These papers are also available via the RePEc archive
We develop a conceptual framework to highlight the role of ideas as a catalyst for policy and institutional change. We make an explicit distinction between ideas and vested interests and show how they feed into each other. In doing so the paper integrates the Keynes-Hayek perspective on the importance of ideas with the currently more fashionable Stigler-Becker (interests only) approach to political economy. We distinguish between two kinds of ideational politics - the battle among different worldviews on the efficacy of policy (worldview politics) versus the politics of victimhood, pride and identity (identity politics). Political entrepreneurs discover identity and policy `memes' (narratives, cues, framing) that shift beliefs about how the world works or a person's belief of who he is (i.e. identity). Our framework identies a complementarity between worldview politics and identity politics and illustrates how they may reinforce each other. In particular, an increase in identity polarization may be associated with a shift in views about how the world works. Furthermore, an increase in income inequality is likely to result in a greater incidence of ideational politics. Finally, we show how ideas may not just constrain, but also 'bite' the interests that helped propagate them in the first instance.
This paper studies strategic default on coffee pre-financing agreements. In these common arrangements, mills finance coffee production through loans backed by forward-sales contracts with foreign buyers. We model how strategic default introduces a trade-off between insurance and counterparty risk: relative to indexed contracts, fixed-price contracts insure against price swings but create incentives to default when market conditions change. To test for strategic default, we construct contract-specific measures of unanticipated changes in market conditions by comparing spot prices at maturity with the relevant futures prices at the contracting date. Unanticipated rises in market prices increase defaults on fixed price contracts but not on price-indexed ones. We isolate strategic default by focusing on unanticipated rises at the time of delivery after production decisions are sunk. Estimates suggest that roughly half of the observed defaults are strategic. Strategic defaults are more likely in less valuable relationships which, in turn, tend to sign price-indexed contracts to limit strategic default. A model calibration suggests that strategic default causes 15.8% average losses in output, significant dispersion in the marginal product of capital and sizeable negative externalities on supplying farmers.
Using an original survey conducted in India’s largest state, we offer systematic evidence on the gender gaps in a rich set of electoral and non-electoral participation metrics. We find that gender gaps in non-electoral forms of participation (such as involvement in public petitions, interactions with public officials and attendance of village meetings) are larger than those in election-related activities, including political candidacy. The gender gaps in political participation persist even after we account for women’s poorer knowledge of political institutions, self-assessment of leadership skills, literacy rates and asset ownership, as well as constraints on their mobility and voice in household decisions. Using an Oaxaca-Blinder decomposition approach, we find that bringing women’s attributes on par with men would bridge less than half the gender gap. This suggests that external factors, such as the role played by voters, parties or societal groups, may constitute important barriers to women’s political participation. The presence of a woman leader in the village increases women’s propensity to meet with government officials, but is not enough to close the gender gap. Our evidence points to the need to consider a wider set of policy tools beyond quotas to encourage women’s civic and political engagement.
367/2018 Lorenzo Casaburi and Rocco MacchiavelloFirm and Market Response to Saving Constraints: Evidence from the Kenyan Dairy Industry367/2018 Lorenzo Casaburi and Rocco Macchiavello
Despite extensive evidence that preferences are often time-inconsistent, there is only scarce field evidence of willingness to pay for commitment. Infrequent payments may naturally provide commitment for lumpy expenses. Multiple experiments in the Kenyan dairy sector show that: i) farmers are willing to incur sizable costs to receive infrequent payments and demand for commitment is an important driver of this preference; ii) poor contract enforcement, however, limits competition among buyers in the supply of infrequent payments; iii) in such a market, the effects of price increases on sales depend on both buyer credibility and payment frequency. Infrequent payments are common in many goods and labor markets, but they may not be competitively offered when contracts are not enforceable.
The outcome of the UK’s Brexit Referendum has been blamed on political factors, such as concerns about sovereignty, and economic factors such as migration, and trade integration. Analyses of the cross-sectional referendum voting pattern cannot explain how anti-EU sentiment built up over time. Since UKIP votes in the 2014 EU Parliament elections are the single most important predictor of the Vote Leave share, understanding the rise of UKIP might help to explain the role of political and economic factors in the build-up of Brexit. This paper presents new stylized facts suggesting that UKIP votes in local, national and European elections picked up dramatically in areas with weak socio-economic fundamentals, but only after 2010, at the expense of the Conservatives, and partly also Labour. The timing suggests that the Government’s austerity measures might have been a crucial trigger that helped to convert economic grievances into UKIP votes, putting increasing pressure on the Conservatives to hold the EU Referendum.
365/2018 Mariaelisa Epifanio and Vera E. TroegerMaternity leaves in Academia: Why are some UK universities more generous than others?365/2018 Mariaelisa Epifanio and Vera E. Troeger
Statutory parental leave provisions in the UK are amongst the least generous as compared to other EU and OECD countries.That is why most companies and other institutions, such as universities, top these legal provisions up with more generous occupational parental leave packages (OMPs). Yet, they don’t do so uniformly. Indeed, the generosity of OMPs offered by HEIs across the UK differ greatly. This paper examines both theoretically and empirically why this is the case. We find that income of HEIs doesn’t make a difference but size in terms of number of employees as well as the student-to-staffratio do.Our results also show that more research intense universities with a higher previous share of female professors and female academics at child-bearing age provide more generous maternity pay. We offer a range of explanations for these findings.
This paper develops a ﬁrm-dynamics model with endogenous currency debt composition to study ﬁnancing and investment decisions in developing economies. In our model, foreign currency borrowing arises from a trade-oﬀ between exposure to currency risk and growth. There is cross-sectional heterogeneityinthesedecisionsintwodimensions. First, thereisselectionintoforeigncurrencyborrowing, as only productive ﬁrms employ it. Second, there is heterogeneity in ﬁrms’ share of foreign currency loans, driven by their potential growth. We assess econometrically the pattern of foreign currency borrowing using ﬁrm-level census data on Hungary, calibrate the model and quantify its aggregate impact.
363/2018 R.W. Davies, Mark Harrison, Oleg Khlevniuk and Stephen G. WheatcroftThe Soviet economy: the late 1930s in historical perspective363/2018 R.W. Davies, Mark Harrison, Oleg Khlevniuk and Stephen G. Wheatcroft
This paper is draft of the concluding chapter of The industrialisation of Soviet Russia,vol.7:The Soviet economyand the approach of war,1937– 1939, in preparation for publication by Palgrave Macmillan. We consider the development of the Soviet economy over the period of the series, that is, from the launching of the first five-year plan and the collectivisation of agriculture to the outbreak of the Second World War. We review, in turn, the pattern of forced industrialisation, the measurement and mismeasurement of economic progress, the extraordinary militarisation of a mobilised society and economy, the emergence of the Soviet Union as a global military power, and the scope for reforms within the economic system that Stalin created and ruled over.
362/2018 Peter Sandholt Jensen, Markus Lampe, Paul Sharp and Christian Volmar Skovsgaard‘Getting to Denmark’: the Role of Elites for Development362/2018 Peter Sandholt Jensen, Markus Lampe, Paul Sharp and Christian Volmar Skovsgaard
We explore the role of elites for development and in particular for the spread of cooperative creameries in Denmark in the 1880s, which was a major factor behind that country’s rapid economic catch-up. We demonstrate empirically that the location of early proto-modern dairies, so-called hollænderier, introduced onto traditional landed estates as part of the Holstein System of agriculture by landowning elites from the Duchies of Schleswig and Holstein in the eighteenth century, can explain the location of cooperative creameries in 1890, more than a century later, after controlling for other relevant determinants. We interpret this as evidence that areas close to estates which adopted the Holstein System witnessed a gradual spread of modern ideas from the estates to the peasantry. Moreover, we identify a causal relationship by utilizing the nature of the spread of the Holstein System around Denmark, and the distance to the first estate to introduce it, Sofiendal. These results are supported by evidence from a wealth of contemporary sources and are robust to a variety of alternative specifications.
361/2018 Redzo Mujcic and Andrew J. OswaldIs Envy Harmful to a Society’s Psychological Health and Wellbeing? A Longitudinal Study of 18,000 Adults361/2018 Redzo Mujcic and Andrew J. Oswald
Nearly 100 years ago, the philosopher and mathematician Bertrand Russell warned of the social dangers of widespread envy. One view of modern society is that it is systematically developing a set of institutions -- such as social media and new forms of advertising -- that make people feel inadequate and envious of others. If so, how might that be influencing the psychological health of our citizens? This paper reports the first large-scale longitudinal research into envy and its possible repercussions. The paper studies 18,000 randomly selected individuals over the years 2005, 2009, and 2013. Using measures of SF-36 mental health and psychological well-being, four main conclusions emerge. First, the young are especially susceptible. Levels of envy fall as people grow older. This longitudinal finding is consistent with a cross-sectional pattern noted recently by Nicole E. Henniger and Christine R. Harris, and with the theory of socioemotional regulation suggested by scholars such as Laura L. Carstensen. Second, using fixed-effects equations and prospective analysis, the analysis reveals that envy today is a powerful predictor of worse SF-36 mental health and well-being in the future. A change from the lowest to the highest level of envy, for example, is associated with a worsening of SF-36 mental health by approximately half a standard deviation (p <0.001). Third, no evidence is found for the idea that envy acts as a useful motivator. Greater envy is associated with slower -- not higher -- growth of psychological well-being in the future. Nor is envy a predictor of later economic success. Fourth, the longitudinal decline of envy leaves unaltered a U-shaped age pattern of well-being from age 20 to age 70. These results are consistent with the idea that society should be concerned about institutions that stimulate large-scale envy.
360/2018 David G. Blanchflower and Andrew J. OswaldUnhappiness and Pain in Modern America: A Review Essay, and Further Evidence, on Carol Graham’s Happiness for All?360/2018 David G. Blanchflower and Andrew J. Oswald
In Happiness for All?, Carol Graham raises disquieting ideas about today’s United States. The challenge she puts forward is an important one. Here we review the intellectual case and offer additional evidence. We conclude broadly on the author’s side. Strikingly, Americans appear to be in greater pain than citizens of other countries, and most subgroups of citizens have downwardly trended happiness levels. There is, however, one bright side to an otherwise dark story. The happiness of black Americans has risen strongly since the 1970s. It is now almost equal to that of white Americans.
We ran an experiment where 1,503 subjects (advisees) completed tasks, and then had the choice to submit either their own score or the score of other subjects (advisers). The observed data are irreconcilable with rational behaviour. First, good advice was ignored: about 25% of the time, advisees chose to submit their own score instead of the higher score of an adviser, reducing their payoff. Second, when the adviser was superior in skill, good advice was ignored more often. Third, when the adviser was relatively highly paid, subjects were less likely to make use of them. We offer an explanation of the data focused on two behavioral forces: envy and the sunk cost fallacy. The role of envy was complex: more envious advisees, as measured using a dispositional envy scale, opted to follow advisers more often in the skill-based task revealing a positive, motivational effect of envy. However, higher adviser remuneration reduced this effect, revealing a negative side of envy as a constraint on rational decision-making. Susceptibility to the sunk cost fallacy, measured using a novel scale we developed, had a negative impact on the uptake of good advice. This is consistent with the idea that subjects feel resistant to changing their answers when they put in effort to formulate them. We also present ndings from a new survey of 3,096 UK voters who took part in the national referendum on EU membership, consistent with some of our experimental results.
In many developing countries households can purchase limited quantities of goods at a fixed subsidized price through ration shops. This paper asks whether these countries’ characteristics justify the use of such ration shop systems. I find an equity-efficiency trade-off: an efficiencymaximizing government will never use ration shops but a welfare-maximizing one might, to redistribute and provide insurance. Welfare gains from introducing ration shops are highest for necessity goods with high price risk. I calibrate the model for India and find that ration shops are indeed welfare-improving for three of the four goods sold through the system today.
357/2018 Marc Piopiunik, Guido Schwerdt, Lisa Simon, and Ludger WoessmannSkills, Signals, and Employability: An Experimental Investigation357/2018 Marc Piopiunik, Guido Schwerdt, Lisa Simon, and Ludger Woessmann
As skills of labor-market entrants are usually not directly observed by employers, individuals acquire skill signals. To study which signals are valued by employers, we simultaneously and independently randomize a broad range of skill signals on pairs of resumes of fictitious applicants among which we ask a large representative sample of German human-resource managers to choose. We find that signals in all three studied domains – cognitive skills, social skills, and maturity – have a significant effect on being invited for a job interview. Consistent with the relevance, expectedness, and credibility of different signals, the specific signal that is effective in each domain differs between apprenticeship applicants and college graduates. While GPAs and social skills are significant for both genders, males are particularly rewarded for maturity and females for IT and language skills. Older HR managers value school grades less and other signals more, whereas HR managers in larger firms value college grades more.
356/2018 Konstantin Büchel and Maximilian v. EhrlichCities and the Structure of Social Interactions: Evidence from Mobile Phone Data356/2018 Konstantin Büchel and Maximilian v. Ehrlich
Social interactions are considered pivotal to agglomeration economies. We explore a unique dataset on mobile phone calls to examine how distance and population density shape the structure of social interactions. Exploiting an exogenous change in travel times, we find that distance is highly detrimental to interpersonal exchange. We show that, despite distance-related costs, urban residents do not benefit from larger networks when spatial sorting is accounted for. Higher density rather generates a more efficient network in terms of matching and clustering. These differences in network structure capitalize into land prices, corroborating the hypothesis that agglomeration economies operate via network efficiency.
355/2018 Bishnupriya GuptaFalling Behind and Catching up: India’s Transition from a Colonial Economy355/2018 Bishnupriya Gupta
At midnight of 15th August 1947, India became an independent country. It ended 200 years of colonial rule under the British Empire. It altered the borders of India. Two distinct regions from the Western and the Eastern sides were carved out as a separate political entity of the state of Pakistan.2 Indian independence also led to a major change in the direction of economic policy. From a globalized economy integrated into the British Empire, the next 30 years saw a retreat from policies of free trade and capital flows. The newly independent state embraced the idea of development through industrialization. In an economy, where capital was scarce and entrepreneurship was concentrated in a few communities, the state stepped in to fill the gap. India was not unusual in this. Many parts of the underdeveloped world, both colonies in Asia and independent countries in Latin America moved towards protectionist policies to develop an industrial sector. This was not simply the infant industry argument, which had characterized industrialization in the United States and Europe 19th century. The role of the state in the newly independent countries, in the second half of the 20th century, was developmental and directly interventionist. While the industrialized world in Europe and North America began to rebuild the institutions of free trade after 1945, the underdeveloped world moved in a different direction, where the idea of a “Developmental State” became an intrinsic part of policy making. This paper will take a long run view of Indian economic development. I will start with Mughal India under the emperor Akbar in 1600. This was the high point of economic prosperity measured by average living standards. I will look at the changes in the economy over the next 400 years, first in response to increasing trade with Europe through the global network of European trading companies, then through the formal political rule of the East India Company.
354/2018 Sascha O. Becker, Stephan Heblich and Daniel M. SturmThe Impact of Public Employment: Evidence from Bonn354/2018 Sascha O. Becker, Stephan Heblich and Daniel M. Sturm
This paper evaluates the impact of public employment on private sector activity using the relocation of the German federal government from Berlin to Bonn in the wake of the Second World War as a source of exogenous variation. To guide our empirical analysis, we develop a simple economic geography model in which public sector employment in a city can crowd out private employment through higher wages and house prices, but also generates potential productivity and amenity spillovers. We find that relative to a control group of cities, Bonn experiences a substantial increase in public employment. However, this results in only modest increases in private sector employment with each additional public sector job destroying around 0.2 jobs in industries and creating just over one additional job in other parts of the private sector. We show how this finding can be explained by our model and provide several pieces of evidence for the mechanisms emphasised by the model.
353/2017 Fernanda Brollo, Pedro Forquesato and Juan Carlos GozziTo the Victor Belongs the Spoils? Party Membership and Public Sector Employment in Brazil353/2017 Fernanda Brollo, Pedro Forquesato and Juan Carlos Gozzi
We analyze how political discretion affects the selection of government workers, using individual-level data on political party membership and matched employer-employee data on the universe of formal workers in Brazil. Exploiting close mayoral races, we find that winning an election leads to an increase of over 40% in the number of members of the winning party working in the municipal bureaucracy. Employment of members of the ruling party increases relatively more in senior positions, but also expands in lower-ranked jobs, suggesting that discretionary appointments are used both to influence policymaking and to reward supporters. We find that party members hired after their party is elected tend be of similar or even higher quality than members of the runner-up party, contrary to common perceptions that political appointees are less qualified. Moreover, the increased public employment of members of the ruling party is long-lasting, extending beyond the end of the mayoral term.
352/2017 Aditi Dimri and François ManiquetPoverty measurement (in India): Defining group-specific poverty lines or taking preferences into account?352/2017 Aditi Dimri and François Maniquet
We study absolute income poverty measurement when agents differ in preferences and face different prices. The difficulty arising from price heterogeneity is typically solved using equivalent income, but the choice of the reference price vector remains arbitrary. We provide a way to solve this arbitrariness problem by making the poverty measure consistent with preferences: an agent qualifies as poor if and only if she prefers the poverty line bundle to her current consumption bundle. We then prove that defining group/region specific poverty lines is another way of recovering consistency with preferences, provided one uses the headcount ratio. Comparing the resulting three approaches using Indian data, we find that the different approaches leads to different poverty conclusions. We show that not taking preferences into account leads to severely underestimating urban poverty.
351/2017 Mirko Draca, Theodore Koutmeridis and Stephen MachinThe Changing Returns to Crime: Do Criminals Respond to Prices?351/2017 Mirko Draca, Theodore Koutmeridis and Stephen Machin
In economic models of crime individuals respond to changes in the potential value of criminal opportunities. We analyse this issue by estimating crime-price elasticities from detailed data on criminal incidents in London between 2002 and 2012. The unique data feature we exploit is a detailed classification of what goods were stolen in reported theft, robbery and burglary incidents. We first consider a panel of consumer goods covering the majority of market goods stolen in the crime incidents and find evidence of significant positive price elasticities. We then study a particular group of crimes that have risen sharply recently as world prices for them have risen, namely commodity related goods (jewellery, fuel and metal crimes), finding sizable elasticities when we instrument local UK prices by exogenous shifts in global commodity prices. Finally, we show that changes in the prices of loot from crime have played a role in explaining recent crime trends.
British productivity growth disappointed during the early postwar period. This reflected inadequate investment in equipment and skills but also entailed inefficient use of inputs. Weak management, dysfunctional industrial relations, and badly-designed economic policy were all implicated. The policy framework was partly the result of seeking low unemployment through wage restraint by appeasement of organized labour. A key aspect was weak competition. This exacerbated corporate-governance and industrial-relations problems in the British 'variety of capitalism' which sustained low effort bargains and managerial incompetence. Other varieties of capitalism were better placed to achieve fast growth but were infeasible for Britain given its history.
There is an ongoing debate among practitioners and scholars about the security consequences of transnational migration. Yet, existing work has not yet fully taken into account the policy instruments states have at their disposal to mitigate these, and we lack reliable evidence for the effectiveness of such measures. The following research addresses both shortcomings as we analyze whether and to what extent national migration policies affect the diffusion of terrorism via population movements. Spatial analyses report robust support for a moderating influence of states’ policies: while larger migration populations can be a vehicle for the diffusion of terrorism from one state to another, this only applies to target countries with extremely open controls and lax regulations. This research sheds new light on the security implications of population movements, and it crucially adds to our understanding of governments’ instruments for addressing migration challenges as well as their effectiveness.
348/2017 Miguel Almunia and Gonzalo GaetePoints To Save Lives: The Effects of Traffic Enforcement Policies on Road Fatalities348/2017 Miguel Almunia and Gonzalo Gaete
Traffic accidents cause more than one million annual deaths worldwide and yield substantial economic costs to society. This paper studies the effects of a penalty points system (PPS) introduced in Spain in 2006. We find a 20% decrease in cumulative road fatalities in the five years after the reform, compared to a synthetic control group constructed using a weighted average of other European countries. Using estimates of the value of a statistical life, we calculate that the PPS yielded a net economic benefit of €4.6 billion ($6 billion) over this period, equivalent to 0.43% of Spain's GDP.
