Making Developing Countries Great
The Blessings of Scarcity: The Cold War Origins of Smaller States’ Prosperity
Muhammad Bin Khalid & Steve Monroe
Perspectives on Politics, forthcoming
Abstract:
Is smaller better for economic development? We argue that states’ past population size can be a powerful determinant of current development. Among states that gained independence shortly after World War II, states with smaller populations in their early years of independence had stronger incentives to adopt more open trade policies and employ larger public sectors. These policies “embedded” smaller newly independent states into the global economy during the Cold War, building the foundations for more inclusive economic institutions and greater political stability. When the Cold War ended, smaller newly independent states were more likely to have developed the institutional infrastructure to prosper in the globalizing yet politically volatile early twenty-first century. We test this argument by examining the developmental trajectories of 83 states that became independent between 1946 and 1975. Newly independent states with smaller populations during this period have had on average higher levels and rates of post-Cold War development. They also had more open trade policies and larger public sectors during the Cold War. These policies correlate with more inclusive economic institutions and greater political stability in the post-Cold War era. A comparative case study of Oman and the People’s Democratic Republic of Yemen illustrates the mechanisms linking the size of newly independent states at independence and their post-Cold War development.
Dissecting the Sinews of Power: International Trade and the Rise of Britain’s Fiscal-Military State, 1689–1823
Ernesto Dal Bó et al.
Journal of Economic History, forthcoming
Abstract:
We evaluate the role of taxes on overseas trade in the development of imperial Britain’s fiscal-military state. Influential work, for example, Brewer’s Sinews of Power, attributed increased fiscal capacity to the taxation of domestic, rather than traded, goods: excise revenues, coarsely associated with domestic goods, grew faster than customs revenues. We construct new historical revenue series disaggregating excise revenues from traded and domestic goods. We find substantial growth in revenue from traded goods, accounting for over half of indirect taxation around 1800. This challenges conventional wisdom, attributing the development of the British state to domestic factors. International factors mattered, too.
Industrial Policy Implementation: Empirical Evidence from China’s Shipbuilding Industry
Panle Jia Barwick, Myrto Kalouptsidi & Nahim Bin Zahur
Review of Economic Studies, forthcoming
Abstract:
Industrial policies are widely used across the world. In practice, designing and implementing these policies is a complicated task. In this paper, we assess the long-term performance of different industrial policy instruments, which include production subsidies, investment subsidies, entry subsidies, and consolidation policies. To do so, we examine a recent industrial policy in China aiming to propel the country’s shipbuilding industry to the largest globally. Using firm-level data from 1998 to 2014 and a dynamic model of firm entry, exit, investment, and production, we find that (i) the policy boosted China’s domestic investment, entry, and international market share dramatically, but delivered low returns and led to fragmentation, idle capacity, as well as depressed world ship prices; (ii) the effectiveness of different policy instruments is mixed: production and investment subsidies can be justified by market share considerations, while entry subsidies are wasteful; (iii) counter-cyclical policies, firm-targeting, and shortening the intervention horizon can substantially reduce distortions. Our results highlight the critical role of firm heterogeneity, business cycles, and firms’ cost structure in policy design. Finally, when exploring potential rationales, we find support for nonclassical considerations, such as reducing freight rates to boost Chinese trade.
Do International Bureaucrats Matter? Evidence from the International Monetary Fund
Amanda Kennard & Diana Stanescu
Journal of Politics, forthcoming
Abstract:
Scholars of international cooperation argue that member states delegate decision making authority to international organizations (IOs) -- and by implication the bureaucrats who staff them -- as a commitment to non-interference. Yet others question the credibility of this delegation, arguing that institutions simply reflect the interests of powerful member states. We test the credibility of delegation within the International Monetary Fund (IMF) using event study methods. We estimate the abnormal returns to sovereign bond risk premia following the announcement of new, high-level staff appointments at the IMF. Staff announcements result in statistically significant shifts in risk premia supporting the credibility of delegation. These shifts are robust to diverse specifications and alternative estimation strategies. Abnormal returns are higher -- implying greater risk -- for bureaucrats who implement more stringent loan conditionality once in office and for appointees holding a Ph.D. in economics. Abnormal returns are lower for appointees hailing from global south.
Estimating the Footprint of Artisanal Mining in Africa
Darin Christensen et al.
NBER Working Paper, April 2025
Abstract:
Artisanal and small-scale mining (ASM) supplies livelihoods and critical minerals but has been linked to conflict and environmental degradation. We enable monitoring of this largely informal sector by creating high-resolution maps of ASM's footprint in Africa using machine learning models that integrate geographic features and satellite imagery. We find ASM is more extensive than documented: in five countries with on-the-ground surveys, we predict over 231,000 1-km2 grid cells [±2 standard errors: 170,153-297,710] contain ASM activity -- over 40 times that recorded by surveyors. Adapting methods for spatial domain adaptation, we map ASM across 20 total countries, estimating that 4% [2-8%] of territory and 17% [10-30%] of the population are impacted by ASM, which encroaches on a larger share of settlements and ecosystems than previously understood.
