Stage of Development

Kevin Lewis

October 30, 2010

Making America Safe for the World: Multilateralism and the Rehabilitation of US Authority

David Lake
Global Governance, October-December 2010, Pages 471-484

Over the past century, the United States has built and sustained relationships of varying hierarchy over states in Latin America, Western Europe, and Northeast Asia. In recent decades, it also has attempted to expand its authority over other states into Eastern Europe, which has been met with a measure of success, and the Middle East, which has been far more problematic. The authority wielded by the United States over its subordinates, despite occasional abuses, provides security both internally and externally and permits unprecedented prosperity. Americans, in turn, gain from writing the rules of that order. The key foreign policy task today is not to diminish US authority, but to preserve its benefits into the future. To rule legitimately, however, requires tying the suzerain's hands. To secure the international order that has been so beneficial in the past century and to succeed in extending that order to countries that do not yet enjoy its fruits requires a new, more restraining, multilateral solution that binds the hands of the United States far more tightly than in the past.


Airplanes and comparative advantage

James Harrigan
Journal of International Economics, November 2010, Pages 181-194

Airplanes are a fast but expensive means of shipping goods, a fact which has implications for comparative advantage. The paper develops a Ricardian model with a continuum of goods which vary by weight and hence transport cost. Comparative advantage depends on relative air and surface transport costs across countries and goods, as well as stochastic productivity. A key testable implication is that the U.S. should import heavier goods from nearby countries, and lighter goods from faraway counties. This implication is tested using detailed data on U.S. imports from 1990 to 2003. Looking across goods the U.S. imports, nearby exporters have lower market share in goods that the rest of the world ships by air. Looking across exporters for individual goods, distance from the US is associated with much higher import unit values. These effects are large, which establish that the model identifies an important influence on specialization and trade.


Why Isn't Mexico Rich?

Gordon Hanson
NBER Working Paper, October 2010

Over the last three decades, Mexico has aggressively reformed its economy, opening to foreign trade and investment, achieving fiscal discipline, and privatizing state owned enterprises. Despite these efforts, the country's economic growth has been lackluster, trailing that of many other developing nations. In this paper, I review arguments for why Mexico hasn't sustained higher rates of economic growth. The most prominent suggest that some combination of poorly functioning credit markets, distortions in the supply of non-traded inputs, and perverse incentives for informality creates a drag on productivity growth. These are factors internal to Mexico. One possible external factor is that the country has the bad luck of exporting goods that China sells, rather than goods that China buys. I assess evidence from recent literature on these arguments and suggest directions for future research.


Appropriation, Property Rights Institutions, and International Trade

Christodoulos Stefanadis
American Economic Journal: Economic Policy, November 2010, Pages 148-172

In producer-friendly economies - economies that are ruled by productive agents and have strong property rights institutions - international trade causes an institutional improvement and an aggregate shift of talent towards production, and away from socially wasteful appropriation. However, in predator-friendly economies - economies that are ruled by rent seekers and have weak institutions - international trade leads to an institutional deterioration, and a more unfavorable talent allocation.


The allocation of merchant capital in early Tudor London

John Oldland
Economic History Review, November 2010, Pages 1058-1080

This article is a discussion of the allocation of merchants' capital in early Tudor London among household furnishings, business inventories, debts, orphans' estates, landed property, and other forms of income. Previously, historians had to rely on either goods or income summary assessments in the enrolled subsidy returns to estimate wealth. These newly discovered valuations for 1535 provide quantitative evidence for the enormous importance of credit in trade, and show that merchants, as soon as they could, invested much of their wealth in property.