347/2017 Eugenio Proto, Daniel Sgroi and Mahnaz NazneenThe Effect of Positive Mood on Cooperation in Repeated Interaction347/2017 Eugenio Proto, Daniel Sgroi and Mahnaz Nazneen
Existing research supports two opposing mechanisms through which positive mood might affect cooperation. Some studies have suggested that positive mood produces more altruistic, open and helpful behavior, fostering cooperation. However, there is contrasting research supporting the idea that positive mood produces more assertiveness and inward-orientation and reduced use of information, hampering cooperation. We find evidence that suggests the second hypothesis dominates when playing the repeated Prisoner's Dilemma. Players in an induced positive mood tend to cooperate less than players in a neutral mood setting. This holds regardless of uncertainty surrounding the number of repetitions or whether pre-play communication has taken place. This finding is consistent with a text analysis of the pre-play communication between players indicating that subjects in a more positive mood use more inward-oriented, more negative and less positive language. To the best of our knowledge we are the first to use text analysis in pre-play communication.
346/2017 Valentin SeidlerCopying informal Institutions: The role of British colonial officers during the decolonization of British Africa346/2017 Valentin Seidler
Institutional reforms in developing countries often involve copying institutions from developed countries. Such institutional copying is likely to fail, if formal institutions alone are copied without the informal institutions on which they rest in the originating country. This paper investigates the role of human actors in copying informal institutions. At independence, all British African colonies imported the same institution intended to safeguard the political neutrality of their civil services. While the necessary formal provisions were copied into the constitutions of all African colonies, the extent to which they were put into practice varies. The paper investigates the connection between the variation in the legal practice and the presence of British colonial officers after independence. A natural experiment around compensation payments to British officers explains the variation in the number of officers who remained in service after independence. Interviews with retired officers suggest that the extended presence of British personnel promoted the acceptance of imported British institutions among local colleagues.
345/2017 Valentin SeidlerInstitutional copying in the 20th century: The role of 14,000 British colonial officers345/2017 Valentin Seidler
Did individual British officers determine the institutional development of former colonies? The article presents a new research program into institutional reform and economic development based on a newly established dataset of over 14,000 biographical entries of senior colonial officers in 54 British colonies between 1939 and 1966. The rich data permit a new methodological approach towards the question of how institutions are copied into countries with a radical focus on the individual actors involved in the institutional reforms before independence. The article discusses fundamental background information on the British colonial service in the 20th century and presents first preliminary analyses from within the new research agenda.
344/2017 Alexander Klein and Sheilagh OgilvieWas Domar Right? Serfdom and Factor Endowments in Bohemia344/2017 Alexander Klein and Sheilagh Ogilvie
Do factor endowments explain serfdom? Domar (1970) conjectured that high land-labor ratios caused serfdom by increasing incentives to coerce labor. But historical evidence is mixed and quantitative analyses are lacking. Using the Acemoglu-Wolitzky (2011) framework and controlling for political economy variables by studying a specific serf society, we analyze 11,349 Bohemian serf villages in 1757. The net effect of higher land-labor ratios was indeed to increase coercion. The effect greatly increased when animal labor was included, and diminished as land-labor ratios rose. Controlling for other variables, factor endowments significantly influenced serfdom. Institutions, we conclude, are shaped partly by economic fundamentals.
343/2017 Kimberley Scharf, Sarah Smith and Mark Ottoni-WilhelmLift and Shift: The Effect of Fundraising Interventions in Charity Space and Time343/2017 Kimberley Scharf, Sarah Smith and Mark Ottoni-Wilhelm
Fundraising interventions may lift donations and/or shift their composition and timing, making it important to study their effect across charity space and time. We find that major fundraising appeals lift total donations, but surprisingly shift donations to other charities across time. To explain this, we develop a two-period model with two sources of warm glow that relates donation responses to underlying preference parameters. A dynamic framework, combined with rich data, provides opportunities to identify substitutability/complementarity in warm glow. The observed pattern is possible only if the two sources of warm glow are substitutes and warm glow is intertemporally substitutable.
342/2017 Federica Liberini, Andrew J Oswald, Eugenio Proto and Michela RedoanoWas Brexit Caused by the Unhappy and the Old?342/2017 Federica Liberini, Andrew J Oswald, Eugenio Proto and Michela Redoano
On 23 June 2016, the United Kingdom voted to leave the European Union (so-called ‘Brexit’). This paper uses newly released information, from the Understanding Society data set, to examine the characteristics of individuals who were for and against Brexit. Two new findings emerge. First, unhappy feelings contributed to Brexit. However, contrary to commonly heard views, the key channel of influence was not through general dissatisfaction with life. It was through a person’s narrow feelings about his or her own financial situation. Second, despite some commentators’ guesses, Brexit was not caused by old people. Only the very young were substantially pro-Remain.
341/2017 Gerben Bakker, Nicholas Crafts and Pieter WoltjerThe Sources of Growth in a Technologically Progressive Economy: the United States, 1899-1941341/2017 Gerben Bakker, Nicholas Crafts and Pieter Woltjer
We develop new aggregate and sectoral Total Factor Productivity (TFP) estimates for the United States between 1899 and 1941 through better coverage of sectors and better-measured labor quality, and find TFP-growth was lower than previously thought, broadly based across sectors, and strongly variant intertemporally. We then test and reject three prominent claims. First, the 1930s did not have the highest TFP-growth of the twentieth century. Second, TFP-growth was not predominantly caused by four ‘great inventions'. Third, TFP-growth was not driven indirectly by spillovers from great inventions such as electricity. Instead, the creative-destruction-friendly American innovation system was the main productivity driver.
340/2017 Marcus Miller, Lei Zhang and Songklod RastapanaSubprime assets and financial crisis: theory, policy and the law340/2017 Marcus Miller, Lei Zhang and Songklod Rastapana
In this paper, we explore three specific aspects of the US subprime crisis, using both theoretical models and the outcome of subsequent legal proceedings. First, the role of pecuniary externalities in amplifying shocks to the quality of MBS held by Investment Banks. Second, the role of adverse selection in the marketing of such assets by Investment Banks; and third the role of financial panic in making shadow banking disaster prone. The relevance of these differing perspectives is attested by the nature of state support and, more especially, the findings of law courts. Janet Yellen has recently argued that the vulnerabilities within the US financial system in the mid-2000s were "numerous and familiar from past financial panics". That the aforementioned threats to stability should be complements and not substitutes is of more than technical interest. It helps to show why the US financial system was so exposed to radical failure.
339/2017 Nicholas Crafts and Alexander KleinA Long-Run Perspective on the Spatial Concentration of Manufacturing Industries in the United States.339/2017 Nicholas Crafts and Alexander Klein
We construct spatially-weighted indices of the geographic concentration of U.S. manufacturing industries during the period 1880 to 1997 using data from the Census of Manufactures. Several important new results emerge from this exercise. First, we find that average spatial concentration was much lower in the late 20th- than in the late 19th-century and that this was the outcome of a continuing reduction over time. Second, the persistent tendency to greater spatial dispersion was characteristic of most manufacturing industries. Third, even so, economically and statistically significant spatial concentration was pervasive throughout this period.
338/2017 Aleksandra Katolik and Andrew J. OswaldAntidepressants for Economists and Business-School Researchers: An Introduction and Review338/2017 Aleksandra Katolik and Andrew J. Oswald
The antidepressant pill is an important modern commodity. Its growing role in the world has been largely ignored by researchers in economics departments and business schools. Scholars may be unaware how many citizens and employees now take these pills. Here we review some of the social-science literature on the topic. We discuss research on the impact of advertising upon antidepressant consumption, the link between antidepressants and the human ‘midlife crisis’, and evidence on how antidepressants are connected to crime, suicide, and financial hardship. We argue that antidepressants will eventually have to be modelled as a new form of consumption that lies in the currently grey area between medicines and consumer goods. This topic demands scholarly and societal attention.
337/2017 David G. Blanchflower and Andrew J. OswaldDo Humans Suffer a Psychological Low in Midlife? Two Approaches (With and Without Controls) in Seven Data Sets337/2017 David G. Blanchflower and Andrew J. Oswald
Using seven recent data sets, covering 51 countries and 1.3 million randomly sampled people, the paper examines the pattern of psychological well-being from approximately age 20 to age 90. Two conceptual approaches to this issue are possible. Despite what has been argued in the literature, neither is the ‘correct’ one, because they measure different things. One studies raw numbers on well-being and age. This is the descriptive approach. The second studies the patterns in regression equations for well-being (that is, adjusting for other influences). This is the ceteris-paribus analytical approach. The paper applies each to large cross-sections and compares the patterns of life-satisfaction and happiness. Using the first method, there is evidence of a midlife low in five of the seven data sets. Using the secondmethod, all seven data sets produce evidence consistent with a midlife low. The scientific explanation for the approximate U-shape currently remains unknown.
336/2017 Stefan Bauernschuster, Anastasia Driva, and Erik HornungBismarck's Health Insurance and the Mortality Decline336/2017 Stefan Bauernschuster, Anastasia Driva, and Erik Hornung
We investigate the impact on mortality of the world's rst compulsory health insurance, established by Otto von Bismarck, Chancellor of the German Empire, in 1884. Employing a multi-layered empirical setup, we draw on international comparisons and difference-in-differences strategies using Prussian administrative panel data to exploit differences in eligibility for insurance across occupations. All approaches yield a consistent pattern suggesting that Bismarck's Health Insurance generated a significant mortality reduction. The results are largely driven by a decline of deaths from infectious diseases. We present prima facie evidence that diffusion of new hygiene knowledge through physicians was an important channel.
335/2017 Miguel Almunia, Ben Lockwood and Kimberley ScharfMore Giving of More Givers? The Effects of Tax Incentives on Charitable Donations in the UK335/2017 Miguel Almunia, Ben Lockwood and Kimberley Scharf
This paper estimates the tax-price elasticity of giving using UK administrative tax return data, exploiting variation from a large tax reform. We estimate both the in- tensive and extensivemargin elasticity, using a novel instrumental variables strategy. Then, we derive new conditions to evaluate the welfare consequences of changes in the generosity of the subsidy to donations. We find a small intensive-margin elasticity of -0.2 and a substantial extensive-margin elasticity of -0.8, yielding a total elasticity of about -1. These estimates mask considerable heterogeneity: high-income individ- uals respond more on the intensive margin, while the extensive-margin response is stronger among low-income taxpayers.
334/2017 Boaz Abramson and Moses ShayoGrexit vs. Brexit: International Integration under Endogenous Social Identities334/2017 Boaz Abramson and Moses Shayo
International integration is not driven purely by economic considerations but may also be affected by identity politics. We propose a simple framework to study the effects of identity on integration, allowing identities themselves to be endogenous (a German citizen may identify as German but may also identify as European). We find that contrary to widespread intuitions, a robust union does not require that all members share a common identity. Furthermore, while national identification in the periphery leads to premature breakup, a common identity can sometimes lead to excessively large unions. Finally, a union is more fragile when periphery countries have high ex-ante status, whereas low-status countries are less likely to secede, even when between-country economic differences are large and union policies impose significant hardship. Brexit is more likely than Grexit.
333/2017 Yannick DuprazFrench and British Colonial Legacies in Education: Evidence from the Partition of Cameroon333/2017 Yannick Dupraz
I use the partition of Cameroon between France and the UK after WWI and its reunification after independence to investigate colonial legacies in education. Using border discontinuity analysis, I find that Cameroonians born in the 1970s are 9 percentage points more likely to have completed high school if they were born in the former British part. French and British Cameroon started diverging after partition, but the British advantage disappeared when the French increased education expenditure in the 1950s. The resurgence of a British advantage is explained by the French legacy of high repetition rates and their detrimental effect on dropout.
A new estimate of the Soviet population loss in World War II, by Russian historian Igor’ Ivlev, is 42 million. This is 15-16 million more than the previous estimate of 26-27 million. The latter, by Russian demographers Andreev, Darskii, and Khar’kova, has been widely accepted for a quarter of a century. I examine the new estimate, show its place in the Soviet demographic accounts side by side with the old one, contrast their sources and methods, and find that the new figure is without foundation. The previous figure stands. On existing knowledge, the Soviet war dead were 26-27 million.
We collect data on grain and salt prices, as well as language, for more than 200 South Asian markets in the 19th and early 20th centuries. Conditional on a rich set of controls and fixed effects, we find that linguistically distant markets are less integrated as measured by the degree of price correlation. While linguistically distant markets exhibit greater genetic distance, greater differences in literacy, and fewer railway connections, these factors are not sufficient statistics for the negative correlation between linguistic distance and market integration. Our results indicate that a one standard deviation increase in linguistic distance predicts a reduction in the price correlation between two markets of 0.121 standard deviations for wheat, 0.167 standard deviations for salt, and 0.088 standard deviations for rice. These differences are substantial relative to other factors such as physical distance that hinder market integration.
330/2017 Thomas Le Barbanchon, Roland Rathelot and Alexandra RouletUnemployment Insurance and Reservation Wages: Evidence from Administrative Data330/2017 Thomas Le Barbanchon, Roland Rathelot and Alexandra Roulet
Although the reservation wage plays a central role in job search models, empirical evidence on the determinants of reservation wages, including key policy variables such as unemployment insurance (UI), is scarce. In France, unemployed people must declare their reservation wage to the Public Employment Service when they register to claim UI benefits. We take advantage of these rich French administrative data and of a reform of UI rules to estimate the effect of the potential benefit duration (PBD) on reservation wages and on other dimensions of job selectivity, using a difference-in-difference strategy. We cannot reject that the elasticity of the reservation wage with respect to PBD is zero. Our results are precise and we can rule out elasticities larger than 0.006. Furthermore, we do not find any significant effects of PBD on the desired number of hours, duration of labor contract and commuting time/distance. The estimated elasticity of actual benefit duration with respect to PBD of 0.3 is in line with the consensus in the literature. Exploiting a regression discontinuity design as an alternative identification strategy, we find similar results.
329/2017 Nicholas Crafts and Terence C. MillsTrend TFP Growth in the United States: Forecasts versus Outcomes329/2017 Nicholas Crafts and Terence C. Mills
We analyze TFP growth in the U.S. business sector using a basic unobserved component model where trend growth follows a random walk and the noise is a first order autoregression. This is fitted using a Kalman-filter methodology. We find that trend TFP growth has declined steadily from 1.5 to 1.0 per cent per year over the last 50 years. Nevertheless, recent trends are not a good guide to actual medium-term TFP growth. This exhibits substantial variations and is quite unpredictable. Technooptimists should not give best to secular stagnationists simply because recent TFP growth has been weak
328/2017 Charlotte Cavaille and Jeremy FerwerdaHow Distributional Conflict over Public Spending Drives Support for Anti-Immigrant Parties328/2017 Charlotte Cavaille and Jeremy Ferwerda
To what extent does immigration drive support for anti-immigrant populist parties and candidates? Previous research has hypothesized the existence of a welfare channel, in which individuals exposed to the potential fiscal costs of immigration, in the form of higher taxes and lower benefits, will be more supportive of anti-immigration parties. But evidence in support of this argument is scant. This paper builds on existing work in two ways. Theoretically, we distinguish between the cash and the in-kind components of public transfers, and argue that the latter are especially prone to generating distributional conflicts. Empirically, we leverage an EU legal directive that resulted in an exogenous increase in the intensity of competition between immigrants and natives over public housing in Austria. Our findings indicate that support for anti-immigrant parties is highly responsive to perceived scarcity resulting from immigrant receipt of in-kind benefits. More broadly, the findings suggest that the confluence of austerity measures and free movement in the EU may explain the far-right’s recent electoral gains beyond its historic voting bloc.
In terms of economic development, Russia before and after the Soviet era was just an average economy. If the Soviet era is distinguished, it was not by economic growth or its contribution to human development, but by the use of the economy to build national power over many decades. In this respect, the Soviet economy was a success. It was also a tough and unequal environment in which to be born, live, and grow old. The Soviet focus on building national capabilities did improve opportunities for many citizens. Most important were the education of women and the increased survival of children. The Soviet economy was designed for the age of mass production and mass armies. That age has gone, but the idea of the Soviet economy lives on, fed by nostalgia and nationalism.
326/2017 Franziska Hampf and Ludger WoessmannVocational vs. General Education and Employment over the Life-Cycle: New Evidence from PIAAC326/2017 Franziska Hampf and Ludger Woessmann
It has been argued that vocational education facilitates the school-to-work transition but reduces later adaptability to changing environments. Using the recent international PIAAC data, we confirm such a trade-off over the life-cycle in a difference-in-differences model that compares employment rates across education type and age. An initial employment advantage of individuals with vocational compared to general education turns into a disadvantage later in life. Results are strongest in apprenticeship countries that provide the highest intensity of industry-based vocational education.
325/2017 Jean-Pascal Bassino, Stephen Broadberry, Kyoji Fukao, Bishnupriya Gupta and Masanori TakashimaJapan and the Great Divergence, 730-1874325/2017 Jean-Pascal Bassino, Stephen Broadberry, Kyoji Fukao, Bishnupriya Gupta and Masanori Takashima
Abstract: Japanese GDP per capita grew at an annual rate of 0.08 per cent between 730 and 1874, but the growth was episodic, with the increase in per capita income concentrated in two periods, 1450-1600 and after 1721, interspersed with periods of stable per capita income. There is a similarity here with the growth pattern of Britain. The first countries to achieve modern economic growth at opposite ends of Eurasia thus shared the experience of an early end to growth reversals. However, Japan started at a lower level than Britain and grew more slowly until the Meiji Restoration.
324/2017 Stephen Broadberry, Hanhui Guan and David Daokui LiChina, Europe and the Great Divergence: A Study in Historical National Accounting, 980-1850324/2017 Stephen Broadberry, Hanhui Guan and David Daokui Li
Abstract: Chinese GDP per capita fluctuated at a high level during the Northern Song and Ming dynasties before trending downwards during the Qing dynasty. China led the world in living standards during the Northern Song dynasty, but had fallen behind Italy by 1300. At this stage, it is possible that parts of China were still on a par with the richest parts of Europe, but by 1750 the gap was too large to be bridged by regional variation within China and the Great Divergence had already begun before the Industrial Revolution.
323/2017 Stephen Broadberry and John WallisGrowing, Shrinking and Long Run Economic Performance: Historical Perspectives on Economic Development323/2017 Stephen Broadberry and John Wallis
Abstract: Using annual data from the thirteenth century to the present, we show that improved long run economic performance has occurred primarily through a decline in the rate and frequency of shrinking, rather than through an increase in the rate of growing. Indeed, as economic performance has improved over time, the short run rate of growing has typically declined rather than increased. Most analysis of the process of economic development has hitherto focused on increasing the rate of growing. Here, we focus on understanding the forces making for a reduction in the rate of shrinking, drawing a distinction between proximate and ultimate factors. The main proximate factors considered are (1) structural change (2) technological change (3) demographic change and (4) the changing incidence of warfare. We conclude with a consideration of institutional change as the key ultimate factor behind the reduction in shrinking.
322/2017 Lorenzo Casaburi and Rocco MacchiavelloFirm and Market Response to Saving Constraints: Evidence from the Kenyan Dairy Industry322/2017 Lorenzo Casaburi and Rocco Macchiavello
Failures in saving markets can spill over into other markets: When producers are saving constrained, trustworthy buyers can offer infrequent delayed payments a saving tool and purchase at a lower price, thus departing from standard trade credit logic. This paper develops a model of this interlinkage and tests it in the context of the Kenyan dairy industry. Multiple data sources, experiments, and a calibration exercise support the microfoundations and predictions of the model concerning: i) producers' demand for infrequent payments; ii) heterogeneity across buyers in the ability to supply low frequency payments; iii) a segmented market equilibrium where buyers compete by providing either liquidity or saving services to producers; iv) low supply response to price increases. We provide additional evidence from other settings, including labor markets, and discuss policy implications concerning contract enforcement, nancial access, and market structure.
