Modern Ways

Kevin Lewis

May 15, 2023

Judicial independence and corporate innovation: Evidence from the establishment of circuit courts
Shaojie Lai et al.
Journal of Corporate Finance, forthcoming 


This study explores the effects of judicial independence on corporate innovation by analyzing the staggered establishment of Circuit Courts in China. We find that introducing Circuit Courts increases corporate innovation, particularly for central state-owned enterprises and private firms. Channel analysis shows that Circuit Courts significantly reduce local judicial protectionism, ease financial constraints, and improve corporate governance, which stimulates innovation. The positive effects of Circuit Courts are more pronounced in cities facing severe political intervention, regions with weak legal environments, and private firms without political or banking connections. Our results are robust to endogeneity concerns, alternative measures and specification models. Overall, this study supports the theoretical arguments that institutions matter and that improvements in judicial quality boost firms' incentives to innovate.

Something New out of Africa: States Made Slaves, Slaves Made States
J.C. Sharman
International Organization, forthcoming 


In this article I explain a nexus between slavery and state formation in Africa, proceeding from initial demographic and institutional conditions to an external demand shift, individual state responses, and their collective systemic consequences. Historically, African rulers faced distinctive challenges: low population density prioritized control of people more than territory, and internal disintegration was often a greater threat than external conquest. A massive expansion in the demand for slaves offered African rulers increased opportunities to use external resources for "outside-in" state building. Many did so by creating highly militarized predatory slaving states. The collective consequence was heightened systemic insecurity. Variation in the timing of these developments reflected regional and historical variation in the expansion of the demand for slaves. Slaving states appeared first in West Africa, reflecting the late-seventeenth-century expansion of the trans-Atlantic slave trade, before spreading to East Africa a century later, following the parallel later increase in the Indian Ocean slave trade. This "outside-in" path to state formation both parallels and contrasts with contemporary postcolonial state formation.

Pro-growth inefficiency: Rents and moral hazard in infrastructure contests in China
Qijun Liu & Xin Huang
European Journal of Political Economy, forthcoming 


We study contests for promotion of local government leaders orchestrated by the central government in China. The contests rewarded regional economic success. The probability of promotion increased with regional infrastructure investment but we find negative returns from infrastructure. We find feedback between corruption and investment in infrastructure. There was moral hazard -- successful local government leaders who were promoted to higher level positions in the government and Party hierarchical structure left behind regional local governments mired in debt or bankruptcy because of debt financing of infrastructure investment that was used to win the center-orchestrated contests. Our study makes a contribution to contest theory by providing an empirical study for rent-seeking contests.

Earmarked Funding and the Control-Performance Trade-Off in International Development Organizations
Mirko Heinzel, Ben Cormier & Bernhard Reinsberg
International Organization, forthcoming 


Since the 1990s, the funding of multilateral development assistance has rapidly transformed. Donors increasingly constrain the discretion of international development organizations (IDOs) through earmarked funding, which limits the purposes for which a donor's funds can be used. The consequences of this development for IDOs' operational performance are insufficiently understood. We hypothesize that increases in administrative burdens due to earmarked funding reduce the performance of IDO projects. The additional reporting required of IDOs by earmarked funds, while designed to enhance accountability, ultimately increases IDOs' supervision costs and weakens their performance. We first test these hypotheses with data on project costs and performance of World Bank projects using both ordinary-least-squares and instrumental-variable analyses. We then probe the generalizability of those findings to other organizations by extending our analysis to four other IDOs: the African Development Bank (AfDB), Asian Development Bank (ADB), Caribbean Development Bank (CDB), and International Fund for Agricultural Development (IFAD). Using data on the performance of 7,571 projects approved between 1990 and 2020, we find that earmarked funding undermines both cost-effectiveness and project performance across IDOs. Donors seeking value for money may consider allocating more money to core funds rather than to earmarked funds.

Gentrification and Social Unrest: The Blitz, Urban Change and the 2011 London Riots
Gabriel Leon-Ablan & Juta Kawalerowicz
Journal of Conflict Resolution, forthcoming 


Many of the world's major cities have recently seen large episodes of social unrest. What is the relationship between the changes these cities have experienced, particularly in the form of gentrification, and urban riots? We address this question by examining how local gentrification affected participation in the 2011 London riots. We use an instrumental variable strategy that exploits exogenous variation in the amount of local destruction caused by the Blitz; this is a strong predictor of local gentrification in London in 2001-2011. We find that gentrifying neighborhoods had a lower participation rate than other areas; this was a result of changes in the type of resident (a composition effect) and in the context in which the residents made their participation decisions (a contextual effect). Our findings are consistent with qualitative evidence from the United Kingdom and the United States, and highlight the effect that urban change can have on social order.