Extractive Taxation and the French Revolution
Tommaso Giommoni, Gabriel Loumeau & Marco Tabellini
Harvard Working Paper, April 2025
Abstract:
We study the fiscal determinants of the French Revolution, exploiting plausibly exogenous variation in the salt tax -- a large source of royal revenues and one of the most extractive forms of taxation of the Ancien Régime. Implementing a Regression Discontinuity design (RDD), we find that parts of France subject to a higher salt tax experienced more revolts against the monarchy between 1750 and 1789. These effects already appear in the 1760s, but become stronger over time and peak in the 1780s. Combining the RD model with variation in local weather conditions during the 1780s, we document that droughts amplify the effects of the salt tax on revolts by increasing wheat prices and activating latent discontent. Then, we connect the discontent generated by the salt tax to the French Revolution. First, we provide evidence that riots spread across space through a process of contagion that is stronger in high tax areas. Second, we show that areas burdened by a higher salt tax report more complaints against the salt tax in the list of grievances collected by the king in the spring of 1789. Third, we document that legislators representing areas with a higher salt tax are more likely to demand the end of the monarchy and to support the death penalty for the king.
Smithian growth in the little divergence: A general equilibrium analysis
David Chilosi & Carlo Ciccarelli
Explorations in Economic History, July 2025
Abstract:
To address growing concerns on the representativeness of real wages, we generate new estimates of GDP pc in pre-industrial England and Italy, as well as new exploratory estimates for Belgium, Finland, France, Germany, the Netherlands, Portugal, Poland, Spain and Sweden, with Groth and Persson's (2016) general equilibrium model. Our results question the robustness of the current theoretical consensus on the “little divergence” and suggest an alternative hypothesis: north-western Europe saw faster Smithian growth than the rest of Europe after 1500.
Solving the longitude puzzle: A story of clocks, ships and cities
Martina Miotto & Luigi Pascali
Journal of International Economics, May 2025
Abstract:
The chronometer, one of the greatest inventions of the modern era, allowed for the first time for the precise measurement of longitude at sea. We examine the impact of this innovation on navigation and urbanization. Our identification strategy leverages the fact that the navigational benefits provided by the chronometer varied across different sea regions depending on the prevailing local weather conditions. Utilizing high-resolution data on climate, ship routes, and urbanization, we argue that the chronometer significantly altered transoceanic sailing routes. This, in turn, had profound effects on the expansion of the British Empire and the global distribution of cities and populations outside Europe.
The Inverted U-Shaped Relationship between Female Entrepreneurship and Economic Development
Nava Ashraf et al.
NBER Working Paper, March 2025
Abstract:
In the World Bank Enterprise Survey, the share of entrepreneurs who are women first rises and then falls with national income, which reverses the well-known U-shaped relationship between female labor force participation and economic development. This paper presents a model of entrepreneurship in which women face disadvantages, including discrimination from workers and household demands on their time, that deter firm formation in the poorest countries. In richer countries, these forces mean that women are less likely to start more complex organizations. In the model, women face the most level playing field in middle-income countries, where the returns to entrepreneurship are high enough to offset gender-based costs and both sexes typically form simple forms. We document three facts that are compatible with the model: male-owned firms are typically much larger than female-owned firms, large firms yield far higher revenues per employee and female-owned firms are more usually in industries with low levels of skilled workers. Despite the entrepreneurship rate’s reversal of the U-shaped link between female labor-force-participation and economic development, female labor-force-participation and the entrepreneurship rate are highly correlated across countries. The female entrepreneurship rate is also strongly associated with female education, weak kinship ties and Buddhism.
Loose Cannons and Lone Wolves: Native-White Violence on the American Frontier
Warren Anderson, Douglas Allen & Liang Diao
University of Michigan Working Paper, February 2025
Abstract:
Attention towards violent conflicts on the U.S. frontier typically focuses on the Plains Wars and other notable confrontations. However, using a novel dataset on deaths across more than 200 tribes in 21 states during the nineteenth century, we find that Native/white deaths were concentrated in the Southwest and California between 1840 and 1870. Exploiting exogenous mine discoveries, we show small groups preceding state capacity drove conflicts, which all but ceased when legal authority arrived. Furthermore, tribes with strong hierarchical organization and military strength had less frequent killings. These findings underscore the role of effective governance in reducing violence.