves. This effect is strong for tuberculosis. Those empirical facts therefore strongly support our theoretical findings.
----------------------
The Rise and Fall of Worldwide Education Inequality from 1870 to 2010: Measurement and Trends
Shawn Dorius
Sociology of Education, April 2013, Pages 158-173
Abstract:
This research documents long-run trends in between-country education inequality and proposes a method for doing so that accounts for the ways in which most education variables differ from continuous variables such as income. Historical, national-level estimates of primary schooling enrollment rates and years of completed primary, secondary, and total schooling are used to identify several problems that arise when formal measures of inequality are used to estimate intercountry education convergence, including violation of the welfare, scale invariance, and anonymity principles. An alternate measurement strategy shows that the intercountry trend in the dispersion of education has followed an approximately normal curve over the past 140 years, but with considerable variation across measures of education. These results are in contradiction to previous education inequality studies, which have reported either monotonically rising or falling intercountry inequality.
----------------------
Property Rights, Land Liquidity, and Internal Migration
Eugenia Chernina, Paul Castañeda Dower & Andrei Markevich
Journal of Development Economics, forthcoming
Abstract:
In the early twentieth century, a large number of households resettled from the European to the Asian part of the Russian Empire. We propose that this dramatic migration was rooted in institutional changes initiated by the 1906 Stolypin land titling reform. One might expect better property rights to decrease the propensity to migrate by improving economic conditions in the reform area. However, this titling reform increased land liquidity and actually promoted migration by easing financial constraints and decreasing opportunity costs. Treating the reform as a quasi-natural experiment, we employ difference-in-differences analysis on a panel of province-level data that describe migration and economic conditions. We find that the reform had a sizeable effect on migration. To verify the land liquidity effect, we exploit variation in the number of households participating in the reform. This direct measure of the reform mechanism estimates that land liquidity explains approximately 18% of migration during this period.
----------------------
Samson Edo
OPEC Energy Review, March 2013, Pages 105-124
Abstract:
This paper investigates the impact of crude oil boom on the economy of Nigeria particularly the manufacturing sector. In the study, a descriptive analysis of the three major sectors of the economy is undertaken followed by the formulation of a vector autoregression model depicting the relationship existing among the sectors - resource, manufacturing and service. The model was subsequently estimated using appropriate techniques such as unit root test, cointegration test, causality test, variance decomposition and parametric estimation. The unit root and cointegration tests reveal that the data series employed are reliable and the three sectors are most likely to converge in the long run, which augurs well for policy making. The causality test, variance decomposition and parametric estimation reveal that the oil boom led to significant stagnation in the manufacturing sector and a marginal decline in the service sector. The growth of manufacturing sector of Nigeria has thus been severely impaired by the oil boom. In light of this, adequate policy measures need to be taken to resuscitate the manufacturing sector. These measures may include attracting more foreign investment, reducing operating cost in the sector, developing local sources of raw materials, and allocation of more funds from the crude oil revenue to assist the sector. These policy measures may not only resuscitate the manufacturing sector, they would also accelerate growth of the economy as a whole.