321/2017 Rocco Macchiavello and Josepa Miquel-FlorensaVertical Integration and Relational Contracts: Evidence from the Costa Rica Coffee ChainRocco Macchiavello and Josepa Miquel-Florensa321/2017 Rocco Macchiavello and Josepa Miquel-Florensa
This paper compares integrated firms, long-term relationships and markets, and how they adapt to shocks in the Costa Rican coffee chain. The industry is characterised by signicant uncertainty. Supply failures responses to unanticipated increases in reference prices reveal that integration and relationships reduce opportunism. Trade volumes responses to weather-induced increases in supply reveal that relationships provide demand assurance, although less than integration does. This benefit of integration is offset by costs when trading outside of the integrated chain. The evidence supports models in which rms boundaries alter temptations to renege on relational contracts and, consequently, the allocation of resources.
320/2017 Debin Ma and Jared RubinThe Paradox of Power: Understanding Fiscal Capacity in Imperial China and Absolutist Regimes320/2017 Debin Ma and Jared Rubin
Tax extraction in Qing China was low relative to Western Europe. It is not obvious why: China was much more absolutist and had stronger rights over property and people. Why did the Chinese not convert their absolute power into revenue? We propose a model, supported by historical evidence, which suggests that i) the center could not ask its tax collecting agents to levy high taxes because it would incentivize agents to overtax the peasantry; ii) the center could not pay agents high wages in return for high taxes because the center had no mechanism to commit to refrain from confiscating the agent’s resources in times of crisis. A solution to this problem was to offer agents a low wage and ask for low taxes while allowing agents to take extra, unmonitored taxes from the peasantry. This solution only worked because of China’s weak administrative capacity due its size and poor monitoring technology. This analysis suggests that low investment in administrative capacity can be an optimal solution for an absolutist ruler since it substitutes for a credible commitment to refrain from confiscation. Our study carries implications for state capacity beyond Imperial China.
319/2017 Debin MaThe Rise of a Financial Revolution in Republican China in 1900-1937: an Institutional Narrative319/2017 Debin Ma
This paper surveys the phenomenal transformation of banking and finance, public debt and monetary regimes during 1900-1937, a period of great political instability in Chinese history. To understand why sectors which are often most vulnerable to the security of property rights and contract enforcement, have become the vanguard of growth in such an era of uncertainty, I highlight the role of institutions as seen in the form of a business dominated quasi-political structure that grew outside the formal political sphere. This structure rested on the institutional nexus of Western treaty ports (with Shanghai being the most important) and China Maritime Customs service, a relatively autonomous tax bureaucracy. By ensuring the credibility of repayment of government bonds, this financial-fiscal mechanism laid the institutional foundation for the rise of modern Chinese banks, a viable market for public debt and increasing supply of reputable convertible bank notes. My survey sheds new light on some of the most important and controversial issues related to Chinese and global economic history.
318/2017 Morgane Laouénan and Roland RathelotEthnic Discrimination on an Online Marketplace of Vacation Rental318/2017 Morgane Laouénan and Roland Rathelot
We use data from an online marketplace of vacation rentals (Airbnb) collected in 19 major cities in North America and Europe to measure discrimination against ethnicminority hosts. This market has three interesting features: the existence of a detailed reviewing system, the high frequency of transactions and the panel dimension of the data. Using the fact that ratings provide potential guests with information about the quality of a listing, we build a credible measure of statistical discrimination, following a strategy `a la Altonji and Pierret (2001). Hosts from a minority ethnic group charge 16% less than other hosts in the same cities. Controlling for a rich set of characteristics reduces the ethnic price gap to 3.2%. An additional review increases the daily price more for minority than for majority hosts. Estimating the parameters of a theoretical pricing model, we find that statistical discrimination accounts for most of the price differential: 2.5 percentage points.
317/2017 Fernanda Brollo, Katja Maria Kaufmann and Eliana La FerraraLearning about the Enforcement of Conditional Welfare Programs: Evidence from Brazil317/2017 Fernanda Brollo, Katja Maria Kaufmann and Eliana La Ferrara
We study the implementation of Bolsa Familia, a program that conditions cash transfers to poor families on children’s school attendance. Using unique administrative data, we analyze how beneficiaries respond to the enforcement of conditionality. Making use of random variation in the day on which punishments are received, we find that school attendance increases after families are punished for past noncompliance. Families also respond to penalties experienced by peers: a child’s attendance increases if her own classmates, but also her siblings’ classmates (in other grades or schools), experience enforcement. As the severity of penalties increases with repeated noncompliance, households’ response is larger when peers receive a penalty that the family has not (yet) received. We thus find evidence of spillover effects and learning about enforcement.
316/2017 Fernanda Brollo, Katja Maria Kaufmann and Eliana La FerraraThe Political Economy of Program Enforcement: Evidence from Brazil316/2017 Fernanda Brollo, Katja Maria Kaufmann and Eliana La Ferrara
Do politicians manipulate the enforcement of conditional welfare programs to influence electoral outcomes? We study the Bolsa Familia Program (BFP) in Brazil, which provides a monthly stipend to poor families conditional on school attendance. Repeated failure to comply with this requirement results in increasing penalties. First, we exploit random variation in the timing when beneciaries learn about penalties for noncompliance around the 2008 municipal elections. We find that the vote share of candidates aligned with the President is lower in zip codes where more beneciaries received penalties shortly before (as opposed to shortly after) the elections. Second, we show that politicians strategically manipulate enforcement. Using a regression discontinuity design, we finnd weaker enforcement before elections in municipalities where mayors from the presidential coalition can run for reelection. Finally, we provide evidence that manipulation occurs through misreporting school attendance, particularly in municipalities with a higher fraction of students in schools with politically connected principals.
315/2017 David Hugh-Jones and Carlo PerroniThe logic of costly punishment reversed: Expropriation of free-riders and outsiders315/2017 David Hugh-Jones and Carlo Perroni
Current literature views the punishment of free-riders as an under-supplied public good, carried out by individuals at a cost to themselves. It need not be so: often, free-riders’ property can be forcibly appropriated by a coordinated group. This power makes punishment profitable, but it can also be abused. It is easier to contain abuses, and focus group punishment on free-riders, in societies where coordinated expropriation is harder. Our theory explains why public goods are undersupplied in heterogenous communities: because groups target minorities instead of free-riders. In our laboratory experiment, outcomes were more efficient when coordination was more difficult, while outgroup members were targeted more than ingroup members, and reacted differently to punishment.
314/2017 Martin R. West, Ludger Woessmann, Philipp Lergetporer and Katharina WernerHow Information Affects Support for Education Spending: Evidence from Survey Experiments in Germany and the United States314/2017 Martin R. West, Ludger Woessmann, Philipp Lergetporer and Katharina Werner
To study whether current spending levels and public knowledge of them contribute to transatlantic differences in policy preferences, we implement parallel survey experiments in Germany and the United States. In both countries, support for increased education spending and teacher salaries falls when respondents receive information about existing levels. Treatment effects vary by prior knowledge in a manner consistent with information effects rather than priming. Support for salary increases is inversely related to salary levels across American states, suggesting that salary differences could explain much of Germans’ lower support for increases. Information about the tradeoffs between specific spending categories shifts preferences from class-size reduction towards alternative purposes.
313/2017 Eric A. Hanushek, Guido Schwerdt, Simon Wiederhold and LudgerWoessmannCoping with Change: International Differences in the Returns to Skills313/2017 Eric A. Hanushek, Guido Schwerdt, Simon Wiederhold and LudgerWoessmann
International data from the PIAAC survey allow estimation of comparable labor-market returns to skills for 32 countries. Returns to skills are larger in faster growing economies, consistent with the hypothesis that skills are particularly important for adaptation to economic change.
This paper reviews two decades of research on the political economy of secrecy, based on the records of former Soviet state and party archives. Secrecy was an element of Soviet state capacity, particularly its capacity for decisiveness, free of the pressures and demands for accountability that might have arisen from a better informed citizenry. But secrecy was double-edged. Its uses also incurred substantial costs that weakened the capacity of the Soviet state to direct and decide. The paper details the costs of secrecy associated with “conspirative” government business processes, adverse selection of management personnel, everyday abuses of authority, and an uninformed leadership.
311/2016 Farzana Afridi, Amrita Dhillon and Eilon SolanExposing corruption: Can electoral competition discipline politicians?311/2016 Farzana Afridi, Amrita Dhillon and Eilon Solan
In developing countries with weak institutions, there is implicitly a large reliance on elections to instil norms of accountability and reduce corruption. In this paper we show that electoral discipline may be ineective in reducing corruption when political competition is too high or too low. We rst build a simple game theoretic model to capture the eect of electoral competition on corruption. We show that in equilibrium, corruption has a U-shaped relationship with electoral competition. If the election is safe for the incumbent (low competition) or if it is extremely fragile (high competition) then corruption is higher, and for intermediate levels of competition, corruption is lower. We also predict that when there are dierent types of corruption, then incumbents increase corruption in the components that voters care less about regardless of competition. We test the model's predictions using data gathered on audit ndings of leakages from a large public program in Indian villages belonging to the state of Andhra Pradesh during 2006-10 and on elections to the village council headship in 2006. Our results largely conrm the theoretical results that competition has a non-linear eect on corruption, and that the impact of electoral competition varies by whether theft is from the public or private component of the service delivery. Overall, our results suggest that over-reliance on elections to discipline politicians is misplaced.
Existing measures of historical real wages suffer from the fundamental problem that workers’ annual incomes are estimated on the basis of day wages without knowing the length of the working year. We circumvent this problem by presenting a novel wage series of male workers employed on annual contracts. We use evidence of labour market arbitrage to argue that existing real wage estimates are badly off target, because they overestimate the medieval working year but underestimate the industrial one. Our data suggests that modern economic growth began two centuries earlier than hitherto thought and was driven by an ‘Industrious Revolution’.
Following the growth accounting approach introduced by Oliner & Sichel (2000, 2002) to evaluate the impact of information and communications technologies on the U.S. economy in the 1990s, this paper analyses the impact of electricity on Spanish economic growth in the period 1958-1970. Spain was a follower country that exhibited the benefits of electricity nearly half a century after it had its biggest impact in the U.S. The results confirm that electricity played a significant role in Spain via the three channels identified in the literature for quantifying the contribution of a general purpose technology (GPT): capital deepening, the total factor productivity effect and the spillover effect. The overall impact is greater than that estimated for other follower countries in the 1920s. The main boost to growth came from improvements in productivity in developments in electric plants electricity and the production of electrical capital goods, not from electricity use. We also find a weaker positive effect of spillovers in electricity-using industries. The laggard effect of electrification in Spain, in spite of its early start, confirms that a GPT needs time to establish new institutional arrangements and complementary investments in order to display positive linkages deriving from the new technology.
308/2016 Amrita Dhillon, Andrew Pickering and Tomas SjöströmSovereign Debt: Election Concerns and the Democratic Disadvantage308/2016 Amrita Dhillon, Andrew Pickering and Tomas Sjöström
We examine default decisions under different political systems. If democratically elected politicians are unable to make credible commitments to repay externally held debt, default rates are inefficiently high because politicians internalize voter utility loss from repayment. A politician who is motivated by election concerns is more likely to default in order to avoid voter utility losses, and, since lenders recognize this, interest rates and risk premia rise. Therefore, democracy potentially confers a credit market disadvantage. Institutions that are shielded from political competition, such as independent central banks, may ameliorate the disadvantage by adopting a more farsighted perspective, taking into account how interest rates respond to default risk. Using a numerical measure of institutional farsightedness obtained from the Government Insight Business Risk and Conditions database, we find that the observed relationship between credit-ratings and democratic status is indeed strongly conditional on farsightedness. With myopic institutions, democracy is estimated to cost on average about 2.5 investment grades. With farsighted institutions there is, if anything, a democratic advantage.
307/2016 David S. Jacks and Dennis NovyMarket Potential and Global Growth over the Long Twentieth Century307/2016 David S. Jacks and Dennis Novy
We examine the evolution of market potential over the long twentieth century from 1900 to 2010. Theoretically, we exploit a structural gravity model to derive a closed-form solution for a widely-used measure of market potential. We are, thus, able to express market potential as a function of directly observable and easily estimable variables. This allows us to consistently compare our measure of market potential both in the cross-section and over time. Empirically, we collect a large data set on aggregate and bilateral trade flows as well as output for 51 countries. We find that market potential exhibits an upward trend across all regions of the world, in particular after World War II. The rise in market potential is also associated with a significant share of global income growth over that period
The 2004 accession of 8 Eastern European countries (plus Cyprus and Malta) to the European Union (EU) was overshadowed by feared mass migration of workers from the East due to the EU’s rules on free mobility of labour. While many incumbent EU countries imposed temporary restrictions on labour mobility, the United Kingdom did not impose any such restrictions. We document that following accession at least 1 million people (ca. 3% of the UK working age population) migrated from Eastern Europe to the UK. Places that received large numbers of migrants from Eastern Europe saw a significant increase in anti-European sentiment after 2004, measured by vote shares for the UK Independence Party (UKIP) in elections to the European Parliament. We show that the migration wave depressed wages at the lower end of the wage distribution and contributed to increased pressure on public services and housing.
305/2016 Sascha O. Becker, Thiemo Fetzer and Dennis NovyWho Voted for Brexit? A Comprehensive District-Level Analysis305/2016 Sascha O. Becker, Thiemo Fetzer and Dennis Novy
On 23 June 2016, the British electorate voted to leave the European Union. We analyze vote and turnout shares across 380 local authority areas in the United Kingdom. We find that fundamental characteristics of the voting population were key drivers of the Vote Leave share, in particular their age and education profiles as well as the historical importance of manufacturing employment, low income and high unemployment. Migration was relevant only from Eastern European countries, not from older EU states or non-EU countries. We also find an important role for fiscal cuts being associated with Vote Leave. Our results indicate that modest reductions in fiscal cuts could have swayed the referendum outcome. In contrast, even drastic changes in immigration patterns would probably not have made a difference. We confirm the above findings at the much finer level of wards within cities. Our results cast doubt on the notion that short-term campaigning events had a meaningful influence on the vote.
304/2016 Michael Becher, Daniel Stegmueller and Konstantin KäppnerLocal Union Organization and Lawmaking in the U.S. Congress304/2016 Michael Becher, Daniel Stegmueller and Konstantin Käppner
While the political power of labor unions is a contentious issue in the social sciences, it is often conceived mainly as a question of aggregate union membership. Going beyond the common focus on numerical strength, we argue that unions’ influence on national lawmaking has significant roots in their local organization. We delineate and test the hypothesis that the horizontal concentration of union members within electoral districts shapes legislators’ voting behavior. Drawing on extensive administrative records, we map the membership size and concentration of union locales to districts of the U.S. House of Representatives, 2003-2012. Our new data reveal that concentration clearly cuts across membership size. Consistent with theoretical expectations, both concentration and membership are robustly linked to legislators’ ideology and votes on key issues. Lower membership concentration means more legislative support of union positions. Altogether, we suggest a new perspective on the political power of unions in the twenty- first century.
303/2016 Julia Cagé and Lucie GadenneTax Revenues, Development, and the Fiscal Cost of Trade Liberalization, 1792-2006303/2016 Julia Cagé and Lucie Gadenne
This paper documents the fiscal cost of trade liberalization: the extent to which countries are able to recover the trade tax revenues lost from liberalizing trade by increasing tax revenues from other sources. Using a novel dataset on government revenues over the period 1792-2006 we compare the fiscal impact of trade liberalization in developing countries and in today’s rich countries at earlier stages of development. We find that trade liberalization episodes led to larger and longer-lived decreases in total tax revenues in developing countries since the 1970s than in rich countries in the 19th and early 20th centuries. Half the developing countries in our sample experience a fall in total tax revenues that lasts more than ten years after an episode. Results are similar when we consider government expenditures, suggesting decreases in trade tax revenues negatively affect governments’ capacity to provide public services in many developing countries.
302/2016 Sayantan Ghosal, Smarajit Jana, Anandi Mani, Sandip Mitra and Sanchari RoySex Workers, Self-Image and Stigma: Evidence from Kolkata Brothels302/2016 Sayantan Ghosal, Smarajit Jana, Anandi Mani, Sandip Mitra and Sanchari Roy
This paper empirically examines the role of self-image in determining the behaviour and choices of socially excluded individuals. Using a randomized field experiment with sex workers in Kolkata, India, we study the impact of a psychological training program designed to improve self-image impaired by social exclusion and stigma. We find positive and significant impacts on self-reported measures of self-image, as well as on future-oriented behaviour measured by savings and health choices during and after the program. We also find persistence in related savings outcomes fifteen months after the program. Our experimental design and findings enable us to rule out several alternative explanations. We argue that our findings highlight the need to address psychological constraints in alleviating the effects of poverty and social exclusion.
Recently, a novel attempt has been made to estimate priorities for the different aspects of subjective well-being, in order to understand where resources might best be allocated. However, the determinants of, and life cycle trends for prioritisation have yet to be studied. This paper - the first to study these issues - finds no consistent evidence of variation in priorities over the life cycle, unlike the ‘mid-life crisis’ observed for levels. Life satisfaction is the most valued aspect of well-being throughout life. However, people overestimate the value placed by others on happiness. Well-being priorities are strongly influenced by well-being levels, and individual fixed effects such as personality, health level, and smoking frequency. The separation of aspects into cognitive and affective factors may provide additional insight into how individuals generate priorities, and hence inform the optimal targeting of policy.
300/2016 Ludger WoessmannThe Importance of School Systems: Evidence from International Differences in Student Achievement300/2016 Ludger Woessmann
Students in some countries do far better on international achievement tests than students in other countries. Is this all due to differences in what students bring with them to school – socioeconomic background, cultural factors, and the like? Or do school systems make a difference? This essay argues that differences in features of countries’ school systems, and in particular their institutional structures, account for a substantial part of the cross-country variation in student achievement. It first documents the size and cross-test consistency of international differences in student achievement. Next, it uses the framework of an education production function to provide descriptive analysis of the extent to which different factors of the school system, as well as factors beyond the school system, account for cross-country achievement differences. Finally, it covers research that goes beyond descriptive associations by addressing leading concerns of bias in cross-country analysis. The available evidence suggests that differences in expenditures and class size play a limited role in explaining cross-country achievement differences, but that differences in teacher quality and instruction time do matter. This suggests that what matters is not so much the amount of inputs that school systems are endowed with, but rather how they use them. Correspondingly, international differences in institutional structures of school systems such as external exams, school autonomy, private competition, and tracking have been found to be important sources of international differences in student achievement.
299/2016 Eric A. Hanushek, Jens Ruhose, and Ludger WoessmannKnowledge Capital and Aggregate Income Differences: Development Accounting for U.S. States299/2016 Eric A. Hanushek, Jens Ruhose, and Ludger Woessmann
Although many U.S. state policies presume that human capital is important for state economic development, there is little research linking better education to state incomes. We develop detailed measures of skills of workers in each state based on school attainment from census micro data and on cognitive skills from state- and country-of-origin achievement tests. These new measures of knowledge capital permit development accounting analyses calibrated with standard production parameters. We find that differences in knowledge capital account for 20-35 percent of the current variation in per-capita GDP among states, with roughly even contributions by school attainment and cognitive skills. Similar results emerge from growth accounting analyses, emphasizing the importance of appropriately measuring worker skills. These estimates support emphasis on school improvement as a strategy for state economic development.
This paper tests whether uncertainty about future rainfall affects farmers’ decision-making through cognitive load. Behavioral theories predict that rainfall risk could impose a psychological tax on farmers, leading to material consequences at all times and across all states of nature, even within decisions unrelated to consumption smoothing, and even when negative rainfall shocks do not materialize down the line. Using a novel technology to run lab experiments in the field, we combine survey experiments with recent rainfall shocks to test the effects of rainfall risk on farmers’ cognition, and find that it decreases farmers’ attention, memory and impulse control, and increases their susceptibility to a variety of behavioural biases. Effects are quantitatively important, equivalent to losing 25% of one’s harvest at the end of the rainy season. Evidence that farmer’s cognitive performance is relatively less impaired in tasks involving scarce resources suggests that the effects operate through the mental bandwidth mechanism.
297/2016 Nicholas Crafts and Terence C. MillsSix Centuries of British Economic Growth: a Time-Series Perspective297/2016 Nicholas Crafts and Terence C. Mills
This paper provides a time-series analysis of recent annual estimates of real GDP and industrial output covering 1270 to 1913. We show that growth can be regarded as a segmented trend stationary process. On this basis, we find that trend growth of real GDP per person was zero prior to the 1660s but then experienced two significant accelerations, pre- and post-industrial revolution. We also find that the hallmark of the industrial revolution is a substantial increase in the trend rate of growth of industrial output rather than being an episode of difference stationary growth.