The effects of international scrutiny on manufacturing workers: Evidence from the Rana Plaza collapse in Bangladesh
Laurent Bossavie, Yoonyoung Cho & Rachel Heath
Journal of Development Economics, forthcoming 


After the tragic factory collapse of Rana Plaza in 2013, both the direct reforms and indirect responses of retailers have plausibly affected workers in the Ready Made Garment (RMG) sector in Bangladesh. These responses included a minimum wage increase, high profile but voluntary audits, and an increased reluctance to subcontract to smaller factories. This paper estimates the net impact of these responses using six rounds of the Labor Force Survey and a triple difference approach that compares garment workers to non-garment workers, in districts containing the vast majority of export garment factories versus other districts, pre versus post Rana Plaza. As intended by the reforms, we find that increased international scrutiny improved working conditions by 0.80 standard deviations. In contrast with what the theory of compensating differentials would suggest, we do not find that workers' wages were negatively impacted: instead, the post-Rana Plaza responses increased wages by about 10%.

The forces of path dependence: Haiti's refugee camps, 1937-2009
Craig Palsson
Explorations in Economic History, forthcoming 


Refugee camps are sudden, spontaneous population centers that can persist for years. Their persistence provides an opportunity to learn about the forces of path dependence. I argue that residents stay because the camps create local amenities. I examine this question using refugee camps established in Haiti after a 1937 massacre in the Dominican Republic. Despite the residents' freedom to migrate, the camps evolved into persistent settlements where the refugees' descendants resided 70 years later. I show that these camps gave residents access to public land with incomplete rights and to social networks that help with informal insurance. While residents 70 years later have slightly lower levels of literacy, they are not significantly disadvantaged on other margins. I interpret these results as evidence of path dependence driven by amenities rather than local productivity advantages.

The Money War: Democracy, taxes and inflation in the U.S. Civil War
Ariel Ron & Sofia Valeonti
Cambridge Journal of Economics, March 2023, Pages 263-288 


Both sides in the U.S. Civil War financed military spending by issuing new fiat currencies. The Union 'greenback' underwent moderate inflation (by wartime standards), but the Confederate 'greyback' suffered hyperinflation. Existing explanations for these price movements typically treat only one of the two cases and adopt either a quantity theory or rational expectations approach. We compare Union and Confederate policies directly and highlight the importance of taxation for assuring the value of inconvertible money. Combining monetary and fiscal history literatures, we find that tax policies were determined by long-term development of democratic governing institutions. Higher levels of democracy in the North, as compared to the slaveholding South, meant greater tax policy legitimacy and administrative competence. The Union drew on this legacy to back its money effectively, while the Confederacy failed to do so. We contribute to credit theories of money by drawing attention to the political determinants of effective fiscal policy.

State Terror and Long-Run Development: The Persistence of the Khmer Rouge
Donald Grasse
American Political Science Review, forthcoming 


Does mass repression have a long-term economic legacy, and if so, what explains persistence? I argue repression can undermine development by delimiting human capital. I study the aftermath of the Khmer Rouge in Cambodia. The regime implemented a campaign of violence to reorganize society, yet governing elites varied across the communist ideological spectrum. I exploit an arbitrary border that allocated villages to either the loyalist Mok or the relatively moderate Sy in Kampong Speu province. Using a regression discontinuity design, I find villages in the more extremist Southwest zone are poorer today compared with villages in the adjacent West zone, and had lower human capital immediately after the regime. Exposure to more intense repression shapes labor markets and child health, explaining intergenerational persistence. I find no conclusive evidence for other persistence channels. My findings add a novel pathway to the library of mechanisms which explain why historical coercion undermines development.

Reconstruction Aid, Public Infrastructure, and Economic Development: The Case of the Marshall Plan in Italy
Nicola Bianchi & Michela Giorcelli
Journal of Economic History, forthcoming 


The Marshall Plan (1948-1952) was the largest aid transfer in history. This paper estimates its effects on Italy's postwar economic development. It exploits differences between Italian provinces in the value of reconstruction grants they received. Provinces that could modernize their infrastructure more quickly experienced higher increases in agricultural production, especially for perishable crops. In the same provinces, we observe larger investments in labor-saving machines, the entry of more firms into the industrial sector, and a larger expansion of the industrial and service workforces.


from the


A weekly newsletter with free essays from past issues of National Affairs and The Public Interest that shed light on the week's pressing issues.


to your National Affairs subscriber account.

Already a subscriber? Activate your account.


Unlimited access to intelligent essays on the nation’s affairs.

Subscribe to National Affairs.