Corruption and Trust: Theoretical Considerations and Evidence From Mexico

Stephen Morris & Joseph Klesner
Comparative Political Studies, October 2010, Pages 1258-1285

The growing empirical literature on political corruption shows trust (interpersonal and political) to be both cause and consequence of corruption: a conclusion that largely builds on studies using cross-national measures of corruption based on perceptions of corruption rather than actual experience, raising questions of endogeneity. The lack of trust fed by corruption is considered critical in that it undermines government efforts to mobilize society to help fight corruption and leads the public to routinely dismiss government promises to fight corruption. After disaggregating the major concepts, this article empirically explores the relationship linking corruption and trust in Mexico based on data from the 2004 Americas Barometer survey. The authors discover a powerful mutual causality between perceptions of corruption and trust in political institutions that suggests that rooting out perceptions of corruption or shoring up trust in public institutions will be an extremely difficult project for anyone who takes on the task.


Rise and fall of political complexity in island South-East Asia and the Pacific

Thomas Currie, Simon Greenhill, Russell Gray, Toshikazu Hasegawa & Ruth Mace
Nature, 14 October 2010, Pages 801-804

There is disagreement about whether human political evolution has proceeded through a sequence of incremental increases in complexity, or whether larger, non-sequential increases have occurred. The extent to which societies have decreased in complexity is also unclear. These debates have continued largely in the absence of rigorous, quantitative tests. We evaluated six competing models of political evolution in Austronesian-speaking societies using phylogenetic methods. Here we show that in the best-fitting model political complexity rises and falls in a sequence of small steps. This is closely followed by another model in which increases are sequential but decreases can be either sequential or in bigger drops. The results indicate that large, non-sequential jumps in political complexity have not occurred during the evolutionary history of these societies. This suggests that, despite the numerous contingent pathways of human history, there are regularities in cultural evolution that can be detected using computational phylogenetic methods.


What Can We Learn about the "Resource Curse" from Foreign Aid?

Kevin Morrison
World Bank Research Observer, forthcoming

A large body of literature has arisen in economics and political science analyzing the apparent "resource curse"-the tendency of countries with high levels of natural resources to exhibit worse economic and political outcomes. The author examines the purported causal mechanisms underlying this "curse" and shows that they all center on the revenue that these resources generate for the government. As such, it is not surprising that the most recent literature on the topic has demonstrated that, in the hands of a competent government, natural resources have no negative consequences and may actually have positive effects. The important question therefore is: What can be done in countries without effective governments? Policy proposals have centered on (a) taking the resources out of the hands of the government or (b) having the government commit to use the funds in certain ways. Neither of these has been particularly successful, which we might have predicted from research on another important nontax revenue source for developing countries: foreign aid. The close parallels between the foreign aid and "resource curse" literatures are reviewed, as are the lessons from the aid literature. These lessons suggest the need for an important change in approach toward poorly governed resource-rich countries.


Colonial taxation and government spending in British Africa, 1880-1940: Maximizing revenue or minimizing effort?

Ewout Frankema
Explorations in Economic History, forthcoming

Colonial state institutions are widely cited as a root cause of sub-Saharan African underdevelopment, but the opinions differ on the channels of causation. Were African colonial states ruled by near absolutist governments who strived to maximize revenue extraction in order to strengthen their grip on native African societies? Or did European powers build 'states without substance', governed with minimal resources and effort, failing to invest in basic public goods? This paper develops an analytical framework for comparing colonial tax and spending patterns and applies it to eight British African colonies (1880-1940). We show that colonial fiscal systems did not adhere to a uniform logic, that minimalism prevailed in West Africa, extractive features were more pronounced in East Africa, and that Mauritius revealed characteristics of a developmental state already before 1940.


The evolution of markets in early modern Europe, 1350-1800: A study of wheat prices

Victoria Bateman
Economic History Review, forthcoming

Using a compilation of monthly and annual wheat price data, this article examines the trend of market development in Europe from the late medieval period to the industrial revolution. In contrast to much of the earlier scholarship, which suggests that markets improved, the findings propose that markets were on average as well integrated in Europe in the early sixteenth century as in the late eighteenth century. In the intervening period, markets are found to have suffered a severe contraction. These findings enable us to build a more complete picture of markets in history, and to carry out a better examination of the relationship between markets and economic growth.