This research explores a fundamental cause of variation in human capital formation across families in the pre-modern period, as well as the mitigating effects of family-level economic prosperity. Exploiting a vast genealogy of English individuals in the17th to the 19th centuries, the study proposes and tests the hypothesis that lower parental reproductive capacity positively affected the socioeconomic achievements of offspring. In particular, the research establishes an effect of reproductive capacity on offspring human capital in the pre-modern era. Using the time interval between the date of marriage and the first birth as a measure of reproductive capacity, the research establishes that children of parents with lower fecundity were more likely to become literate and employed in skilled and high-wealth professions. The analysis finds that parental fecundity significantly affected the number of siblings, indicating that a trade-o↵ between child quantity and quality was present in England during the industrial revolution and supporting leading theories of the origins of modern economic growth. Furthermore, it finds that the effect was weaker for the socioeconomic elite, who could offset the cost of additional children by raising total investment in offspring human capital.
295/2016 Amrita Dhillon, Pramila Krishnan, Manasa Patnam and Carlo PerroniElectoral Accountability And The Natural Resource Curse: Theory And Evidence From India295/2016 Amrita Dhillon, Pramila Krishnan, Manasa Patnam and Carlo Perroni
The literature on the effects of natural resource abundance on economic growth is converging to the view that institutions play a central role. In this paper, we exploit the break up of three of the biggest Indian states, comprising areas with some of the largest endowments of natural resources in the country, to explore how the link between electoral accountability and natural resource abundance can explain differences in outcomes. Our theoretical framework shows that while states inheriting a larger share of natural resources after break up are potentially richer, the spatial distribution of these natural resources within these state can worsen economic outcomes by lowering electoral accountability. We employ a sharp regression discontinuity design to estimate the causal effect of secession and concentrated resources on growth and inequality at the sub-regional level, using data on satellite measurements of night-time lights. Consistent with our theoretical predictions, the economic effect of secession is generally favourable. However, states that inherit a large fraction of mineral rich constituencies experience worse outcomes. This may be accounted for by lower electoral accountability in those areas.
294/2016 Alexandra M. de Pleijt, Alessandro Nuvolari and Jacob WeisdorfHuman Capital Formation during the First Industrial Revolution: Evidence from the Use of Steam Engines294/2016 Alexandra M. de Pleijt, Alessandro Nuvolari and Jacob Weisdorf
This paper explores the effect of technological change on human capital formation during the early phases of England’s Industrial Revolution. Following the methodology used in Franck and Galor (2016), we consider the adoption of steam engines as an indicator of technical change, examining the correlation between industrialisation and human capital by performing cross-sectional regression analyses using county-level variation in the number of steam engines installed in England by 1800. Using exogenous variation in carboniferous rock strata as an instrument for the regional distribution of steam engines, we find that technological change as captured by steam technology significantly improved the average working skills of the labour force. In particular, places with more steam engines had lower shares of unskilled workers and higher shares of highly-skilled mechanical workmen deemed important by Mokyr (2005) in the Industrial Revolution. Technological change was, however, not conducive to elementary education. Literacy rates and school enrollment rates were not systematically different in places with more steam engines. This diverse response to new technology highlights the ambiguous effects of early industrialisation on the formation of human capital.
The central vs. local nature of high-school exit exam systems can have important repercussions on the labor market. By increasing the informational content of grades, central exams may improve the sorting of students by productivity. To test this, we exploit the unique German setting where students from states with and without central exams work on the same labor market. Our difference-in-difference model estimates whether the earnings difference between individuals with high and low grades differs between central and local exams. We find that the earnings premium for a one standard-deviation increase in high-school grades is indeed 6 percent when obtained on central exams but less than 2 percent when obtained on local exams. Choices of higher-education programs and of occupations do not appear major channels of this result.
292/2016 Philipp Lergetporer, Guido Schwerdt, Katharina Werner, and Ludger WoessmannInformation and Preferences for Public Spending: Evidence from Representative Survey Experiments292/2016 Philipp Lergetporer, Guido Schwerdt, Katharina Werner, and Ludger Woessmann
The electorates’ lack of information about the extent of public spending may cause misalignments between voters’ preferences and the size of government. We devise a series of representative survey experiments in Germany that randomly provide treatment groups with information on current spending levels. Results show that such information strongly reduces support for public spending in various domains from social security to defense. Data on prior information status on school spending and teacher salaries shows that treatment effects are strongest for those who initially underestimated spending levels, indicating genuine information effects rather than pure priming effects. Information on spending requirements also reduces support for specific education reforms. Preferences on spending across education levels are also malleable to information.
291/2016 Xavier D’Haultfoeuille and Roland RathelotMeasuring Segregation on Small Units: A Partial Identification Analysis291/2016 Xavier D’Haultfoeuille and Roland Rathelot
We consider the issue of measuring segregation in a population of small units, considering establishments in our application. Each establishment may have a different probability to hire an individual from the minority group. We define segregation indices as inequality indices on these unobserved, random probabilities. Because these probabilities are measured with error by proportions, standard estimators are inconsistent. We model this problem as a nonparametric binomial mixture. Under this testable assumption and conditions satisfied by standard segregation indices, such indices are partially identified and sharp bounds can be easily obtained by an optimization over a low dimensional space. We also develop bootstrap confidence intervals and a test of the binomial mixture model. Finally, we apply our method to measure the segregation of foreigners in small French firms.
290/2016 Romain Aeberhard, Élise Coudin and Roland RathelotThe heterogeneity of ethnic employment gaps290/2016 Romain Aeberhard, Élise Coudin and Roland Rathelot
This paper investigates the heterogeneity of ethnic employment gaps using a new single-index based approach. Instead of stratifying our sample by age or education, we study ethnic employment gaps along a continuous measure of employability, the employment probability minority workers would have if their characteristics were priced as in the majority group.We apply this method to French males, comparing those whose parents are North African immigrants and those with native parents. We nd that both the raw and the unexplained ethnic employment differentials are larger for low-employability workers than for high-employability ones. We show in a theoretical framework that this heterogeneity can be accounted for by homogeneous underlying mechanisms and is not evidence for, say, heterogeneous discrimination. Finally, we discuss our main empirical findings in the light of simple taste-based vs. statistical discrimination models.
289/2016 Lucie GadenneTax Me, But Spend Wisely? Sources of Public Finance and Government Accountability289/2016 Lucie Gadenne
Existing evidence suggests that extra grant revenues lead to little improvements in public services in developing countries - but would governments spend tax revenues differently? This paper considers a program that invests in the tax capacity of Brazilian municipalities. Using variations in the timing of program uptake I find that it raises local tax revenues and that the increase in taxes is used to improve both the quantity and quality of municipal education infrastructure. In contrast increases in grants over which municipalities have the same discretion as over taxes have no impact on any measure of local public infrastructure. These results suggest that the way governments are financed matters: governments spend increases in tax revenues more towards expenditures that benefit citizens than increases in grant revenues.
288/2016 Sascha O. Becker and Luigi PascaliReligion, Division of Labor and Conflict: Anti-Semitism in German Regions over 600 Years288/2016 Sascha O. Becker and Luigi Pascali
Anti-Semitism continues to be a widespread societal problem rooted deeply in history. Using novel city-level data from Germany for more than 2,000 cities and county-level data, we study the role of economic incentives in shaping the co-existence of Jews, Catholics and Protestants. The Catholic ban on usury gave Jews living in Catholic regions a specific advantage in the moneylending sector. Following the Protestant Reformation (1517), the Jews lost this advantage in regions that became Protestant but not in those regions that remained Catholic. We show that 1) the Protestant Reformation induced a change in the geography of anti-Semitism with persecutions of Jews and anti-Jewish publications becoming more common in Protestant areas relative to Catholic areas; 2) this change was more pronounced in cities where Jews had already established themselves as moneylenders; 3) the Reformation reduced the specialization of Jews in the financial sector in Protestant regions but not in Catholic regions. We interpret these findings as evidence that, following the Protestant Reformation, the Jews living in Protestant regions lost their comparative advantage in lending. This change exposed them to competition with the Christian majority leading, eventually, to an increase in anti-Semitism.
287/2016 Graciela Chichilnisky and Peter J. HammondThe Kyoto Protocol and Beyond: Pareto Improvements to Policies that Mitigate Climate Change287/2016 Graciela Chichilnisky and Peter J. Hammond
Classical gains from trade results involve comparing a Pareto efficient allocation with a status quo that is typically inefficient. When there is a public good like mitigating climate change, such results apply only if that good happens to be supplied efficiently. Here, however, we consider emissions trade as envisaged in Article 17 of the Kyoto Protocol. Such trade could attain a constrained Pareto efficient allocation in which aggregate emissions are held fixed. Relative to any status quo, we show that with a suitable international distribution of permit rights, international emissions trade allows each nation more consumption while keeping aggregate emissions constant. The Clean Development Mechanism (CDM) envisaged in Article 12 allows additional gains, as do the provisions of the 2015 Paris Agreement that grant credit for carbon removals. Contrary to some claims, the Kyoto Protocol is not “defunct”; instead, retaining its key provisions of emissions trade and the CDM while including credit for carbon removals could make emissions reductions much more affordable.
How does offshoring affect individual party preferences in multi-party systems? We argue that exposure to offshoring influences individual preferences for those political parties with clear policy positions on issues relevant for individuals with offshorable jobs (left, liberal and center-right parties), but does not affect voting decisions for parties concentrating on other issues (green parties or populist right parties). Examining individual-level data from five waves of the European Social Survey for 18 advanced democracies, we find that these effects vary by skill and exposure. Offshoring increases the preference for parties advocating economic openness among the highly skilled. In contrast, among the low-skilled, those exposed to offshoring are more likely to prefer leftist political parties that champion social protection and redistribution.
285/2016 Thiemo Fetzer and Samuel MardenTake what you can: property rights, contestability and conflict285/2016 Thiemo Fetzer and Samuel Marden
Weak property rights are strongly associated with underdevelopment, low state capacity and civil conflict. In economic models of conflict, outbreaks of violence require two things: the prize must be both valuable and contestable. This paper exploits spatial and temporal variation in contestability of land title to explore the relation between (in)secure property rights and conflict in the Brazilian Amazon. Our estimates suggest that, at the local level, assignment of secure property rights eliminates substantively all land related conflict, even without changes in enforcement. Changes in land use are also consistent with reductions in land related conflict.
284/2016 Thiemo Fetzer, Oliver Pardo and Amar ShanghaviMore than an Urban Legend: The long-termsocioeconomic effects of unplanned fertility shocks284/2016 Thiemo Fetzer, Oliver Pardo and Amar Shanghavi
This paper exploits a nearly year-long period of power rationing that took place in Colombia in 1992, to shed light on three interrelated questions. First, we show that power shortages can lead to higher fertility, causing mini baby booms. Second, we show that the increase in fertility had not been offset by having fewer children over the following 12 years. Third, we show that the fertility shock caused mothers worse socioeconomic outcomes 12 years later. Taken together, the results suggest that there are significant indirect social costs to poor public infrastructure.
In a command economy, centralized political priorities take precedence over market equilibrium, and government purchases cannot be refused. This chapter describes the antecedents, origins, evolution, and outcomes of the Soviet command economy from the Bolshevik Revolution to World War II. The Soviet command economy was built in two phases, 1917 to 1920, and 1928 onward, with a ‘breathing space’ between. The present account gives prominence to features of a command economy that, while missing from the first phase, were developed during the breathing space, and then helped to ensure the relative success of the second phase. These were features that assured secrecy, security, and the selection of economic officials for competence and party loyalty. Like any economy in the international system, the command economy had a comparative advantage: the production of economic and military power.
Douglass North is famous for, among other things, making institutions the centerpiece of studies of political economy. Institutions are, for him, the humanly constructed rules of the game, a game form in the language of game theory. An alternative conceptualization, associated with Schotter (1981) and Calvert (1995), and responsive to concerns articulated by Riker (1980), conceives of North’s game form as part of a more allencompassing equilibrium of rational human behavior. Whereas North takes the rules of the game as exogenous and seeks to identify the equilibria that arise when agents, abiding by the rules, bring particular preferences to a situation, what Shepsle (1979) called a structure-induced equilibrium, Schotter and Calvert allow for the possibility of noncompliance with extant rules and, indeed, for moves that alter the game form altogether. In the present paper, these two approaches are developed more fully. Examples drawn from the US Congress are used to exhibit the ways in which rules arise, change endogenously, and are sometimes even violated. Rational, self-governing agents are not, as in North’s formulation, absolutely bound by exogenous constraints, and are often able to reformulate the ways they do their business.
We study repeated legislative bargaining in an assembly that chooses its bargaining rules endogenously and whose members face an election after each legislative term. An agenda protocol or bargaining rule assigns to each legislator a probability of being recognized to make a policy proposal in the assembly. We predict that the agenda protocol chosen in equilibrium disproportionately favors more senior legislators, granting them greater opportunities to make policy proposals, and it generates an incumbency advantage to all legislators.
This paper reviews the literature on the implications of EU membership for the UK. It concludes that membership has raised UK income levels appreciably and by much more than 1970s’ proponents of EU entry predicted. These positive effects stem from the EU’s success in increasing trade and the impact of stronger competition on UK productivity. The economic benefits of EU membership for the UK have far exceeded the costs of budgetary transfers and regulation. Brexit is risky and its impact would depend heavily on the terms negotiated and the use made of the policy space that it freed up.
279/2016 Michael Callen, Suresh de Mel, Craig McIntosh and Christopher WoodruffWhat Are the Headwaters of Formal Savings? Experimental Evidence from Sri Lanka279/2016 Michael Callen, Suresh de Mel, Craig McIntosh and Christopher Woodruff
When households increase their deposits in formal bank savings accounts, what is the source of the money? We combine high-frequency surveys with an experiment in which a Sri Lankan bank used mobile Point-of-Service (POS) terminals to collect deposits directly from households each week. We find that the headwaters of formal savings are in sacrificed leisure time: households work more, with evidence that improved savings options generate an increase in labor effort in both selfemployment and the wage market. The results are consistent with a standard neo-classical model of the effect of real interest rate changes on intertemporal labor allocation, and suggest that the labor allocation channel is an important mechanism linking savings opportunities to income.
Contrary to the expectations from currency unions theory and historical precedent, the EURO area has failed to integrate fiscally in response to the crisis. At the same time, however, significant horizontal transfers towards financial stabilization have taken place. What explains this co-existence of persistent reluctance by domestic leaders in core EU countries to pursue fiscal integration and large scale financial transfers between nations within the union? We analyze responses to the crisis as a result of the geography of income and production. Heterogeneity of constituencies’ redistribution preferences associated with a diverse economic geography accounts for the political constraints on national governments keeping them from furthering fiscal integration. In turn, cross-unit externalities in the form of potential financial risks shift the preferences of citizens potentially exposed to negative side-effects and open up the possibility of efforts towards international insurance/redistribution. The paper presents first an analytical framework to study these two mechanisms. Subsequently, we perform empirical analyses of the determinants of preferences for social insurance/redistribution, fiscal integration, and international redistribution in the aftermath of the Eurocrisis.
277/2016 Francesc Amat and Pablo BeramendiEconomic and Political Inequality: The Role of Political Mobilization277/2016 Francesc Amat and Pablo Beramendi
This paper analyzes the relationship between economic and political inequality. Beyond the view that inequality reduces turnout we document a non-linear relationship between them. To explain these patterns we argue that parties' strategies to target and mobilize low income voters reflect the level of economic inequality and development. Under high inequality and low development, clientelism becomes the dominant form of political competition and turnout inequality declines. As societies grow and inequality recedes, clientelism becomes suboptimal and arties turn to mobilize voters around programmatic oerings. As a result, turnout inequality increases. Empirically, we produce two analyses. First, we identify the relationship between political mobilization strategies, inequality and turnout by exploiting the randomized allocation of anti-fraud measures across Brazilian municipalities in the early 2000s. Second, we address the generalizability of our findings by carrying out a cross-national multilevel analysis of the elationship between inequality, strategies for political mobilization, and turnout inequality.
276/2016 Tamás Vonyó and Alexander KleinWhy Did Socialism Fail? The Role of Factor Inputs Reconsidered276/2016 Tamás Vonyó and Alexander Klein
We present revised growth accounts for three socialist economies between 1950 and 1989. Government statistics reported distorted measures for both the rate and trajectory of productivity growth in Czechoslovakia, Hungary, and Poland. Researchers have benefited from revised output data, but continued to use official statistics on capital input, or estimated capital stock from official investment data. Investment levels and rates of capital accumulations were, in fact, much lower than officially claimed and over-reporting worsened over time. Sluggish factor accumulation, specifically declining equipment investment and labor input, contributed much more to the socialist growth failure of the 1980s than previously thought.
275/2016 Sebastian Fleitas, Price Fishback, and Kenneth SnowdenEconomic Crisis and the Demise of a Popular Contractual Form: Building and Loan Mortgage Contracts in the 1930s275/2016 Sebastian Fleitas, Price Fishback, and Kenneth Snowden
During the housing crisis of the 1930s long delays in the resolution of severely distressed Building and Loan associations led to the rapid diminution of these previously successful and important home mortgage lenders. These delays were caused by a unique contractual structure that created incentives for borrowing members to prolong dissolution and granted them control, along with non-borrowers, over the timing of liquidation. Using a new dataset of New Jersey B&Ls we estimate a voting model of dissolution and find that the probability of B&L liquidation rose 37 percent when the share of non-borrowing members rose above the two-thirds threshold. An average one-year delay in liquidation resulted that imposed costs on non-borrowing members roughly three times the gains borrowing members realized by delaying dissolution. These delays and costs contributed to the quick demise of the B&L and the rapid ascendancy of the modern Savings & Loan industry.
274/2016 Price FishbackHow Successful Was the New Deal?The Microeconomic Impact of New Deal Spending and Lending Policies in the 1930s274/2016 Price Fishback
The New Deal during the 1930s was arguably the largest peace-time expansion in federal government activity in American history. Until recently there had been very little quantitative testing of the microeconomic impact of the wide variety of New Deal programs. Over the past decade scholars have developed new panel databases for counties, cities, and states and then used panel data methods on them to examine the examine the impact of New Deal spending and lending policies for the major New Deal programs. In most cases the identification of the effect comes from changes across time within the same geographic location after controlling for national shocks to the economy. Many of the studies also use instrumental variable methods to control for endogeneity. The studies find that public works and relief spending had state income multipliers of around one, increased consumption activity, attracted internal migration, reduced crime rates, and lowered several types of mortality. The farm programs typically aided large farm owners but eliminated opportunities for share croppers, tenants, and farm workers. The Home Owners’ Loan Corporation’s purchases and refinancing of troubled mortgages staved off drops in housing prices and home ownership rates at relatively low ex post cost to taxpayers. The Reconstruction Finance Corporation’s loans to banks and railroads appear to have had little positive impact,although the banks were aided when the RFC took ownership stakes.
273/2016 Eugenio Proto and Andrew J. OswaldNational Happiness and Genetic Distance: A Cautious Exploration273/2016 Eugenio Proto and Andrew J. Oswald
This paper studies a famous unsolved puzzle in quantitative social science. Why do some nations report such high levels of mental well-being? Denmark, for instance, regularly tops the league table of rich countries’ happiness; Britain and the US enter further down; some nations do unexpectedly poorly. The explanation for the longobserved ranking - one that holds after adjustment for GDP and other socioeconomic variables - is currently unknown. Using data on 131 countries, the paper cautiously explores a new approach. It documents three forms of evidence consistent with the hypothesis that some nations may have a genetic advantage in well-being.
272/2016 Jonathan de Quidt, Thiemo Fetzer and Maitreesh GhatakCommercialization and the Decline of Joint Liability Microcredit272/2016 Jonathan de Quidt, Thiemo Fetzer and Maitreesh Ghatak
Numerous authors point to a decline in joint liability microcredit, rise in individual liability lending. But empirical evidence is lacking, and there have been no rigorous analyses of possible causes. We first show using the well-known MIX Market dataset that there is evidence for a decline. Second, we show theoretically that commercialization-an increase in competition and a shift from non-profit to for-profit lending (both of which are present in the data)–drives lenders to reduce their use of joint liability loan contracts. Third, we test the model’s key predictions, and find support for them in the data.
