Surprise development
What Accounts for the US Ascendancy to Economic Superpower by the Early Twentieth Century? The Morrill Act–Human Capital Hypothesis
Isaac Ehrlich, Adam Cook & Yong Yin
Journal of Human Capital, Summer 2018, Pages 233-281
Abstract:
Maddison’s international panel data show that technically it was the faster growth rate of the US economy that led to its overtaking the United Kingdom as economic superpower. We explore the contributing factors. Identifying the land-grant college system triggered by the 1862/1890 Morrill Acts (MAs) as a major contributor, we develop this hypothesis theoretically and test it via difference-in-differences regression analyses viewing the MAs as the experiment, the United States or US states as treatment groups, and the United Kingdom as the chief control group in the country-level comparisons. Using national and state-level data, we estimate that the MAs produced sizeable educational and economic returns that catapulted the United States into its leading status.
Symbolic Unity, Dynastic Continuity, and Countervailing Power: Monarchies, Republics, and the Economy
Mauro Guillén
Social Forces, forthcoming
Abstract:
We investigate the implications of the persistence of traditional patterns of state organization by examining the relationship between property rights and the economy for monarchies and republics. We argue that, relative to republics, monarchies protect property rights to a greater extent by reducing the negative effects of internal conflict, executive tenure, and executive discretion. In turn, a better protection of property rights results in greater standards of living. Using panel data on 137 countries between 1900 and 2010, we formulate and test a model with endogenous variables. We find strong evidence that monarchies contribute to a greater protection of property rights and higher standards of living through each of the three theoretical mechanisms compared to all republics. We also find that democratic-constitutional monarchies perform better than non-democratic and absolute monarchies when it comes to offsetting the negative effects of the tenure and discretion of the executive branch. We discuss the implications of the persistence of traditional patterns of political authority and rule for political sociology and economic sociology.
Forced Migration and Human Capital: Evidence from Post-WWII Population Transfers
Sascha Becker et al.
NBER Working Paper, June 2018
Abstract:
We exploit a unique historical setting to study the long-run effects of forced migration on investment in education. After World War II, the Polish borders were redrawn, resulting in large-scale migration. Poles were forced to move from the Kresy territories in the East (taken over by the USSR) and were resettled mostly to the newly acquired Western Territories, from which Germans were expelled. We combine historical censuses with newly collected survey data to show that, while there were no pre-WWII differences in education, Poles with a family history of forced migration are significantly more educated today. Descendants of forced migrants have on average one extra year of schooling, driven by a higher propensity to finish secondary or higher education. This result holds when we restrict ancestral locations to a subsample around the former Kresy border and include fixed effects for the destination of migrants. As Kresy migrants were of the same ethnicity and religion as other Poles, we bypass confounding factors of other cases of forced migration. We show that labor market competition with natives and selection of migrants are also unlikely to drive our results. Survey evidence suggests that forced migration led to a shift in preferences, away from material possessions and towards investment in a mobile asset – human capital. The effects persist over three generations.
The Geography of Linguistic Diversity and the Provision of Public Goods
Klaus Desmet, Joseph Gomes & Ignacio Ortuño-Ortín
NBER Working Paper, June 2018
Abstract:
This paper analyzes the importance of local interaction between individuals of different linguistic groups for the provision of public goods at the national level. The micro-founded conceptual framework we develop predicts that a country's public goods (i) decrease in its overall linguistic fractionalization, and (ii) either increase or decrease in its local learning multiplier, a measure of how local interaction affects antagonism towards other groups in the society at large. After constructing a 5 km by 5 km dataset on language use for 223 countries, we empirically explore these theoretical predictions. While overall fractionalization worsens public goods outcomes, we find a positive causal effect of local learning. Conditional on a country's overall diversity, public goods outcomes are maximized when there are a few large-sized groups and the diversity of each location mirrors that of the country as a whole. Our large-scale study, spanning the entire globe, confirms experimental micro-evidence in favor of contact theory.
When the mafia comes to town
Annalisa Scognamiglio
European Journal of Political Economy, forthcoming
Abstract:
This paper investigates the diffusion of organized crime in new areas by examining a legal practice in effect in Italy between 1956 and 1988, namely the power for the authorities to force mafiosi to relocate to another town. Using the variation in the number of relocated mafia members according to destination provinces in a difference-in-differences setting, I find no conclusive evidence on crime and a very robust positive impact on employment in the construction industry. I show that the effect is driven primarily by provinces that had a low ex-ante level of financial development, suggesting that mafias take advantage of investment opportunities in the construction sector that are left unexploited due to liquidity constraints.
Distance to the pre-industrial technological frontier and economic development
Ömer Özak
Journal of Economic Growth, June 2018, Pages 175–221
Abstract:
This research explores the effects of distance to the pre-industrial technological frontiers on comparative economic development in the course of human history. It establishes theoretically and empirically that distance to the frontier had a persistent non-monotonic effect on a country’s pre-industrial economic development. In particular, advancing a novel measure of the travel time to the technological frontiers, the analysis establishes a robust persistent U-shaped relation between distance to the frontier and pre-industrial economic development across countries. Moreover, it demonstrates that countries, which throughout the last two millennia were relatively more distant from these frontiers, have higher contemporary levels of innovation and entrepreneurial activity, suggesting that distance from the frontier may have fostered the emergence of a culture conducive to innovation, knowledge creation, and entrepreneurship.