Separate and Unequal: Post-Tsunami Aid Distribution in Southern India

Daniel Aldrich
Social Science Quarterly, December 2010, Pages 1369-1389

Objective: Disasters are a regular occurrence throughout the world. Whether all eligible victims of a catastrophe receive similar amounts of aid from governments and donors following a crisis remains an open question.

Methods: I use data on 62 similarly damaged inland fishing villages in five districts of southeastern India following the 2004 Indian Ocean tsunami to measure the causal influence of caste, location, wealth, and bridging social capital on the receipt of aid. Using two-limit tobit and negative binomial models, I investigate the factors that influence the time spent in refugee camps, receipt of an initial aid packet, and receipt of 4,000 rupees.

Results: Caste, family status, and wealth proved to be powerful predictors of beneficiaries and nonbeneficiaries during the aid process.

Conclusion: While many scholars and practitioners envision aid distribution as primarily a technocratic process, this research shows that discrimination and financial resources strongly affect the flow of disaster aid.


Was Malthus right? The relationship between population and real wages in Italian history, 1320 to 1870

Bruno Chiarini
Explorations in Economic History, October 2010, Pages 460-475

In this article we investigate the relation between population and real wages in the Italian economy during the period 1320-1870. The main result is that the positive check is strong and statistically significant but the other equilibrating mechanism in the Malthusian model - the preventive check - based on the positive relationship between fertility and real wages does not operate in pre-industrial Italy. In contrast to the Malthusian hypothesis, we find a negative feedback from wage to population. The empirical result is clearly consistent with the theoretical framework of the "old age security motive". We show, with a simple overlapping generation model, that by allowing for substitution in a pre-industrial economy between child quantity and other assets (such as new seeds, better soybean quality, and new cultivation and irrigation methods) fertility may be negatively affected whenever income rises.


Ultimate Privatization and Change in Firm Performance: Evidence from China

Zhangkai Huang & Kun Wang
China Economic Review, forthcoming

We extend the current empirical literature on privatization by exploring the effect of ultimate privatization on the performance of Chinese listed companies. Ultimate privatization is defined as the incidence of transferring the ultimate control of a state-owned company from the government to private owners. Using a sample of 127 Chinese listed companies that have had controlling blocks transferred from the government to private owners, we show that firm performance improved significantly following this transfer. In addition, gains in profitability and efficiency are more prominent when the new controlling shareholder is an "outsider", one who does not own shares in the company prior to the transfer of control. Our results suggest that the Chinese government should continue to reduce its controlling ownership in listed companies, as the transfer of control to private owners enhances operating efficiency and profitability.


The Institutional Causes of China's Great Famine, 1959-61

Xin Meng, Nancy Qian & Pierre Yared
NBER Working Paper, September 2010

This paper investigates the institutional causes of China's Great Famine. It presents two empirical findings: 1) in 1959, when the famine began, food production was almost three times more than population subsistence needs; and 2) regions with higher per capita food production that year suffered higher famine mortality rates, a surprising reversal of a typically negative correlation. A simple model based on historical institutional details shows that these patterns are consistent with the policy outcomes in a centrally planned economy in which the government is unable to easily collect and respond to new information in the presence of an aggregate shock to production.


Inequality, Income, and Poverty: Comparative Global Evidence

Augustin Kwasi Fosu
Social Science Quarterly, December 2010, Pages 1432-1446

Objectives: The study seeks to provide comparative global evidence on the role of income inequality, relative to income growth, in poverty reduction.

Methods: An analysis-of-covariance model is estimated using a large global sample of 1980-2004 unbalanced panel data, with the headcount measure of poverty as the dependent variable, and the Gini coefficient and PPP-adjusted mean income as explanatory variables. Both random-effects and fixed-effects methods are employed in the estimation.

Results: The responsiveness of poverty to income is a decreasing function of inequality, and the inequality elasticity of poverty is actually larger than the income elasticity of poverty. Furthermore, there is a large variation across regions (and countries) in the relative effects of inequality on poverty.

Conclusion: Income distribution plays a more important role than might be traditionally acknowledged in poverty reduction, though this importance varies widely across regions and countries.


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