271/2016 Sascha O. Becker, Peter H. Egger and Maximilian von EhrlichEffects of EU Regional Policy: 1989-2013271/2016 Sascha O. Becker, Peter H. Egger and Maximilian von Ehrlich
We analyze EU Regional Policy during four programming periods: 1989-1993, 1994-1999, 2000-2006, 2007-2013. When looking at all periods, we focus on the growth, employment and investment effects of Objective 1 treatment status. For the two later periods, we additionally look at the effects of the volume of EU transfers, overall and in sub-categories, on various outcomes. We also analyze whether the concentration of payments across spending categories affects the effectiveness if EU transfers. Finally, we pay attention to the role of EU funding for UK regions given the current debate in the UK.
270/2016 Carlos Álvarez-Nogal, Leandro Prados de la Escosura and Carlos Santiago-Caballero Spanish Agriculture in the Little Divergence270/2016 Carlos Álvarez-Nogal, Leandro Prados de la Escosura and Carlos Santiago-Caballero
This paper explores the role of agriculture in Spain’s contribution to the little divergence in Europe. On the basis of tithes, long-run trends in agricultural output are drawn. After a long period of relative stability, output suffered a severe contraction during 1570-1620, followed by stagnation to 1650, and steady expansion thereafter. Output per head shifted from a relatively high to a low path that persisted until the nineteenth century. The decline in agricultural output per head and per worker from a relatively high level contributed to Spain falling behind and, hence, to the Little Divergence in Europe. Output per worker moved along labour force in agriculture over the long run, supporting the depiction of Spain as a frontier economy. Institutional factors, in a context of financial and monetary instability and war, along climatic anomalies, provide explanatory hypotheses that deserve further research.
269/2016 Wiji Arulampalam, Anjor Bhaskar and Nisha SrivastavaDoes greater autonomy among women provide the key to better child nutrition?269/2016 Wiji Arulampalam, Anjor Bhaskar and Nisha Srivastava
We examine the link between a mother’s autonomy - the freedom and ability to think, express, act and make decisions independently - and the nutritional status of her children. We design a novel statistical framework that accounts for cultural and traditional environment, to create a measure of maternal autonomy, a concept that has rarely been examined previously as a factor in children’s nutritional outcomes. Using data from the Third Round of the National Family Health Survey for India, supplemented with our qualitative survey, and accounting for "son preference" by limiting analysis to first-born children under 18 months of age, we document that maternal autonomy has a positive impact on the long-term nutritional status of rural children. We find that one standard deviation increase in maternal autonomy score (i) is associated with a 10 percent reduction (representing 300,000 children) in the prevalence of stunting, and (ii) compensates for half of the estimated average decline in Height-for Age Z- scores Indian children experience in the second six months of life. The findings underscore the importance of women’s empowerment in improving children’s nutrition during the critical first two years of life, a recognized "window of opportunity" for lifelong health and economic benefits.
268/2016 Amrita Dhillon, Pramila Krishnan, Manasa Patnam and Carlo PerroniThe Natural Resource Curse Revisited: Theory and Evidence from India268/2016 Amrita Dhillon, Pramila Krishnan, Manasa Patnam and Carlo Perroni
In 2000, three of the largest Indian states, comprising areas with some of the largest endowments of natural resources in the country, were split to create three new states. We exploit the dramatic change that ensued, both in the distribution of resources and in the allocation of political power, to examine the interplay natural resources and politics. We construct a theoretical framework designed to account both direct and indirect effects of the change in natural resource concentration on economic outcomes – the direct effects arising from revenue generation, the indirect ones arising, through a political channel, from an exchange of votes for natural resource rents at the local level. We employ a sharp regression discontinuity design to estimate the causal effect of secession and concentrated resources on growth and inequality outcomes at the sub-regional level. Consistently with our theoretical predictions, we find that, while the economic effect of secession is generally favourable, constituencies rich in resources see a relative worsening of outcomes in both economic activity and inequality.
I construct a model of religion as an institution that provides community enforcement of contracts within families. Family altruism implies that family members cannot commit to reporting broken contracts to the community, so the community must monitor contract performance as well as in icting punishment. The community has less information than family members, and so community monitoring is ine cient. I provide evidence from a study of Amish institutions, including qualitative evidence from sociological accounts and quantitative evidence from a novel dataset covering nearly the entire Amish population of Holmes county, Ohio. I nd that 1) Amish households are not unitary, 2) the Amish community helps to support families by in icting punishments on wayward family members, 3) without the community Amish people have di culty committing to punishing family members, and 4) Amish community membership strengthens family ties, while otherwise similar religious communities in which there is less need for exchange between family members have rules that weaken family ties. My model has implications for understanding selection into religious practice and the persistence of culture.
Many societies are divided into multiple smaller groups. Certain kinds of interaction are more likely to take place within a group than across groups. I model a reputation effect that enforces these divisions. Agents who interact with members of different groups can support lower levels of cooperation with members of their own groups. A hierarchical relationship between groups appears endogenously in equilibrium. Group divisions appear without any external cause, and improvements in formal contracting institutions may cause group divisions to disappear. Qualitative evidence from the anthropological literature is consistent with several predictions of the model.
265/2016 David McKenzie and Christopher WoodruffBusiness Practices in Small Firms in Developing Countries265/2016 David McKenzie and Christopher Woodruff
Management has a large effect on the productivity of large firms. But does management matter in micro and small firms, where the majority of the labor force in developing countries works? We develop 26 questions that measure business practices in marketing, stock-keeping, record-keeping, and financial planning. These questions have been administered in surveys in Bangladesh, Chile, Ghana, Kenya, Mexico, Nigeria and Sri Lanka. We show that variation in business practices explains as much of the variation in outcomes – sales, profits and labor productivity and TFP – in microenterprises as in larger enterprises. Panel data from three countries indicate that better business practices predict higher survival rates and faster sales growth. The association of business practices with firm outcomes is robust to including numerous measures of the owner’s human capital. We find that owners with higher human capital, children of entrepreneurs, and firms with employees employ better business practices.
264/2016 Christian Groth and Karl Gunnar PerssonGrowth or stagnation in pre-industrial Britain? A revealed income growth approach264/2016 Christian Groth and Karl Gunnar Persson
The extent of growth in pre-industrial Europe in general and in Britain in particular has attracted intense scholarly focus. Growth or Malthusian stagnation? No consensus has evolved. Reconstructions of national income from 1300 and up to the Industrial Revolution come to opposing conclusions and so do econometric studies. Applying Engels’ law, we suggest a new approach in which income growth is revealed by changes in occupational structure. Data needed for this approach are less contested than the wage and output series used in the existing literature. We find that pre-industrial Britain exhibited secular rise in the standard of living.
263/2016 Mark HarrisonFact and Fantasy in Soviet Records: The Documentation of Soviet Party and Secret Police Investigations as Historical Evidence263/2016 Mark Harrison
When we use Soviet documentation of political and secret police investigations to write history, to what extent are we vulnerable to the biases and inventions of the investigators? The problem is framed as one of principal and agent. It is argued that Soviet principals allowed their agents scope to manipulate facts and bias interpretations, not freely, but within strict limits that were laid down from above and varied from time to time. These limits were set by the leader’s “revolutionary insight,” the communist equivalent of what passes in more open societies today as “truthiness.” An understanding of the Soviet truthiness of the particular time is the best guide we have to interpreting the documentary records of that time. Evaluating them in this light, we see that Soviet historical documents are little different from the records of any other time and place.
We discuss business cycles in ancient China. Data on Ancient China business cycles are sparse and incomplete and so our discussion is qualitative rather than quantitative. Essentially, ancient debates focused on two types of cycles: long run political or dynastic cycles of many decades, and short run nature induced cycles. Discussion of the latter show strong parallels to Jevons’ conception of sun spot cycles. The former has no clear contemporary analogue, were often deepin impact and of long duration. The discussion of both focused on agricultural economies. Ancient discussion on intervention focused on counter cyclical measures, including stockpiling, and predated Keynes and the discussion in the 1930s by centuries. Also, a strongly held belief emerged that cycles create their own cycles to follow, and that cycles are part of the inevitable economic order, a view consistent with Mitchell’s view of the business cycle in the 1940s. Current debates on how best to respond to the ongoing global financial crisis draw in part on historical precedents, but these are largely limited to the last 150 years for OECD countries and with major focus on the 1990’s. Here we also probe material on Ancient China to see what is relevant.
261/2016 Keting Shen, Jing Wang and John WhalleyMeasuring Changes in the Bilateral Technology Gaps between China, India and the U.S. 1979 - 2008261/2016 Keting Shen, Jing Wang and John Whalley
Popular literature suggests a rapid narrowing of the technology gap between China and the U.S. based on large percentage increases in Chinese patent applications, and equally large increases in college registrants and completed PhDs (especially in sciences) in China in recent years. Little literature attempts to measure the technology gap directly using estimates of country aggregate technologies. This gap is usually thought to be smaller than differences in GDP per capita since the later reflect both differing factor endowments and technology parameters. This paper assesses changes in China’s technology gaps both with the U.S. and India between 1979 and 2008, comparing the technology level of these economies using a CES production framework in which the technology gap is reflected in the change of technology parameters. Our measure is related to but differs from the Malmquist index. We determine the parameter values for country technology by using calibration procedures. Our calculations suggest that the technology gap between China and the U.S. is significantly larger than that between India and the U.S. for the period before 2008. The pairwise gaps between the U.S. and China, and the U.S. and India remain large while narrowing at a slower rate than GDP per worker. Although China has a higher growth rate of total factor productivity than India over the period, the bilateral technology gap between China and India is still in India’s favor. India had higher income per worker than China in the 1970’s, and China’s much more rapid physical and human capital accumulation has allowed China to move ahead, but a bilateral technology gap remains.
260/2016 Sascha O. Becker, Steven Pfaff and Jared RubinCauses and Consequences of the Protestant Reformation260/2016 Sascha O. Becker, Steven Pfaff and Jared Rubin
The Protestant Reformation is one of the defining events of the last millennium. Nearly 500 years after the Reformation, its causes and consequences have seen a renewed interest in the social sciences. Research in economics, sociology, and political science increasingly uses detailed individual-level, city-level, and regional-level data to identify drivers of the adoption of the Reformation, its diffusion pattern, and its socioeconomic consequences. This survey takes stock of the research so far, tries to point out what we know and what we do not know, and which are the most promising areas for future research.
259/2016 Rabah Arezki, Thiemo Fetzer and Frank PischOn the Comparative Advantage of U.S. Manufacturing: Evidence from the Shale Gas Revolution259/2016 Rabah Arezki, Thiemo Fetzer and Frank Pisch
This paper provides the first empirical evidence of the newly found comparative advantage of the United States manufacturing sector following the so-called shale gas revolution. The revolution has led to (very) large and persistent differences in the price of natural gas between the United States and the rest of the world owing to the physics of natural gas. Results show that U.S. manufacturing exports have grown by about 6 percent on account of their energy intensity since the onset of the shale revolution. We also document that the U.S. shale revolution is operating both at the intensive and extensive margins.
258/2015 Stephen Hansen and Michael McMahonShocking language: Understanding the macroeconomic effects of central bank communication258/2015 Stephen Hansen and Michael McMahon
We explore how the multi-dimensional aspects of information released by the FOMC has effects on both market and real economic variables. Using tools from computational linguistics, we measure the information released by the FOMC on the state of economic conditions, as well as the guidance the FOMC provides about future monetary policy decisions. Employing these measures within a FAVAR framework, we find that shocks to forward guidance are more important than the FOMC communication of current economic conditions in terms of their effects on market and real variables. Nonetheless, neither communication has particularly strong effects on real economic variables.
257/2015 Gerben Bakker, Nicholas Crafts and Pieter WoltjerA Vision of the Growth Process in a Technologically Progressive Economy: the United States, 1899-1941.257/2015 Gerben Bakker, Nicholas Crafts and Pieter Woltjer
We develop new aggregate and sectoral Total Factor Productivity (TFP) estimates for the United States between 1899 and 1941 through better coverage of sectors and better measured labor quality, and show TFP-growth was lower than previously thought, broadly based across sectors, strongly variant intertemporally, and consistent with many diverse sources of innovation. We then test and reject three prominent claims. First, the 1930s did not have the highest TFP-growth of the twentieth century. Second, TFP-growth was not predominantly caused by four leading sectors. Third, TFP-growth was not caused by a ‘yeast process’ originating in a dominant technology such as electricity.
256/2015 Rocco Macchiavello, Andreas Menzel, Atonu Rabbani and Christopher WoodruffChallenges of Change: An Experiment Training Women to Manage in the Bangladeshi Garment Sector256/2015 Rocco Macchiavello, Andreas Menzel, Atonu Rabbani and Christopher Woodruff
Large private firms are still relatively rare in low-income countries, and we know little about how entry-level managers in these firms are selected. We examine a context in which nearly 80 percent of production line workers are female, but 95 percent of supervisors are male. We evaluate the effectiveness of female supervisors by implementing a training program for selected production line workers. Prior to the training, we find that workers at all level of the factory believe males are more effective supervisors than females. Careful skills diagnostics indicate that those perceptions do not always match reality. When the trainees are deployed in supervisory roles, production line workers initially judge females to be significantly less effective, and there is some evidence that the lines on which they work underperform. But after around four months of exposure, both perceptions and performance of female supervisors catch up to those of males. We document evidence that the exposure to female supervisors changes the expectations of male production workers with regard to promotion and expected tenure in the factory.
255/2015 Eugenio Proto, Aldo Rustichini and Andis SofianosHigher Intelligence Groups Have Higher Cooperation Rates in the Repeated Prisoner's Dilemma255/2015 Eugenio Proto, Aldo Rustichini and Andis Sofianos
Intelligence affects the social outcomes of groups. A systematic study of the link is provided in an experiment where two groups of subjects with different levels of intelligence, but otherwise similar, play a repeated prisoner's dilemma. Initial cooperation rates are similar, but increase in the groups with higher intelligence to reach almost full cooperation, while they decline in the groups with lower intelligence. Cooperation of higher intelligence subjects is payo sensitive and not automatic: in a treatment with lower continuation probability there is no difference between different intelligence groups.
254/2015 Victor Lavy and Edith SandOn The Origins of Gender Human Capital Gaps: Short and Long Term Consequences of Teachers Stereotypical Biases254/2015 Victor Lavy and Edith Sand
In this paper, we estimate the effect of primary school teachers’ gender biases on boys’ and girls’ academic achievements during middle and high school and on the choice of advanced level courses in math and sciences during high school. For identification, we rely on the random assignments of teachers and students to classes in primary schools. Our results suggest that teachers’ biases favoring boys have an asymmetric effect by gender-positive effect on boys’ achievements and negative effect on girls’. Such gender biases also impact students’ enrollment in advanced level math courses in high school—boys positively and girls negatively. These results suggest that teachers’ biased behavior at early stage of schooling have long run implications for occupational choices and earnings at adulthood, because enrollment in advanced courses in math and science in high school is a prerequisite for post-secondary schooling in engineering, computer science and so on. This impact is heterogeneous, being larger for children from families where the father is more educated than the mother and larger on girls from low socioeconomic background.
253/2015 Sebastian G. Kessing, Vilen Lipatov and J. Malte ZoubekOptimal Taxation under Regional Inequality253/2015 Sebastian G. Kessing, Vilen Lipatov and J. Malte Zoubek
Combining an intensive labor supply margin with an extensive, productivity-enhancing migration margin, we determine how regional inequality and labor mobility shape optimal redistribution. We propose the use of delayed optimal-control techniques to obtain optimal tax formulae with location-dependent productivity and two-dimensional heterogeneity. Our baseline simulations using the productivity differences between large metropolitan and other regions in the US indicate that productivity-increasing internal migration can constitute a quantitatively important constraint on redis-tribution. Allowing for regionally differentiated taxation with location-dependent productivity, we find that marginal tax rates in high (low) productivity regions should be corrected downwards (upwards) relative to a no-migration benchmark.
252/2015 Gordon H. Hanson, Nelson Lind and Marc-Andreas MuendlerThe Dynamics of Comparative Advantage252/2015 Gordon H. Hanson, Nelson Lind and Marc-Andreas Muendler
This paper characterizes the dynamic empirical properties of country export capabilities in order to inform modelling of the long-run behavior of comparative advantage. The starting point for our analysis is two strong empirical regularities in international trade that have previously been studied incompletely and in isolation to one another. The literature has noted a tendency for countries to concentrate exports in a few sectors. We show that this concentration arises from a heavy-tailed distribution of industry export capabilities that is approximately log normal and whose shape is stable across countries, sectors, and time. Likewise, previous research has detected a tendency for mean reversion in national industry productivities. We establish that mean reversion in export capability, rather than indicative of convergence in productivities or degeneracy in comparative advantage, is instead consistent with a well behaved stochastic growth process that delivers a stationary distribution of country export advantage. In literature on the growth of cities and firms, economists have used stochastic processes to study the determinants of the long-run size distributions. Our contribution is to develop an analogous empirical framework for identifying the parameters that govern the stationarydistribution of export capability. The main result of this analysis is that a generalized gamma distribution, which nests many commonly studied distributions, provides a tight fit of the data but log normality offers a reasonable approximation. Importantly, the stochastic process that generates log normality can be estimated in its discretized form by simple linear regression. Log linearity allows for an extension of our approach to multivariate diffusions, in which one can permit innovations to productivity to be transmitted intersectorally and internationally, as in recent models of trade and growth.
251/2015 Mark HarrisonWorld War II: Won by American Planes and Ships, or by the Poor Bloody Russian Infantry?251/2015 Mark Harrison
This short paper reviews a new book about World War II. In most such books, what is new is not usually important, and what is important is not new. This one is an exception. How the War Was Won: Air-Sea Power and Allied Victory in World War II, by Phillips Payson O'Brien, sets out a new perspective on the war. An established view is that World War II was decided on the Eastern front, where multi-million armies struggled for supremacy on land and millions died. According to O’Brien, this neglects the fact that the preponderance of the Allied productive effort was devoted to building ships and planes for an air-sea battle that was fought to a limited extent in the East and with much higher intensity across the Western and Pacific theatres. The Allies’ air-sea power framed the outcomes of the great land campaigns by preventing Germany and Japan from fully realizing their economic potentials for war. Finding much to be said for this reinterpretation, I reconsider the true significance of the Eastern front.
Ebola and plague share several characteristics, even though the second and third plague epidemics dwarfed the 2014-15 Ebola outbreak in terms of mortality. This essay reviews the mortality due to the two diseases and their lethality; the spatial and socioeconomic dimensions of plague mortality; the role of public action in containing the two diseases; and their economic impact.
We explore whether the global financial crisis has had heterogeneous effects on traded goods differentiated by quality. Combining a dataset of Argentinean firm-level destination-specific wine exports with quality ratings, we show that higher quality exports grew faster before the crisis, but this trend reversed during the recession. Quantitatively, the effect is large: up to nine percentage points difference in trade performance can be explained by the quality composition of exports. This flight from quality was triggered by a fall in aggregate demand, was more acute when households could substitute imports by domestic alternatives, and was stronger for smaller firms’ exports.
We analyze factors explaining the very di.erent patterns of industrialization across the 42 counties of England between 1760 and 1830. Against the widespread view that high wages and cheap coal drove industrialization, we find that industrialization was restricted to low wage areas, while energy availability (coal or water) had little impact. Instead we find that industrialization can largely be explained by two related factors related to the human capability of the labour force. Instead of being composed of landless labourers, successful industrializers had large numbers of small farms, which are associated with better nutrition and height. Secondly, industrializing counties had a high density of population relative to agricultural land, indicating extensive rural industrial activity: counties that were already reliant on small scale industry, with the technical and entrepreneurial skills this generated, experienced the strongest industrial growth. Looking at 1830s France we find that the strongest predictor of industrialization again is quality of workers shown by height of the population, although market access and availability of water power were also important there.
