Still Developing
Romes without Empires: Urban Concentration, Political Competition, and Economic Development
Cem Karayalcin & Mehmet Ali Ulubasoglu
European Journal of Political Economy, forthcoming
Abstract:
Many developing economies are characterized by the dominance of a super metropolis. Taking historical Rome as the archetype of a city that centralizes political power to extract resources from the rest of the country, we present evidence that urban concentration, as proxied by the number of different cities with national soccer league titles, negatively affects long-run economic development. Utilizing cross-country data from 103 countries observed over half a century (1960-2009) we show that there is a strong and robust negative relationship between concentration of economic wealth and political power across urban nodes and long-run economic outcomes, including log per capita income and average years of schooling. The explanation that best seems to fit the evidence runs from centralization of economic power to lack of inter-elite political competition across space to long-run economic outcomes. To establish causality we use identification through heteroskedasticity, which does not rely on standard exclusion restrictions.
National Identity and Public Goods Provision
Ani Harutyunyan
Comparative Economic Studies, March 2020, Pages 1-33
Abstract:
This research investigates the relationship between national identity and public goods provision across a wide range of countries. The analysis shows that national identity, measured based on survey data, and public goods provision, measured by a broad set of indicators, are negatively related. This result is explained through a proposed short-run model on country stability, where the provision of national identity and public goods are substitutable. The findings challenge the conventional wisdom on nation-building as a policy tool for mitigating the adverse effects of fractionalization, suggesting that generally it is used as a tool for governments to divert the attention of its citizens from most pressing issues, such as the provision of elementary public goods.
The Long-lasting Effects of Living under Communism on Attitudes towards Financial Markets
Christine Laudenbach, Ulrike Malmendier & Alexandra Niessen-Ruenzi
NBER Working Paper, March 2020
Abstract:
We analyze the long-term effects of living under communism and its anticapitalist doctrine on households' financial investment decisions and attitudes towards financial markets. Utilizing comprehensive German brokerage data and bank data, we show that, decades after Reunification, East Germans still invest significantly less in the stock market than West Germans. Consistent with communist friends-and-foes propaganda, East Germans are more likely to hold stocks of companies from communist countries (China, Russia, Vietnam) and of state-owned companies, and are unlikely to invest in American companies and the financial industry. Effects are stronger for individuals exposed to positive "emotional tagging," e.g., those living in celebrated showcase cities. Effects reverse for individuals with negative experiences, e.g., environmental pollution, religious oppression, or lack of (Western) TV entertainment. Election years trigger further divergence of East and West Germans. We provide evidence of negative welfare consequences due to less diversified portfolios, higher-fee products, and lower risk-adjusted returns.
Does Greater Regulatory Burden Lead to More Corruption? Evidence Using Firm-Level Survey Data for Developing Countries
Mohammad Amin & Yew Chong Soh
World Bank Economic Review, forthcoming
Abstract:
It is sometimes thought that regulation often creates opportunities for public officials to extract bribes. If this is true, deregulation offers a simple way of combating corruption. However, empirical evidence on the corruption and regulation nexus is limited. Further, the corruption indices used are based on experts' opinions, which may suffer from perception bias. The present paper attempts to address these shortcomings using firm-level survey data for 131 mostly developing countries on the actual experience of the firms with bribery and regulatory burden. The study examines the level of overall corruption and petty corruption. Exploiting variation in regulatory burden, both within-country and industry-level, a large positive effect of regulatory burden on corruption is found. For the baseline results, the bribery rate is higher by about 0.03 percentage points for each percentage point increase in the regulatory burden. The finding is robust to several controls and endogeneity checks.
The Weak State Trap
Leopoldo Fergusson, Carlos Molina & James Robinson
NBER Working Paper, March 2020
Abstract:
Development outcomes come in 'clusters' that seem difficult to exit. Using original data from Colombia, we present evidence of the interconnection between two critical political components: state weakness and clientelism. State weakness creates the right environment for clientelism to flourish. Clientelism sets in place a structure of incentives for politicians and citizens that is detrimental to building state capacity. We show that vote buying, as a measure of clientelism, and tax evasion, as a measure of state weakness, are highly correlated at the micro level. We also report evidence that both practices are widely accepted in society, a result consistent with a deeply entrenched relationship of mutually reinforcing influences. Finally, we propose a set of mechanisms that underlie the hypothesis that a weak state and widespread clientelism are part of a political equilibrium with multiple feedback loops. Our results suggest that state weakness is a trap that is likely hard to exit.
Land use restrictions, misallocation in agriculture, and aggregate productivity in Vietnam
Kien Le
Journal of Development Economics, forthcoming
Abstract:
This paper evaluates the effects of restricted land use rights on aggregate productivity using micro-level data within a quantitative model. In particular, I exploit the Rice Land Designation Policy in Vietnam, which forces farmers to produce rice on almost 45% of land plots. I use digitized versions of Vietnam's Local Land Use Atlas and Global Agro-Ecological Zones database to construct a micro-spatial dataset that shapes the model features and allows me to compare the restricted against a counterfactual efficient allocation. The main findings suggest that eliminating all land use restrictions leads to an 8.03% increase in real GDP per capita. While misallocation in agriculture has been studied extensively, the paper highlights a novel source of misallocation also prevalent in other countries such as China, Myanmar, and Uzbekistan.
Bureaucracy and Growth
Agnes Cornell et al.