Spatial Competition, Innovation and Institutions: The Industrial Revolution and the Great Divergence
Klaus Desmet, Avner Greif & Stephen Parente
NBER Working Paper, June 2018
Abstract:
A market-size-only theory of industrialization cannot explain why England developed nearly two centuries before China. One shortcoming of such a theory is its exclusive focus on producers. We show that once we incorporate the incentives of factor suppliers' organizations such as craft guilds, industrialization no longer depends on market size, but on spatial competition between the guilds' jurisdictions. We substantiate our theory (i) by providing historical and empirical evidence on the relation between spatial competition, craft guilds and innovation, and (ii) by showing the calibrated model correctly predicts the timings of the Industrial Revolution and the Great Divergence.
Spinning the industrial revolution
Jane Humphries & Benjamin Schneider
Economic History Review, forthcoming
Abstract:
The prevailing explanation for why the industrial revolution occurred first in Britain during the last quarter of the eighteenth century is Allen’s ‘high wage economy’ view, which claims that the high cost of labour relative to capital and fuel incentivized innovation and the adoption of new techniques. This article presents new empirical evidence on hand spinning before the industrial revolution and demonstrates that there was no such ‘high wage economy’ in spinning, which was a leading sector of industrialization. We quantify the working lives of frequently ignored female and child spinners who were crucial to the British textile industry with evidence of productivity and wages from the late sixteenth to the early nineteenth century. Spinning emerges as a widespread, low‐productivity, low‐wage employment, in which wages did not rise substantially in advance of the introduction of the jenny and water frame. The motivation for mechanization must be sought elsewhere.
Reconsidering the Industrial Revolution: England and Wales
Anthony Wrigley
Journal of Interdisciplinary History, Summer 2018, Pages 9-42
Abstract:
In the mid-sixteenth century, England was a small country on the periphery of Europe with an economy less advanced than those of several of its continental neighbors. In 1851, the Great Exhibition both symbolized and displayed the technological and economic lead that Britain had then taken. A half-century later, however, there were only minor differences between the leading economies of Western Europe. To gain insight into both the long period during which Britain outpaced its neighbors and the decades when its lead evaporated, it is illuminating to focus on the energy supply. Energy is expended in all productive activities. The contrast between the limitations inherent to organic economies dependent on the annual round of plant photosynthesis for energy and the possibilities open to an economy able to make effective use of the vast quantity of energy available in coal measures is key both to the understanding of the lengthy period of Britain’s relative success and to its subsequent swift decline.
The failure of ancient Greek growth: Institutions, culture and energy cost
George Tridimas
Journal of Institutional Economics, forthcoming
Abstract:
Along with introducing democracy, advancing philosophy and excelling at the arts, during the period 800–300 BCE ancient Greece achieved substantial economic prosperity. Recent literature attributes the efflorescence to the institutions and culture of democratic city-states. However, the city-states failed to initiate sustained growth. Technological progress remained slow and the economic efflorescence ended after the prevalence of Macedon and the subsequent Roman conquest. The present study scrutinises the roles of city-state institutions and culture. It shows that ultimately ancient Greece could not sustain long-run growth because a multitude of independent small city-states prevented the exploitation of economies of scale and stoked continual wars that exhausted them financially and militarily, and because of a culture valuing landholding, self-sufficiency and collectivist attitudes.
Australian squatters, convicts, and capitalists: Dividing up a fast‐growing frontier pie, 1821–71
Laura Panza & Jeffrey Williamson
Economic History Review, forthcoming
Abstract:
Compared with its competitors, Australian GDP per worker grew exceptionally quickly from the 1820s to the 1870s, at a rate about twice that of the US and three times that of Britain. Did this rapid growth produce rising inequality, following a Kuznets curve? Using a novel dataset, this article offers new evidence that provides unambiguous support for the view that, in sharp contrast with the US experience and with globalization‐inequality views concerning late nineteenth‐century frontiers, Australia underwent a revolutionary levelling in incomes up to the 1870s. This assessment is based on trends in many proxies for inequality, as well as annual estimates of functional income shares in the form of land rents, convict payments, free unskilled labour incomes, free skilled labour and white collar incomes, British imperial transfers, and a capitalist residual.
Negotiating a Better Future: How Interpersonal Skills Facilitate Inter-Generational Investment
Nava Ashraf et al.
Harvard Working Paper, May 2018
Abstract:
Using a randomized control trial, we examine whether offering adolescent girls non-material resources - specifically, negotiation skills - can improve educational outcomes in a low-income country. In so doing, we provide the first evidence on the effects of an intervention that increased non-cognitive, interpersonal skills during adolescence. Long-run administrative data shows that negotiation training significantly improved educational outcomes over the next three years. The training had greater effects than two alternative treatments (offering girls a safe physical space with female mentors and offering girls information about the returns to education), suggesting that negotiation skills themselves drive the effect. Further evidence from a lab-in-the-field experiment, which simulates parents' educational investment decisions, and a midline survey suggests that negotiation skills improved girls' outcomes by moving households' human capital investments closer to the efficient frontier. This is consistent with an incomplete contracting model, where negotiation allows daughters to strategically cooperate with parents.