247/2015 Mark HarrisonIf You Do Not Change Your Behaviour : Managing Threats to State Security in Lithuania under Soviet Rule247/2015 Mark Harrison
In Soviet Lithuania (and elsewhere) from the 1950s to the 1980s, the KGB applied a form of "zero-tolerance" policing, or profilaktika, to incipient threats to state security. Petty deviation from socio-political norms was regarded as a person's first step towards more serious state crimes, and as a bad example for others. As long as petty violators could be classed as confused or misled rather than motivated by anti-Soviet conviction, their mistakes would be corrected by a KGB warning or "preventive discussion." Successful prevention avoided the costly removal of the subject from society. This represented a complete contrast to the Stalin years, when prevention relied largely on eliminating the subject from society. Preventive discussions were widely practised in many different circumstances. KGB internal evaluations concluded that these discussions were extremely effective in preventing further violations. This was the front line of the Soviet police state; it was perhaps the largest programme for personally targeted behaviour modification anywhere in the world at that time outside the education sector. It was also a front line of the Cold War because the foreign adversary was seen as the most important source of misleading or confusing influence. My work in progress aims to understand the origins and operation of profilaktika, including how and to whom it was applied, how it worked on the individual subject, and its wider influence on the Soviet Union’s social and political order.
246/2015 Chunding Li, Jing Wang, and John WhalleyThe Armington Assumption and the Size of Optimal Tariffs246/2015 Chunding Li, Jing Wang, and John Whalley
There has been commentary on the seeming success of the world trading system responding to the large shock of the 2008 financial crisis without an outbreak of retaliatory market closing. The threat of large retaliatory tariffs and fears of a 1930s style downturn in trade have been associated with numerical trade modelling which project post retaliation optimal tariffs in excesses of 100%. In the relevant numerical modelling it is common to use the Armington assumption of product heterogeneity by country. Here we argue and show by numerical calculation that the widespread use of this assumption gives a large upward bias to optimal tariffs, both first step and post retaliation, relative to alternative homogenous good models used in trade theory.
245/2015 Miguel Almunia and David Lopez-RodriguezUnder the Radar: The Effects of Monitoring Firms on Tax Compliance245/2015 Miguel Almunia and David Lopez-Rodriguez
This paper analyzes the effects on tax compliance of monitoring the information trails generated by firms’ activities. We exploit quasi-experimental variation generated by a Large Taxpayers Unit (LTU) in Spain, which monitors firms with more than 6 million euros in reported revenue. Firms strategically bunch below this threshold in order to avoid stricter tax enforcement. This response is stronger in sectors where transactions leave more paper trail, implying that monitoring effort and the traceability of information reported by firms are complements. We calculate that there would be substantial welfare gains from extending stricter tax monitoring to smaller businesses.
244/2015 Nick Butt, Rohan Churm, Michael McMahon, Arpad Morotz and Jochen SchanzQE and the Bank Lending Channel244/2015 Nick Butt, Rohan Churm, Michael McMahon, Arpad Morotz and Jochen Schanz
We test whether quantitative easing (QE), in addition to boosting aggregate demand and inflation via portfolio rebalancing channels, operated through a bank lending channel (BLC) in the UK. Using Bank of England data together with an instrumental variables approach, we find no evidence of a traditional BLC associated with QE. We show, in a simple framework, that the traditional BLC is diminished if the bank receives ` flighty' deposits (deposits that are likely to quickly leave the bank). We show that QE gave rise to such flighty deposits which may explain why we find no evidence of a BLC.
243/2015 Farzana Afridi, Amrita Dhillon and Swati SharmaSocial Networks and Labour productivity: A survey of recent theory and evidence243/2015 Farzana Afridi, Amrita Dhillon and Swati Sharma
In this paper we survey some of the more recent theoretical and empirical literature on social networks and labour productivity. We discuss the use of referrals in recruitment of workers and the possible mechanisms underlying their use as well as ex-post e.ects on productivity from having connected workers in the firm and the channels for these e.ects. We also suggest some open questions for further research.
242/2015 Romola J. DavenportThe first stages of the mortality transition in England: a perspective from evolutionary biology242/2015 Romola J. Davenport
This paper examines the origins of the Mortality Revolution from an evolutionary point of view, in terms of the trade-offs between virulence and disease transmission. For diseases that are transmitted person-to-person and cannot persist outside a host then there is evidence of strong selective pressure against high host lethality. However for pathogens which don’t depend on their human host for transmission or can persist outside a human host (including plague, typhus, smallpox and malaria) then the conflict between virulence and dispersal is reduced. Importantly, the properties that permitted these diseases to be so lethal also made it easier for relatively weak interventions to break the chain of disease transmission. The early control of these major diseases was associated with large reductions in mortality, but also shifted the distribution of causes of death towards the less virulent diseases of the extremes of age and of poverty.
241/2015 Kerry HicksonThe Welfare Cost Of Antimicrobial Resistance - Tuberculosis As An Illustrative Example241/2015 Kerry Hickson
The recent increase in antimicrobial resistance has received concern from the government and media. The twentieth century history of tuberculosis in England and Wales presented here shows that some of the more extreme apocalyptic scenarios are unlikely. The paper shows that preventive medicine can play a major role; that the threat should reduce the use of antimicrobials; and the scope for government to intervene with sound public health policies. The paper also estimates the value of twentieth century health gains associated with eliminating tuberculosis in England and Wales to be worth at least $127 billion, which provides a warning about the potential gains that could be lost without initiatives to prevent antimicrobial resistance.
We distinguish between three sets of rights – property rights, political rights, and civil rights – and provide a taxonomy of political regimes. The distinctive nature of liberal democracy is that it protects civil rights (equality before the law for minorities) in addition to the other two. Democratic transitions are typically the product of a settlement between the elite (who care mostly about property rights) and the majority (who care mostly about political rights). Such settlements rarely produce liberal democracy, as the minority has neither the resources nor the numbers to make a contribution at the bargaining table. We develop a formal model to sharpen the contrast between electoral and liberal democracies and highlight circumstances under which liberal democracy can emerge. We discuss informally the difference between social mobilizations sparked by industrialization and decolonization. Since the latter revolve around identity cleavages rather than class cleavages, they are less conducive to liberal politics.
239/15 Felix P. Meier zu Selhausen; Marco H.D. van Leeuwen and Jacob L. WeisdorfSocial Mobility among Christian Africans: Evidence from Ugandan Marriage Registers, 1895-2011239/15 Felix P. Meier zu Selhausen; Marco H.D. van Leeuwen and Jacob L. Weisdorf
We use marriage registers from colonial and post-colonial Uganda to investigate long-term trends in social mobility among Christian Africans, finding a stark contrast to the pessimistic view that colonialism retarded Africa. Colonial influences in Uganda brought much greater and more equal opportunities for social advancement than in pre-colonial times. The colonial labour market was the main ladder for upward mobility, and the mission society helped provide the education and social reference needed to climb it. We find no "bufferzone" preventing sons of blue-collar descent from entering into white-collar work. The patterns continued throughout the post-colonial era despite political turmoil.
238/2015 Joram Mayshary, Omer Moav, Zvika Neeman & Luigi PascaliCereals, Appropriability and Hierarchy238/2015 Joram Mayshary, Omer Moav, Zvika Neeman & Luigi Pascali
We propose that the development of social hierarchy following the Neolithic Revolution was an outcome of the ability of the emergent elite to appropriate cereal crops from farmers and not a result of land productivity, as argued by conventional theory. We argue that cereals are easier to appropriate than roots and tubers, and that regional differences in the suitability of land for different crops explain therefore differences in the formation of hierarchy and states. A simple model illustrates our main theoretical argument. Our empirical investigation shows that land suitability for cereals relative to suitability for tubers explains the formation of hierarchical institutions and states, whereas land productivity does not.
This paper argues for the central role of risk aversion in shaping political ideology.We develop a political economy model to establish this link and provide empirical evidence in support of our argument. Our model distinguishes the effects of risk aversion from unemployment risk and our evidence sheds light on debates over explanations for the welfare state. We show that risk aversion is an important determinant of political-economic attitudes and is at least as important as, if not more so, an individual’s position in the income distribution.
236/2015 Thomas Hills, Eugenio Proto & Daniel SgroiHistorical Analysis of National Subjective Wellbeing using Millions of Digitized Books236/2015 Thomas Hills, Eugenio Proto & Daniel Sgroi
We present the rst attempt to construct a long-run historical measure of subjective wellbeing using language corpora derived from millions of digitized books. While existing measures of subjective wellbeing go back to at most the 1970s, we can go back at least 200 years further using our methods. We analyse data for six countries (the USA, UK, Germany, France, Italy and Spain). To highlight some results, we nd a positive short-run effect for GDP and life expectancy on subjective wellbeing. An increase of 1% life expectancy is equivalent to more than 5% increase in yearly GDP. One year of internal con ict costs the equivalent of a 50% drop in GDP per year in terms of subjective wellbeing. Public debt, on the other hand, has a short-run positive effect. Our estimated index of subjective wellbeing generally does not feature any positive trend, which is consistent with the Easterlin paradox, although we caution against long term analysis given the historical variation of written texts (which parallel similar issues with historical GDP statistics).
235/2015 Alexander Klein & Nicholas CraftsAgglomeration Externalities and Productivity Growth: U.S. Cities in the Railroad Era, 1880-1930235/2015 Alexander Klein & Nicholas Crafts
We investigate the role of industrial structure in labor productivity growth in U.S. cities between 1880 and 1930 using a new dataset constructed from the Census of Manufactures. We find that increases in specialization were associated with faster productivity growth but that diversity only had positive effects on productivity performance in large cities. We interpret our results as providing strong support for the importance of Marshallian externalities. Industrial specialization increased considerably in U.S. cities in the early 20th century, probably as a result of improved transportation, and we estimate that this resulted in significant gains in labor productivity.
We explore the interrelationships between various measures of cultural distance. We first discuss measures of genetic distance, used in the recent economics literature to capture the degree of relatedness between countries. We next describe several classes of measures of linguistic, religious, and cultural distances. We introduce new measures of cultural distance based on differences in average answers to questions from the World Values Survey. Using a simple theoretical model we hypothesize that ancestral distance, measured by genetic distance, is positively correlated with linguistic, religious, and cultural distance. An empirical exploration of these correlations shows this to be the case. This empirical evidence is consistent with the view that genetic distance is a summary statistic for a wide array of cultural traits transmitted intergenerationally.
233/2015 Cormac Ó Gráda'CAST BACK INTO THE DARK AGES OF MEDICINE'? THE CHALLENGE OF ANTIMICROBIAL RESISTANCE233/2015 Cormac Ó Gráda
Antimicrobial resistance (AMR) is currently the focus of much media attention and policy discussion. A historical perspective on AMR suggests that although the challenge of AMR is real, the doomsday tone of most commentary is unwarranted. That is partly because most of the gains in life expectancy now deemed under threat preceded the antibiotics revolution. A combination of public health measures, rising living standards, and new medical knowledge all played their part in this. Even if AMR increases, the continuing effect of these factors and of new public health measures can limit the negative consequences. Moreover, recent developments suggest that the supply pipeline of new drugs is not quite as dry as usually claimed. The problem for now is not so much MRSA or malaria but carbapenem‐resistant gram‐negative bacteria, which pose an urgent threat and on which public funding for research on effective new therapies should concentrate.
232/2015 Stephen Broadberry & Leigh GardnerEconomic Development In Africa And Europe : Reciprocal Comparisons232/2015 Stephen Broadberry & Leigh Gardner
Recent advances in historical national accounting have allowed for global comparisons of GDP per capita across space and time. Critics have argued that GDP per capita fails to capture adequately the effects of new technology on living standards, and have developed alternative measures such as the human development index (HDI). Whilst recognising that this provides an appropriate measure for assessing levels of welfare, we argue that GDP per capita remains a more appropriate measure for assessing development potential, encompassing production as well as consumption. Twentieth-century Africa and pre-industrial Europe are used to show how such data can guide reciprocal comparisons to provide insights into the process of development on both continents.
231/2015 Stephen Broadberry, Kyoji Fukao & Nick ZammitHow Did Japan Catch-up on The West? A Sectoral Analysis Of Anglo-Japanese Productivity Differences, 1885-2000231/2015 Stephen Broadberry, Kyoji Fukao & Nick Zammit
Although Japanese economic growth after the Meiji Restoration is often characterised as a gradual process of trend acceleration, comparison with the United States suggests that catching-up only really started after 1950, due to the unusually dynamic performance of the US economy before 1950. A comparison with the United Kingdom, still the world productivity leader in 1868, reveals an earlier period of Japanese catching up between the 1890s and the 1920s, with a pause between the 1920s and the 1940s. Furthermore, this earlier process of catching up was driven by the dynamic productivity performance of Japanese manufacturing, which is also obscured by a comparison with the United States. Japan overtook the UK as a major exporter of manufactured goods not simply by catching-up in labour productivity terms, but by holding the growth of real wages below the growth of labour productivity so as to enjoy a unit labour cost advantage. Accounting for levels differences in labour productivity between Japan and the United Kingdom reveals an important role for capital in the catching-up process, casting doubt on the characterisation of Japan as following a distinctive Asian path of labour intensive industrialisation.
230/2015 Jean-Pascal Bassino, Stephen Broadberry, Kyoji Fukao, Bishnupriya Gupta & Masanori TakashimaJapan and the Great Divergence, 725-1874230/2015 Jean-Pascal Bassino, Stephen Broadberry, Kyoji Fukao, Bishnupriya Gupta & Masanori Takashima
Japanese GDP per capita grew at an annual rate of 0.04 per cent between 725 and 1874, but the growth was episodic, with the increase in per capita income concentrated in three periods, 1150-1280, 1450-1600 and after 1730, interspersed with periods of stable per capita income. There is a similarity here with the growth pattern of Britain. The first countries to achieve modern economic growth at opposite ends of Eurasia thus shared the experience of an early end to growth reversals. However, Japan started at a lower level than Britain and grew more slowly until the Meiji Restoration.
229/2015 Alexandra M. de PleijtHuman capital and long run economic growth : Evidence from the stock of human capital in England, 1300-1900229/2015 Alexandra M. de Pleijt
Did human capital contribute to economic growth in England? In this paper the stock of total years of schooling present in the population between 1300 and 1900 is quantified. The stock incorporates extensive source material on literacy rates, the number of primary and secondary schools and enrolment figures. The trends in the data suggest that, whilst human capital facilitated pre-industrial economic development, it had no role to play during the Industrial Revolution itself: there was a strong decline in educational attainment between ca. 1750 and 1830. A time series analysis has been carried out that confirms this conclusion.
228/2015 Lucy Barnes & Timothy HicksRisk, Recession, and Declining Popular Demand for the Welfare State228/2015 Lucy Barnes & Timothy Hicks
How do individual preferences over welfare spending respond to economic hard times? In this paper we reconcile two prominent, opposing expectations : that recessions lead to a `hunkering down' such that individuals become less favorable to taxation and expenditure; and that downturns, being associated with increases in risk, should lead to increased demand for government expenditure. We present a simple formal model rooted in the risk/insurance literature, to demonstrate that these two intuitions both capture important effects. While the labor market risk literature correctly predicts that individual-level insecurity increases support for welfare expenditure, our model shows that it also predicts that poor macroeconomic performance has the opposite e ect. The government budget constraint links the two levels, and we demonstrate that concern about budget balance is the mechanism driving declines in support for tax-and-spend. We test our argument using British individual-level panel data from before and during the Great Recession, and use Eurobarometer data from 32 countries to probe our de cit-based mechanism. The evidence is supportive of our claims on both counts.
227/2015 Gregory S.Crawford, Nicola Pavanini & Fabiano SchivardiAsymmetric Information and Imperfect Competition in Lending Markets227/2015 Gregory S.Crawford, Nicola Pavanini & Fabiano Schivardi
We measure the consequences of asymmetric information and imperfect competition in the Italian lending market. We show that banks’ optimal price response to an increase in adverse selection varies with competition. Exploiting matched data on loans and defaults, we estimate models of demand for credit, loan use, pricing, and firm default. We find evidence of adverse selection and evaluate its importance. While indeed prices rise in competitive markets and decline in concentrated ones, the former effect dominates, suggesting that while market power can mitigate the adverse effects of asymmetric information, mainstream concerns about its effects survive with imperfect competition.
226/2015 Simon Lapointe, Carlo Perroni, Kimberley Scharf and Janne TukiainenDoes Market Size Matter for Charities?226/2015 Simon Lapointe, Carlo Perroni, Kimberley Scharf and Janne Tukiainen
We analyze implications of market size on market structure in the not-forprofit sector. We show that, while a standard model of oligopolistic competition between for-profits predicts a positive relationship between market size and firm size, an analogous model of not-for-profit competition predicts no such correlation. We then interrogate these predictions empirically by focusing on five charitable markets for local public goods. These findings both reject the applicability of the classic theories of oligopolistic competition between for-profit firms to the not-for-profit case and fail to reject the simple model proposed here.
There are at least two distinct (but related) concepts of ‘secular stagnation’. One concerns a possible long-run term trend growth failure and the other a permanent liquidity trap. In the context of poor productivity performance, both are legitimate fears for European economies although technological pessimism is misguided and scope for catch-up is still considerable. In each respect, however, policy responses that have worked in the past are available to address the problem. If European economies were to submit to either type of secular stagnation, it would be a result of policy failure rather than because it is inevitable.
224/2015 David Hugh-Jones and Carlo PerroniWhy are heterogenous communities inefficient? Theory, history and an experiment224/2015 David Hugh-Jones and Carlo Perroni
We examine why heterogenous communities may fail to provide public goods. Current work characterizes sanctioning free-riders as an under-supplied public good. We argue that often free-riders can be punished by the coordinated action of a group. This punishment can be profitable, and need not be undersupplied. But the power to expropriate defectors can also be used to expropriate outgroups. Heterogenous societies may be inefficient because minorities, rather than free-riders, are expropriated. Even if this is not so, groups’ different beliefs about the reasons for expropriation may make the threat of punishment less effective at preventing free-riding. We illustrate our theory with evidence from California mining camps, contemporary India, and US schools. In a public goods experiment using minimal groups and a profitable punishment institution, outgroups were more likely to be punished, and reacted differently to punishment than ingroup members.
223/2015 Oliver Falck, Constantin Mang, and Ludger WoessmannVirtually No Effect? Different Uses of Classroom Computers and their Effect on Student Achievement223/2015 Oliver Falck, Constantin Mang, and Ludger Woessmann
Most studies find little to no effect of classroom computers on student achievement. We suggest that this null effect may combine positive effects of computer uses without equivalently effective alternative traditional teaching practices and negative effects of uses that substitute more effective teaching practices. Our correlated random effects models exploit within-student between-subject variation in different computer uses in the international TIMSS test. We find positive effects of using computers to look up information and negative effects of using computers to practice skills, resulting in overall null effects. Effects are larger for high-SES students and mostly confined to developed countries.
222/2015 Alexandra M. de Pleijt and Jacob L. WeisdorfHuman Capital Formation from Occupations: The Deskilling Hypothesis Revisited222/2015 Alexandra M. de Pleijt and Jacob L. Weisdorf
We use HISCLASS to code the occupational titles of over 30,000 English male workers according to the skill-content of their work. We then track the evolution of the sampled working skills across three centuries of English history, from 1550 to 1850. We observe a modest rise in the share of ‘high-quality workmen’ deemed necessary by Mokyr and others to facilitate the Industrial Revolution, including machine erectors and operators. But we also find remarkable growth in the share of unskilled workers, rising from 20% in the late sixteenth century to nearly 40% in the early nineteenth century, caused mainly by falling shares of semi-skilled, blue-collar workers. Close inspection of the occupational structures within the main sectors of production suggest that deskilling occurred in agriculture and industry alike, prompted by land concentration in agriculture and workshop-to-factory changes in industry.
This paper discusses the process of European institutional integration from a political economy perspective, linking the long-standing political debate on the nature of the European project to the recent economic literature on political integration and disintegration. First, we introduce the fundamental trade-off between economies of scale associated with larger political unions and the costs from sharing public goods and policies among more heterogeneous populations, and examine the implications of the trade-off for European integration. Second, we describe the two main political theories of European integration - intergovernmentalism and functionalism - and argue that both theories capture important aspects of European integration, but that neither view provides a complete and realistic interpretation of the process. Finally, we critically discuss the successes and limitations of the actual process of European institutional integration, from its beginnings after World War II to the current crisis.