Comparative Political Studies, forthcoming
Abstract:
We revisit the hypothesis that a Weberian bureaucracy enhances economic growth. Theoretically, we develop arguments for why such a bureaucracy may enhance growth and discuss plausible counterarguments. Empirically, we use new measures capturing various Weberian features in countries across the world, with some time series extending back to 1789. The evidence base from previous large-N studies is surprisingly thin, but our extensive data enable us to move beyond the problematic cross-country correlations used in previous studies. Hence, we conduct tests that control for country-specific characteristics while ensuring sufficient variation on the slow-moving bureaucracy variables to enable precise estimation. Our analysis suggests that previous cross-country regressions have vastly overstated the strength of the relationship. While this casts uncertainty on the proposition that there is an effect of Weberian bureaucracy on growth, our further analysis suggests that - if an effect exists - it may operate in the short term and be stronger in recent decades.
Network-Based Hiring: Local Benefits; Global Costs
Arun Chandrasekhar, Melanie Morten & Alessandra Peter
NBER Working Paper, February 2020
Abstract:
Entrepreneurs, particularly in the developing world, often hire from their networks: friends, family, and resulting referrals. Network hiring has two benefits, documented extensively in the empirical literature: entrepreneurs know more about the ability of their network (and indeed they are often positively selected), and network members may be less likely to engage in moral hazard. We study theoretically how network hiring affects the size and composition (i.e., whether to hire friends or strangers) of the firm. Our primary result is that network hiring, while locally beneficial, can be globally inefficient. Because of the existence of a network, entrepreneurs set inefficiently low wages, firms are weakly too small, rely too much on networks for hiring, and resulting welfare losses increase in the quality of the network. Further, if entrepreneurs are uncertain about the true quality of the external labor market, the economy may become stuck in an information poverty trap where forward-looking entrepreneurs or even entrepreneurs in a market with social learning never learn the correct distribution of stranger ability, exacerbating welfare losses. We show that the poverty trap can worsen when network referrals are of higher quality.
How Important is the Yellow Pages? Experimental Evidence from Tanzania
Jenny Aker, Joshua Evan Blumenstock & Brian Dillon
University of California Working Paper, March 2020
Abstract:
Mobile phones reduce the cost of communicating with existing social contacts, but do not eliminate frictions in forming new relationships. We report the findings of a two-sided randomized control trial in central Tanzania, centered on the production and distribution of a "Yellow Pages" phone directory with contact information for local enterprises. Enterprises randomly assigned to be listed in the directory receive more business calls, make greater use of mobile money, and are more likely to employ workers. There is evidence of positive spillovers, as both listed and unlisted enterprises in treatment villages experience significant increases in sales relative to a pure control group. Households randomly assigned to receive copies of the directory make greater use their phones for farming, are more likely to rent land and hire labor, have lower rates of crop failure, and sell crops for weakly higher prices. Willingness-to-pay to be listed in future directories is significantly higher for treated enterprises.
Complex economic activities concentrate in large cities
Pierre-Alexandre Balland et al.
Nature Human Behaviour, March 2020, Pages 248-254
Abstract:
Human activities, such as research, innovation and industry, concentrate disproportionately in large cities. The ten most innovative cities in the United States account for 23% of the national population, but for 48% of its patents and 33% of its gross domestic product. But why has human activity become increasingly concentrated? Here we use data on scientific papers, patents, employment and gross domestic product, for 353 metropolitan areas in the United States, to show that the spatial concentration of productive activities increases with their complexity. Complex economic activities, such as biotechnology, neurobiology and semiconductors, concentrate disproportionately in a few large cities compared to less-complex activities, such as apparel or paper manufacturing. We use multiple proxies to measure the complexity of activities, finding that complexity explains from 40% to 80% of the variance in urban concentration of occupations, industries, scientific fields and technologies. Using historical patent data, we show that the spatial concentration of cutting-edge technologies has increased since 1850, suggesting a reinforcing cycle between the increase in the complexity of activities and urbanization. These findings suggest that the growth of spatial inequality may be connected to the increasing complexity of the economy.
Farmer Field Days and Demonstrator Selection for Increasing Technology Adoption
Kyle Emerick & Manzoor Dar
Review of Economics and Statistics, forthcoming
Abstract:
Inadequate learning is an oft-cited friction impeding the adoption of improved agricultural technology in the developing world. We provide experimental evidence that farmer field days - an approach used throughout the world where farmers meet, learn about new technology, and observe its performance - alleviate learning frictions and increase adoption of an improved seed by 40 percent. Further analysis demonstrates that these field days are both cost effective and more impactful for poorer farmers. In contrast, we find no evidence that selecting the first adopters of new technology via participatory village meetings has any effect on future adoption.
Can ABC Lead to Sustained 123? The Medium-Term Effects of a Technology-Enhanced Adult Education Program
Jenny Aker & Christopher Ksoll
Economic Development and Cultural Change, forthcoming
Abstract:
Can information technology preserve the short-term learning gains associated with adult education programs? This study estimates the medium-term impacts of a mobile phone module (Project ABC) that was added to a standard adult education curriculum and for which there were significant short-term impacts on educational outcomes. Two years after the end of the program, students in ABC villages had reading scores that were significantly higher than those in standard adult education classes, and women and younger students were better able to decode numbers. This can be partially attributed to more active mobile phone usage in ABC villages. Households in ABC villages were also more likely to own certain durable assets, had higher levels of food security, and were more likely to save. Overall, these results suggest that short-term learning gains associated with technology can persist, especially if students have the opportunity to practice using that technology after the end of classes.