On the Macroeconomic Consequences of Over-Optimism
Paul Beaudry & Tim Willems
NBER Working Paper, June 2018
Abstract:
Is over-optimism about a country's future growth perspective good for an economy, or does over-optimism also come with costs? In this paper we document that recessions, fiscal problems, as well as Balance of Payment-difficulties are more likely to arise in countries where past growth expectations have been overly optimistic. We arrive at this conclusion by looking at the medium-run effects of instances of over-optimism or caution in IMF forecasts. To isolate the causal effect of over-optimism we take an instrumental variables approach, where we exploit variation provided by the pseudo-random allocation of IMF Mission Chiefs across countries. As a necessary first step, we document that IMF Mission Chiefs tend to systematically differ in their individual degrees of forecast-optimism or caution. The mechanism that transforms over-optimism into a later recession seems to run through higher debt accumulation, both public and private. Our findings illustrate the potency of unjustified optimism and underline the importance of basing economic forecasts upon realistic medium-term prospects.
Local Industrial Shocks and Infant Mortality
Anja Tolonen
Economic Journal, forthcoming
Abstract:
Local industrial development has the potential to improve health and well‐being, while also damaging health through exposure to harmful pollution. It is an empirical question which of these effects dominate. Exploiting the quasi‐experimental expansion of African large‐scale gold mining, I find that local infant mortality rates decrease by more than 50% alongside rapid economic growth. The instantaneous reduction is comparable to overall gains in infant survival rates in the study countries from 1970 to today. The results are robust to migration. Local industrial development — despite risk of pollution — may be an effective tool to reduce infant mortality in developing countries.
Two Blades of Grass: The Impact of the Green Revolution
Douglas Gollin, Casper Worm Hansen & Asger Wingender
NBER Working Paper, June 2018
Abstract:
We examine the economic impact of high-yielding crop varieties (HYVs) in developing countries 1960-2000. We use time variation in the development and diffusion of HYVs of 10 major crops, spatial variation in agro-climatically suitability for growing them, and a differences-in-differences strategy to identify the causal effects of adoption. In a sample of 84 counties, we estimate that a 10 percentage points increase in HYV adoption increases GDP per capita by about 15 percent. This effect is fully accounted for by the direct effect on crop yields, factor adjustment, and structural transformation. We also find that HYV adoption reduced both fertility and mortality.
African agricultural productivity and the transatlantic slave trade: Evidence from Senegambia in the nineteenth century
Klas Rönnbäck & Dimitrios Theodoridis
Economic History Review, forthcoming
Abstract:
Agriculture has played a central role in Africa's long‐term economic development. Previous research has argued that the low productivity of African economies has posed significant challenges to African efforts to produce an agricultural surplus or to develop commercial agriculture. Low agricultural productivity has also served as a key explanation for the transatlantic slave trade, on the basis that it was more profitable to export humans overseas than to grow and export produce. However, the field has suffered from a lack of comparable empirical evidence. This article contributes to this field by presenting quantitative data on historical land and labour productivity in Africa, from a case study of the agricultural productivity of Senegambia in the early nineteenth century. Focusing on five key crops, our results suggest that both land and labour productivity was lower in Senegambia than it was in all other parts of the world for which we have found comparable data. This article thus lends support to claims that stress ecological factors as one of the main determinants of Africa's historical development.
Foreign aid and growth: A Sp P-VAR analysis using satellite sub-national data for Uganda
Andrea Civelli, Andrew Horowitz & Arilton Teixeira
Journal of Development Economics, September 2018, Pages 50-67
Abstract:
We develop a measurement strategy for the impact of foreign aid based on a regional spatial panel vector-autoregressive model (Sp P-VAR). We illustrate the strategy using Ugandan districts. Data for the regional units (ADM2) is assembled combining satellite sources for socio-economic activity, geo-located aid disbursements, and traditional household surveys. We find statistically significant positive and persistent effects of aid shocks on nighttime luminosity. Mapping nightlights to economic activity, the results suggest that the economic magnitude of these effects is small, but significant – with a multiplier between 4 and 5 in the long-run. The VAR addresses endogeneity concerns associated with non-random aid assignment.
The returns to invention during the British industrial revolution
Sean Bottomley
Economic History Review, forthcoming
Abstract:
It was a commonplace among contemporaries, and remains received wisdom today, that inventors were poorly remunerated during the industrial revolution. Adapting a dataset of 759 British inventors, this article presents the first large‐scale attempt to examine the issue systematically. Using probate information, the article shows that inventors were extremely wealthy relative to the adult male population. Inventors were also significantly wealthier than another group who would have received a similar inheritance (in terms of both financial and social capital) and entered similar occupations: their brothers. Their additional wealth was derived from inventive activities: invention paid.