Although largely absent from modern accounts of the Industrial Revolution, watches were the first mass produced consumer durable, and were Adam Smith’s pre-eminent example of technological progress. In fact, Smith makes the notable claim that watch prices may have fallen by up to 95 per cent over the preceding century; a claim that this paper attempts to evaluate. We look at changes in the reported value of over 3,200 stolen watches from records of criminal trials in the Old Bailey court in London from 1685 to 1810. Before allowing for quality improvements we find that the real price of watches in nearly all categories falls steadily by 1.3 per cent per year, equivalent to a fall of 75 per cent over a century, a rate considerably above the growth rate of average labour productivity in British industry in the early nineteenth century.
219/2015 Nicholas CraftsWest European Economic Integration since 1950: Implications for Trade and Income219/2015 Nicholas Crafts
This paper provides a survey of the implications of post-war European economic integration for trade and income. A particular focus is the impact on the United Kingdom. The literature clearly points to large effects of the EU on trade but is more ambivalent about EFTA. Conventional econometric models suggest that this extra trade meant that the level of income in 2000 in EU countries was about 9 per cent larger. Comparisons of the ex-post income gains of EU membership for the United Kingdom with ex-ante predictions show that the outcome was far better than optimists expected in the 1970s.
218/2015 Marcus Miller and Jennifer C. SmithIn the shadow of the Gulag: worker discipline under Stalin218/2015 Marcus Miller and Jennifer C. Smith
Forthcoming in Journal of Comparative Economics, available at: //authors.elsevier.com/sd/article/S0147596715000207An ‘efficiency wage’ model developed for Western economies is reinterpreted in the context of Stalin’s Russia, with imprisonment – not unemployment – acting as a ‘worker discipline device’. The threat of imprisonment allows the state to pay a lower wage outside the Gulag than otherwise, thereby raising the “surplus” left over for investment: this externality provides a reason for coercion over and above the direct productivity of those in custody.Just how credible the threat of imprisonment was under Stalin is documented using archival data now available; but the enormous scale of random imprisonment involved is, we argue, attributable not to economic factors but to Stalin’s insecurity in the absence of a legitimate process for succession.We develop a model of demand and supply for industrial labour in such a command economy. To get more resources for investment or war, the state depresses the level of real wages; to avoid incentive problems in the wider economy, the harshness of prison conditions can be intensified. This is the logic of coercion we analyse.
217/2015 Sofia Teives Henriques and Paul SharpThe Danish Agricultural Revolution in an Energy Perspective: A Case of Development with Few Domestic Energy Sources217/2015 Sofia Teives Henriques and Paul Sharp
We examine the case of Denmark - a country which historically had next to no domestic energy resources - for which we present new historical energy accounts for the years 1800-1913. We demonstrate that Denmark’s take off at the end of the nineteenth century was relatively energy dependent. We relate this to her well-known agricultural transformation and development through the dairy industry, and thus complement the literature which argues that expensive energy hindered industrialization, by arguing that similar obstacles would have precluded other countries from a more agriculture-based growth. The Danish cooperative creameries, which spread throughout the country over the last two decades of the nineteenth century, were dependent on coal. Although Denmark had next to no domestic coal deposits, we demonstrate that her geography allowed cheap availability throughout the country through imports. On top of this we emphasize that another important source of energy was imported feed for the cows.
216/2015 Ingrid Henriksen, Eoin McLaughlin and Paul SharpContracts and cooperation: The relative failure of the Irish dairy industry in the late nineteenth century reconsidered216/2015 Ingrid Henriksen, Eoin McLaughlin and Paul Sharp
Why did the establishment of cooperative creameries in late nineteenth century Ireland fail to halt the relative decline of her dairy industry compared to other emerging producers? This paper compares the Irish experience with that of the market leader, Denmark, and shows how each adopted the cooperative organisational form, but highlights that an important difference was institutional: specifically regarding the enforcement of vertically binding contracts, which are considered to be of vital importance for the successful operation of cooperatives. We argue that this failure, combined with a strong proprietary sector which was opposed to cooperation, reinforced the already difficult conditions for dairying in Ireland due to poor social capital.
This paper presents two wage series for unskilled English women workers from 1260 to 1850, the first based on daily wages and the second on the remuneration per day implied in annual service contracts. These two series are compared and the series for women’s daily wages is also compared with evidence for men, revealing interesting trends in the gender gap. These comparisons inform several recent debates: first whether or not “the golden age of the English peasantry” included women; and, second whether or not protoindustrialization and early industrialization provided women with greater opportunities. Our contributions to these debates have implications for wider analyses of growth and wellbeing. For example, historians have argued that the rise in wages that followed the Black Death enticed female servants to delay marriage so contributing to a European Marriage Pattern, a demographic regime believed to enable modern economic growth. However, our findings suggest that servants did not benefit much in the post-plague era and so offers little in support of a ‘girl-powered’ economic breakthrough in England. Similarly, historians have hypothesized that high wages in the eighteenth century explain the labour-saving technological changes which kick-started the industrial revolution and, recently, that women shared in these high wages. Again our findings suggest a less rosy scenario with women who were unable to commit to full-time work losing ground relative to men and to their less constrained peers; such women fell increasingly adrift from any High Wage Economy.
This paper provides an introductory overview of the British Industrial Revolution. The dimensions of growth are discussed as well as notable recent explanations for Britain’s primacy. Obstacles to faster growth are considered as well as advantages that were conducive to stronger TFP growth. In this context, reasons for the long delay before steam power had any significant impact on productivity are highlighted. Some implications of Britain’s early start to modern economic growth for subsequent economic performance are noted. The paper concludes that precocious British industrialization is much easier to explain than the timing of the acceleration of technological progress.
213/2014 Marcel Fafchamps and Christopher WoodruffIdentifying gazelles: expert panels vs. surveys as a means to identify firms with rapid growth potential213/2014 Marcel Fafchamps and Christopher Woodruff
Abstract: We conduct a business plan competition to determine whether survey instruments or panel judges are able to predict which participating firms will grow fastest. Participants were required to submit a simple six- to eight-page business plan and then defend that plan before a panel of three or four judges. We surveyed the pool of applicants shortly after they applied, and then one and two years after the business plan competition. We use the follow-up surveys to construct a measure of enterprise growth, and use the baseline surveys and panel scores to construct measures of the potential for growth of the enterprise. We find that a measure of ability correlates quite strongly with future growth, but that the panel scores add to predictive power even after controlling for the measure of ability and other variables from the survey. The survey questions appear to have more power to explain the variance in growth. Participants presenting before the panel were give a chance to win customized management training. Fourteen months after the training, we find no positive effect of the training on growth of the business.
212/2014 Suresh de Mel, David McKenzie and Christopher WoodruffWhat Generates Growth in Microenterprises? Experimental Evidence on Capital, Labor and Training212/2014 Suresh de Mel, David McKenzie and Christopher Woodruff
Previous research shows that capital injections lead to higher profits in microenterprises, but to little sustained growth. We conduct an experiment which provides overlapping treatments designed to provide capital, incentives to hire new employees and management training. Working with a sample of 1,525 Sri Lankan enterprises with two or fewer paid employees at baseline, we find that the treatments have largely temporary effects, suggesting that while they may speed convergence to a steady state, they do not appear to put firms on a different growth path. Wage incentives lead to higher levels of employment, but not to higher profits, suggesting that the typical firm does not face constraints to hiring which result in the marginal product of labor exceeding the market wage rate. We use data from surveys of wage workers and SME owners conducted at the same time as the baseline survey to estimate characteristics associated with entrepreneurial ability. We find that highability firms, if anything, benefit less from the treatments. The results are consistent with the view of the world illuminated by Lucas‟ 1978 model of firm size distribution.
211/214 Arthur Blouin and Rocco MacchiavelloTropical Lending: International Prices, Strategic Default and Credit Constraints among Coffee Washing Stations211/214 Arthur Blouin and Rocco Macchiavello
We use detailed contract level data on a portfolio of 197 coffee washing stations in 18 countries to identify the sources and consequences of credit markets imperfections. Due to moral hazard, default rates increase following unanticipated increases in world coffee prices just before (but not just after) the maturity date of the contract. Strategic default is deterred by relationships with the lender and foreign buyers: the value of informal enforcement amounts to 50% of the value of the sale contract for repaying borrowers. A RDD shows that firms are credit constrained. Additional loans are used to increase input purchases from farmers rather than substituting other sources of credit. Prices paid to farmers increase implying the existence of contractual externalities along the supply chain.
Sustained economic growth in England can be traced back to the early seventeenth century. That earlier growth, albeit modest, both generated and was sustained by a demographic regime that entailed relatively high wages, and by an increasing endowment of human capital in the form of a relatively adaptable and skilled labour force. Healthier and savvier English workers were better equipped to profit from the technological possibilities available to them, and to build on them. Technological change and economic growth stemmed from such human capital rather than Boserupian forces. They were the product of England’s resource endowment and its institutions.
208/2014 Marco Pani and Carlo PerroniEnergy Subsidies and Policy Commitment in Political Equilibrium208/2014 Marco Pani and Carlo Perroni
Because energy subsidies affect incentives to invest in energy-saving equipment and technologies, they entail a classic investment hold-up problem: once investment has taken place, policymakers will tend to overuse them, which will in turn depress investment by forward-looking agents. Reforming energy subsidies thus requires overcoming a policy commitment problem. In this paper we show that, even when commitment is feasible in principle, it may fail to materialize in a political equilibrium due to politicians’ re-election incentives. In particular, it will be those politicians who are comparatively less favorable to energy subsidies who may fail to commit to phase them out.
207/2014 Wiji Arulampalam, Valentina Corradi and Daniel GutknechtModelling Heaped Duration Data: An Application to Neonatal Mortality207/2014 Wiji Arulampalam, Valentina Corradi and Daniel Gutknecht
In 2005, the Indian Government launched a conditional cash-incentive program to encourage institutional delivery. This paper studies the effects of the program on neonatal mortality using district-level household survey data. We model mortality using survival analysis, paying special attention to the substantial heaping present in the data. The main objective of this paper is to provide a set of sufficient conditions for identification and consistent estimation of the baseline hazard accounting for heaping and unobserved heterogeneity. Our identification strategy requires neither administrative data nor multiple measurements, but a correctly reported duration and the presence of some at segments in the baseline hazard which includes this correctly reported duration point. We establish the asymptotic properties of the maximum likelihood estimator and provide a simple procedure to test whether the policy had (uniformly) reduced mortality. While our empirical findings do not confirm the latter, they do indicate that accounting for heaping matters for the estimation of the baseline hazard.
206/2014 Amrita Dhillon, Ronald Peeters and Ayse Muge YukselOvercoming moral hazard with social networks in the workplace: An experimental approach206/2014 Amrita Dhillon, Ronald Peeters and Ayse Muge Yuksel
The use of social networks in the workplace has been documented by many authors, although the reasons for their widespread prevalence are less well known. In this paper we present evidence based on a combined field-laboratory experiment that social networks are used by employers to reduce worker moral hazard. The worker chooses an effort level given a fixed wage under different settings of social proximity. Social proximity is captured using actual Facebook friendship information revealed anonymously to subjects once they have been recruited. Since employers themselves do not have access to social connections, they delegate the decision to referrers who can select among workers with different degrees of social proximity to themselves. We show that employers choose referrals over anonymous hiring about 80% of the time. In keeping with our predictions, referrers also choose workers with a greater social proximity to themselves and workers who are closer to referrers indeed pay back more to the referrer. The advantage of the lab setting is that we can isolate moral hazard and directed altruism as the main driving forces for these results.
204/2014 Nicholas CraftsProductivity Growth during the British Industrial Revolution: Revisionism Revisited204/2014 Nicholas Crafts
This paper re-examines output and productivity growth during the British industrial revolution in the light of recent research. Revised estimates are presented which incorporate new findings on the structure of employment, in particular, that the level of industrialization in the mid-18th century is now known to be considerably higher than was assumed in earlier work. This implies that industrial labour productivity growth was faster than believed by authors of the 1980s but still slower than earlier writers claimed. It is shown that in most important respects the Crafts-Harley view of macroeconomic growth remains basically intact.
203/2014 T. Huw Edwards and Carlo PerroniMarket Integration, Wage Concentration, and the Cost and Volume of Traded Machines203/2014 T. Huw Edwards and Carlo Perroni
We investigate the theoretical relationship between wage concentration and international market integration. Access to imported varieties lowers the cost of intermediate inputs ("machines") used to carry out production tasks, causing workers with different comparative abilities to be sorted across a narrower range of tasks and raising the concentration of earnings. The accompanying shift in input use further expands the range of traded varieties, which further lowers the cost of machines. Effects on the volume of intermediate goods trade and the number of varieties produced are mutually reinforcing, resulting in a multiplier effect of market integration on wage concentration.
202/2014 Leandro Prados de la EscosuraMismeasuring Long Run Growth: The Bias from Spliced National Accounts202/2014 Leandro Prados de la Escosura
Comparisons of economic performance over space and time largely depend on how statistical evidence from national accounts and historical estimates are spliced. To allow for changes in relative prices, GDP benchmark years in national accounts are periodically replaced with new and more recent ones. Thus, a homogeneous long-run GDP series requires linking different temporal segments of national accounts. The choice of the splicing procedure may result in substantial differences in GDP levels and growth, particularly as an economy undergoes deep structural transformation. An inadequate splicing may result in a serious bias in the measurement of GDP levels and growth rates. Alternative splicing solutions are discussed in this paper for the particular case of Spain, a fast growing country in the second half of the twentieth century. It is concluded that the usual linking procedure, retropolation, has serious flows as it tends to bias GDP levels upwards and, consequently, to underestimate growth rates, especially for developing countries experiencing structural change. An alternative interpolation procedure is proposed.
201/2014 Carlo Perroni, Ganna Pogrebna, Sarah Sandford and Kimberley ScharfAre Donors Afraid of Charities’ Core Costs? Scale Economies in Non-profit Provision and Charity Selection201/2014 Carlo Perroni, Ganna Pogrebna, Sarah Sandford and Kimberley Scharf
We study contestability in non-profit markets where non-commercial providers supply a homogeneous collective good or service through increasing-returns-to-scale technologies. Unlike in the case of for-profit markets, in the non-profit case the absence of price-based sales contracts between providers and donors means that fixed costs are directly relevant to donors, and that they can translate into an entry barrier, protecting the position of an inefficient incumbent; or that, conversely, they can make it possible for inefficient newcomers to contest the position of a more efficient incumbent. Evidence from laboratory experiments show that fixed cost driven trade-offs between payoff dominance and perceived risk can lead to inefficient selection.
200/2014 - David RuedaFood Comes First, Then Morals: Redistribution Preferences, Altruism and Group Heterogeneity in Western Europe200/2014 - David Rueda
Altruism is an important omitted variable in much of the Political Economy literature. While material self-interest is the base of most approaches to redistribution (first affecting preferences and then politics and policy), there is a paucity of research on inequality aversion. I propose that other-regarding concerns influence redistribution preferences and that: (1) they matter most to those in less material need and (2) they are conditional on the identity of the poor. Altruism is a luxury good most relevant to the rich, and it is most influential when the recipients of benefits are similar to those financing them. Using data from the European Social Survey from 2002 to 2010, I will show that group homogeneity magnifies (or limits) the importance of altruism for the rich. In making these distinctions between the poor and the rich, the arguments in this paper challenge some influential approaches to the politics of inequality.
This paper examines contrasting experiences of the United Kingdom in addressing high public debt to GDP ratios following major wars. A clear message is that interest rate/growth rate differentials were more important than primary budget surpluses for the different outcomes. The debt to GDP ratio fell very rapidly under financial repression following World War II but remained stubbornly high despite large budget surpluses with price deflation after World War I. Implications for policymakers today are that averting price deflation is a high priority and that supply-side policies that raise growth could play an important part in debt reduction.
The historiography of the development and diffusion of technology in the modern world has grown as a collection of discourses, which differ in points of emphasis. The three common points of emphasis are state intervention, cultural makeup of societies, and economic calculations. The disjointedness characterizes the literature on colonial India (1857-1947) as well, complicated further by the need to understand the role that British colonial rule played in these processes. The present survey discusses, compares, and evaluates the diverse narratives.
197/2014 - Clément de ChaisemartinTolerating defiance? Local average treatment effects without monotonicity197/2014 - Clément de Chaisemartin
We know that instrumental variable (IV) estimates a causal effect if the instrument satisfies a monotonicity condition. When this condition is not satisfied, we only know that IV estimates the difference between the effect of the treatment in two groups. This difference could be a very misleading measure of the treatment effect: it could be negative, even when the effect is positive in both groups. There are a large number of studies in which monotonicity is implausible. One might then question whether we should trust their estimates. I show that IV estimates a causal effect under a much weaker condition than monotonicity. I outline three criteria applied researchers can use to assess whether this condition is applicable in their studies. When this weaker condition is applicable, they can credibly interpret their estimates as causal effects. When it is not, they should interpret their results with caution.
196/2014 - Eugenio Proto and Andrew J. OswaldNational Happiness and Genetic Distance: A Cautious Exploration196/2014 - Eugenio Proto and Andrew J. Oswald
This paper examines a famous puzzle in social science. Why do some nations report such high happiness? Denmark, for instance, regularly tops the league table of rich nations’ well-being; Great Britain and the US enter further down; France and Italy do relatively poorly. Yet the explanation for this ranking -- one that holds even after adjustment for GDP and socio-economic and cultural variables -- remains unknown. We explore a new avenue. Using data on 131 countries, we cautiously document a range of evidence consistent with the hypothesis that certain nations may have a genetic advantage in well-being.
The 1870-1913 period marked the birth of the first era of trade globalization. How did this tremendous increase in trade affect economic development? This work isolates a causality channel by exploiting the fact that the steamship produced an asymmetric change in trade distances among countries. Before the invention of the steamship, trade routes depended on wind patterns. The introduction of the steamship in the shipping industry reduced shipping costs and time in a disproportionate manner across countries and trade routes. Using this source of variation and a completely novel set of data on shipping times, trade, and development that spans the great majority of the world between 1850 and 1900, I find that 1) the adoption of the steamship was the major reason for the firrst wave of trade globalization, 2) only a small number of countries that were characterized by more inclusive institutions benefited from globalization, and 3) globalization exerted a negative effect on both urbanization rates and economic development in most other countries.
Online platforms provide an opportunity for individuals to fundraise for their favourite charities and charitable causes. In recent years, individual charity fundraising through these platforms has become a mass activity. Using JustGiving, the UK’s biggest charity fundraising platform, 21 million people have raised £1.5 billion for over 13,000 charities and causes since the website was set up in 2001.Recent figures suggest that online donations are still a relatively small part of overall giving; an estimated 7% of the total dollar amount given in the US and used by 7% of UK donors. But online and text giving are growing at a faster rate than total donations, indicating that this share will grow.In this paper, we present insights on individual fundraising from micro-econometric analysis of JustGiving data. The analysis exploits a number of different data sub-samples. The largest comprises 416,313 fundraisers who were active JustGiving users at the time of an online survey that ran from October 2010 – April 2011. We also analyse data on 10,597 fundraisers who ran in the 2010 London marathon and from a sample of 39,238 fundraisers who had linked their fundraising pages to their Facebook page. Details on all these samples are given in the Appendix.The focus of the analysis is what determines fundraising success. The "perfect ask" in the title of the paper suggests that there may be a winning formula that could easily be replicated. In practice, much of the power of individual fundraising comes from its very personal – and idiosyncratic – nature, but there may nevertheless be some useful lessons to be learned from studying how fundraisers and donors behave. A "typical" fundraising page (the median) has 14 donations and raises £245. But, as shown in Table 1, there is substantial variation in the number of donations and the amounts raised. The top 10% of pages raise £1,343 or more; the bottom 10% manage less than £38. In this paper, we show that at least some of this variation can be linked to specific factors having to do with the individual’s fundraising strategy (for example, the type of event they do and whether or not they set a fundraising target). We also show that social interactions are crucially important – whether between the fundraiser and donors or between donors. Individual fundraising is a uniquely personal and interactive form of fundraising, introducing new social dynamics into fundraising.
We study charitable giving within social groups. Exploiting a unique dataset, we establish three key relationships between social group size and fundraising outcomes:(i) a positive relationship between group size and the total number of donations; (ii) anegative relationship between group size and the amount given by each donor; (iii) no relationship between group size and the total amount raised by the fundraiser. We rule out classic free-riding to explain these relationships since the number of social group members is only a subset of total contributors. Instead, the findings are consistent with the notion that giving in social groups is motivated by "relational" warm glow.
Using a newly collected dataset on inquisitorial activity for seven regions, fourteen provinces and 947 municipalities, I analyze the long-term economic consequences of the Spanish Inquisition (1478-1834). I show that inquisitorial activity is negatively associated to regional and provincial economic growth (an increase of a thousand inquisitorial trials is associated with 3% to 5% lower urbanization rates). At the municipal level, I find that municipalities a.ected by the Inquisition experienced an annual population growth rate 0.11% lower than their counterparts. This result is robust when controlling for alternative explanatory factors, such as pre-existent religiosity and proxies for trade activity. I explore three channels through which the Inquisition may have had an impact on economic outcomes. While inquisitorial activity is not linked to levels of trust or social polarization, I find it is negatively associated with the adoption of new technologies and the creation of municipal centres of cultural transmission.
191/2014 - Dilip V. Jeste and Andrew J. OswaldIndividual and Societal Wisdom: Explaining the Paradox of Human Aging and High Well-Being191/2014 - Dilip V. Jeste and Andrew J. Oswald
Objective: Although human aging is characterized by loss of fertility and progressive decline in physical abilities, later life is associated with better psychological health and well-being. Furthermore, there has been an unprecedented increase in average lifespan over the past century without corresponding extensions of fertile and healthy age spans. We propose a possible explanation for these paradoxical phenomena.Method: We reviewed the relevant literature on aging, well-being, and wisdom.Results: An increase in specific components of individual wisdom in later life may make up for the loss of fertility as well as declining physical health. However, current data on the relationship between aging and individual wisdom are not consistent, and do not explain increased longevity in the general population during the past century. We propose that greater societal wisdom (including compassion) may account for the notable increase in average lifespan over the last century. Data in older adults with serious mental illnesses are limited, but suggest that many of them too experience improved psychosocial functioning, although their longevity has not yet increased, suggesting persistent stigma against mental illness and inadequate societal compassion.Conclusions: Research should focus on the reasons for discrepant findings related to ageassociated changes in different components of individual wisdom; also, more work is needed on the construct of societal wisdom. Studies of wisdom and well-being are warranted in older people with serious mental illnesses, along with campaigns to enhance societal compassion for these disenfranchised individuals. Finally, effective interventions to enhance wisdom need to be developed and tested.
Cooperating behavior may be fostered by personality traits reflecting either favorable inclination to others or willingness to comply with norms and rules. We test the relative importance of these two factors in an experiment where subjects provide real mental effort in two treatments with identical task, differing only by whether others' payment is affected. If the first hypothesis is true, subjects reporting high Agreeableness score should put more effort; if the second is true, reporting higher Conscientiousness should predict more effort. We find experimental support for the second hypothesis but not for the first, as subjects reporting high Altruism do not behave consistently with this statement.
189/2014 - Francisco J. Pino and Jordi Vidal-RobertHabemus Papam? Polarization and Conflict in the Papal States189/2014 - Francisco J. Pino and Jordi Vidal-Robert
We study the effect of divisions within the elite on the probability of internal conflict in the Papal States between 1295 and 1846. We assemble a new database using information on cardinals that participated in conclaves during this period, and construct measures of polarization and fractionalization based on the cardinals’ places of birth. The deaths of popes and cardinals provide plausible exogenous variation in the timing of the conclave and the composition of the College of Cardinals, which we exploit to analyze the causal effect of a divided conclave on conflict. We find that an increase of one standard deviation in our measure of polarization raised the likelihood of internal conflict by between 2 and 3 percent in a given year and by up to 15 percent in a given papacy. The effect is largest in the initial years after the conclave, to gradually vanish over time. Cardinals’ influence on the politics of the Papal States decreased after reforms introduced between 1586 and 1588. Our measure of religious productivity, however, is negatively and significantly linked to polarization in the post-reform period. These reforms were successful in shifting the effect of divisions among the elite of one of the largest and oldest organizations from violent conflict to religious matters.
We review some “myths” of the Great War of 1914 to 1918: that the war broke out inadvertently, that the western front saw needless slaughter, that the Allies used the food weapon to strangle Germany, and that the peace treaty that ended the war caused the rise of Hitler and the still greater war that followed.
187/2014 - Terence C. Cheng, Nattavudh Powdthavee and Andrew J. OswaldLongitudinal Evidence for a Midlife Nadir in Human Well-being: Results from Four Data Sets187/2014 - Terence C. Cheng, Nattavudh Powdthavee and Andrew J. Oswald
There is a large amount of cross-sectional evidence for a midlife low in the life cycle of human happiness and well-bein (a ‘U shape’). Yet no genuinely longitudinal inquiry has uncovered evidence for a U-shaped pattern. Thus some researchers believe the U is a statistical artefact. We re-examine this fundamental cross-disciplinary question. We suggest a new test. Drawing on four data sets, and only within-person changes in well-being, we document powerful support for a U-shape in unadjusted longitudinal data without the need for regression equations. The paper’s methodological contribution is to exploit the first-derivative properties of a well-being equation.
Why did substantial parts of Europe abandon the institutionalized churches around 1900? Empirical studies using modern data mostly contradict the traditional view that education was a leading source of the seismic social phenomenon of secularization. We construct a unique panel dataset of advanced-school enrollment and Protestant church attendance in German cities between 1890 and 1930. Our cross-sectional estimates replicate a positive association. By contrast, in panel models where fixed effects account for time-invariant unobserved heterogeneity, education – but not income or urbanization – is negatively related to church attendance. In panel models with lagged explanatory variables, educational expansion precedes reduced church attendance.
185/2014 - Nattavudh Powdthavee and Andrew J. OswaldDoes Money Make People Right-Wing and Inegalitarian? A Longitudinal Study of Lottery Winners185/2014 - Nattavudh Powdthavee and Andrew J. Oswald
The causes of people’s political attitudes are largely unknown. We study this issue by exploiting longitudinal data on lottery winners. Comparing people before and after a lottery windfall, we show that winners tend to switch towards support for a right-wing political party and to become less egalitarian. The larger the win, the more people tilt to the right. This relationship is robust to (i) different ways of defining right-wing, (ii) a variety of estimation methods, and (iii) methods that condition on the person previously having voted left. It is strongest for males. Our findings are consistent with the view that voting is driven partly by human self-interest. Money apparently makes people more right-wing.
182/2014 - Richard Dorsett and Andrew J. OswaldHuman well-being and in-work benefits: A randomized controlled trial182/2014 - Richard Dorsett and Andrew J. Oswald
Many politicians believe they can intervene in the economy to improve people’s lives. But can they? In a social experiment carried out in the United Kingdom, extensive in-work support was randomly assigned among 16,000 disadvantaged people. We follow a sub-sample of 3,500 single parents for 5 ensuing years. The results reveal a remarkable, and troubling, finding. Long after eligibility had ceased, the treated individuals had substantially lower psychological well-being, worried more about money, and were increasingly prone to debt. Thus helping people apparently hurt them. We discuss a behavioral framework consistent with our findings and reflect on implications for policy.
The changes-in-changes model extends the widely used difference-in-differences to situations where outcomes may evolve heterogeneously. Contrary to difference-in-differences, this model is invariant to the scaling of the outcome. This paper develops an instrumental variable changes-in-changes model, to allow for situations in which perfect control and treatment groups cannot be denied, so that some units may be treated in the control group, while some units may remain untreated in the treatment group. This is the case for instance with repeated cross sections, if the treatment is not tied to a strict rule. Under a mild strengthening of the changes-in-changes model, treatment effects in a population of compliers are point identified when the treatment rate does not change in the control group, and partially identified otherwise. Simple plug-in estimators of treatment effects are proposed. We show that they are asymptotically normal, and that the bootstrap is valid. Finally, we use our results to reanalyze findings in Field (2007) and Dufflo (2001).
183/2014 - Amrita Dhillon, Ronald Peeters and Ayse Muge YukselOvercoming Moral Hazard with Social Networks in the Worksplace: An Experimental Approach183/2014 - Amrita Dhillon, Ronald Peeters and Ayse Muge Yuksel
The use of social networks in the workplace has been documented by many authors, although the reasons for their widespread prevalence are less well known. In this paper we present evidence based on a lab experiment that suggests quite strongly that social networks are used by employers to reduce worker moral hazard. We capture moral hazard with a dictator game between the referrer and worker. The worker chooses how much to return under different settings of social proximity. Social proximity is captured using Facebook friendship information gleaned anonymously from subjects once they have been recruited. Since employers themselves do not have access to social connections, they delegate the decision to referrers who can select among workers with different degrees of social proximity to themselves. We show that employers choose referrals over anonymous hiring relatively more when they know that the referrer has access to friends, and are willing to delegate more often when the social proximity between referrer and worker is potentially higher. In keeping with this expectation, referrers also choose workers with a greater social proximity to themselves and workers who are closer to referrers indeed pay back more to the referrer. The advantage of the lab setting is that we can isolate directed altruism as the only reason for these results.
We use a novel data set spanning 1820-1910 to examine the origins of bank supervision and assess factors leading to the creation of formal bank supervisory institutions across U.S. states. We show that it took more than a century for the widespread adoption of independent supervisory institutions tasked with maintaining the safety and soundness of banks. State legislatures initially pursued cheaper regulatory alternatives, such as double liability laws; however, banking distress at the state level as well as the structural shift from note-issuing to deposit-taking commercial banks propelled policymakers to adopt costly and permanent supervisory institutions.
This paper proposes a proximity-concentration tradeoff in product space as a determinant of horizontal foreign direct investment (FDI). Firms that enter a foreign market by exporting are able to capture consumer surplus from introducing a differentiated product with characteristics that the incumbent cannot match. In relatively globalized product space, in contrast, consumers perceive an entrant’s difference to existing products as less pronounced, so a consumer’s virtual distance costs in product space are lower and a merger with an incumbent (horizontal FDI) offers pricing power that allows the entrant to extract consumer rent. Lower physical trade costs of shipping make Bertrand price competition fiercer in differentiated product space and can provide an additional incentive for a merger. A basic product space model with a linear Hotelling setup can therefore explain why FDI has become more frequent in recent periods in the presence of falling trade costs. Cross-border merger and acquisitions data support the model’s prediction that horizontal FDI grows relatively faster than exports in differentiated goods industries, compared to homogeneous-goods industries.
This report reviews the market failure and systems failure rationales for industrial policy and assesses the evidence on part experience of industrial policy in the UK. In the light of this, it reviews options for reshaping the design and delivery of industrial policy towards UK manufacturing. These options are intended to encourage a medium- to long-term perspective across government departments and to integrate science, innovation and industrial policy.
178/2013 - Mariana Blanco, Patricio S. Dalton and Juan F. VargasDoes the Unemployment Benefit Institution affect the Productivity of Workers? Evidence from a Field Experiment178/2013 - Mariana Blanco, Patricio S. Dalton and Juan F. Vargas
We investigate whether and how the type of unemployment benefit institution affects productivity. We designed a field experiment to compare workers' productivity under a welfare system, where the unemployed receive an unconditional monetary transfer, with their productivity under a workfare system, where the transfer is received conditional on the unemployed spending some time on ancillary activities. First, we find that having an unemployment benefit institution, regardless of whether it makes transfers conditional or unconditional, increases workers' productivity. Second, we find that productivity is higher under Welfare than under Workfare. Becoming unemployed under Welfare comes at the psychological cost of a drop in self-esteem, presumably due to the shame or stigma associated with receiving an unconditional unemployment benefit. We document the empirical relevance of precisely this channel. The differences we observe in productivity suggest that this psychological cost acts as an extra nonmonetary incentive for workers under Welfare to put a higher effort in their work.
177/2013 - Bishnupriya Gupta and Anand SwamyUnfree Labour: Did Indenture Reduce Labour Supply to Tea Plantations in Assam?177/2013 - Bishnupriya Gupta and Anand Swamy
Migration to tea plantations in Assam in the 19th century used indentured contracts. These contracts differed by conditions of harshness. Migration under the Special Act gained notoriety by giving tea planter the right of private arrest. Using a new set of migration by types of contract, the paper assesses if harsh terms of indenture discouraged labour flows. We find that regions using the harsh contract saw lower response to rise in the price of tea. Disaggregating by types of recruiter, we find that the response to market recruitment was high in all regions, but response to recruitment using community networks is statistically insignificant, suggesting that informational asymmetries may be an explanation for continuing migration despite concerns raised by the nationalist movement, social reformers and policy makers.
176/2013 - Alexander Klein and Sheilagh OgilvieOccupational Structure in the Czech Lands Under the Second Serfdom176/2013 - Alexander Klein and Sheilagh Ogilvie
A shift in occupational structure towards non-agricultural activities is widely viewed as a key component of European economic growth during the early modern ‘Little Divergence’. Yet little is known about this process in those parts of eastern-central Europe that experienced the early modern ‘second serfdom’, the massive increase in the institutional powers of landlords over the rural population. We analyze non-agricultural occupations under the second serfdom using data on 6,983 Bohemian villages in 1654. Bohemia resembled other eastern-central, nordic and southern European economies in having a lower percentage of non-agricultural activities than western Europe. But Bohemian serfs engaged in a wide array of industrial and commercial activities whose intensity varied significantly with village characteristics. Nonagricultural activity showed a significant positive relationship with village size, pastoral agriculture, sub-peasant social strata, Jews, freemen, female household heads, and village mills, and a significant negative relationship with arable agriculture and urban agglomerations. Non-agricultural activity was also positively associated with landlord presence in the village, although the relationship turned negative at higher values and landlord presence reversed the positive effects of female headship and mills. Under the second serfdom, landlords encouraged serf activities from which they could extort rents, while stifling others which threatened their interests.
175/2013 - Francesco Cinnirella and Erik HornungLandownership Concentration and the Expansion of Education175/2013 - Francesco Cinnirella and Erik Hornung
This paper studies the effect of landownership concentration on school enrollment for nineteenth century Prussia. Prussia is an interesting laboratory given its decentralized educational system and the presence of heterogeneous agricultural institutions. We find that landownership concentration, a proxy for the institution of serfdom, has a negative effect on schooling. This effect diminishes substantially towards the end of the century. Causality of this relationship is confirmed by introducing soil texture to identify exogenous farm-size variation. Panel estimates further rule out unobserved heterogeneity. We present several robustness checks which shed some light on possible mechanisms.
174/2013 - Francesco Cinnirella, Marc P. B. Klemp and Jacob L. WeisdorfMalthus in the Bedroom: Birth Spacing as a Preventive Check174/2013 - Francesco Cinnirella, Marc P. B. Klemp and Jacob L. Weisdorf
The role of demography in long-run economic growth has been subject to increasing attention. This paper questions the received wisdom that marital birth control was absent before the nineteenth century. Using an extensive individual-level dataset covering 270,000 births from 80,000 families we show that higher national and sector-specific real wages reduced spacing between births in England over more than three centuries, from 1540-1850. This effect is present among both poor and rich families and is robust to a wide range of control variables accounting for external factors influencing a couple’s fertility such as malnutrition, climate shocks and the disease environment.
173/2013 - Léonard Wantchékon and Omar García-PonceCritical Junctures: Independence Movements and Democracy in Africa173/2013 - Léonard Wantchékon and Omar García-Ponce
We show that current levels of democracy in Africa are linked to the nature of its independence movements. Using different measures of political regimes and historical data on anti-colonial movements, we find that countries that experienced rural insurgencies tend to have autocratic regimes, while those that faced urban protests tend to have more democratic institutions. We provide evidence for causality in this relationship by using rough terrain as an instrument for rural insurgency, and by performing a sensitivity analysis. Finally, the evidence suggests that the adoption of rural insurgency perpetuated the use of violence as a form of conflict resolution.
172/2013 - Stephen Broadberry and Leigh GardnerAfrica’s Growth Prospects in a European mirror: a Historical Perspective172/2013 - Stephen Broadberry and Leigh Gardner
Drawing on recent quantitative research on Europe reaching back to the medieval period, and noting a relationship between the quality of institutions and economic growth, this paper offers a reassessment of Africa’s growth prospects. Periods of positive growth driven by trade, followed by growth reversals which wiped out the gains of the previous boom, characterized pre-modern Europe as well as twentieth century Africa. Since per capita incomes in much of sub-Saharan Africa are currently at the level of medieval Europe, which did not make the breakthrough to modern economic growth until the nineteenth century, we caution against too optimistic a reading of Africa’s recent growth experience. Without the institutional changes necessary to facilitate structural change, growth reversals continue to pose a serious threat to African prosperity. Only if growth continues after a downturn in Africa’s terms of trade can we be sure that the corner has been turned.
171/2013 - Mariaelisa Epifanio and Vera E. TroegerHow much do children really cost? Maternity benefits and career opportunities of women in academia171/2013 - Mariaelisa Epifanio and Vera E. Troeger
Motherhood and professional achievements appear as conflicting goals even for academic women. This project explores this tension by focusing on a set of provisions on parental and maternity leaves across 165 higher education institutions in the UK. Generous maternity provisions generate countervailing incentives for female academics. On the one hand, advantageous policies can foster women’s productivity in terms of research outcomes allowing them to take time out of work without income and career break concerns. On the other hand, women can exploit generous provisions without generating returnable results for the academic institution. We argue that adverse selection problems lead universities to differentiate among academic staff by offering two different types of maternity provisions (more vs less generous maternity leaves) in order to "test" women’s commitment and research ability before offering permanent contracts. Our results support this this line of argumentation. We also find that generous maternity leaves and childcare provisions positively affect the number of women at research and professorship levels.
We provide the first thick description of the KGB’s counter-intelligence function in the Soviet command economy. Based on documentation from Lithuania, the paper considers KGB goals and resources in relation to the supervision of science, industry, and transport; the screening of business personnel; the management of economic emergencies; and the design of economic reforms. In contrast to a western market regulator, the role of the KGB was to enforce secrecy, monopoly, and discrimination. As in the western market context, regulation could give rise to perverse incentives with unintended consequences. Most important of these may have been adverse selection in the market for talent. There is no evidence that the KGB was interested in the costs of its regulation or in mitigating the negative consequences.
169/2013 - Federica Liberini, Michela Redoano and Eugenio ProtoIn this paper we investigate whether or not recent initiatives taken by governments and international organizations to come up with indicators of Subjective Well Being (SWB) to inform policy makers go in the same direction as citizens expectations on what policy makers should do. We test retrospective voting hypotheses by using standard measures of SWB as a proxy for utility instead of the commonly used indicators of economic and nancial circumstances. Using the British Household Panel Survey Data we nd that citizens who are satis ed with their life are more likely to cast their vote in favour of the ruling party, even taking into account ideological preferences. We show that SWB in uences voting decision even when the event a ecting the SWB is beyond the government's control, like the spouse death.
168/2013 - Mirko DracaReagan's Innovation Dividend? Technological Impacts of the 1980s US Defense Build-Up168/2013 - Mirko Draca
US government spending since World War II has been characterized by large investments in defense related goods, services and R&D. In turn, this means that the Department of Defense (DoD) has had a large role in funding corporate innovation in the US. This paper looks at the impact of military procurement spending on corporate innovation among publicly traded firms for the period 1966-2003. The study utilizes a major database of detailed, historical procurement contracts for all Department of Defense (DoD) prime contracts since 1966. Product-level spending shifts – chiefly centered around the Reagan defense build-up of the 1980s – are used as a source of exogenous variation in firm-level procurement receipts. Estimates indicate that defense procurement has a positive absolute impact on patenting and R&D investment, with an elasticity of approximately 0.07 across both measures of innovation. In terms of magnitudes, the contribution of defense procurement to innovation peaked during the early Reagan build-up, accounting for 11.4% of the total change in patenting intensity and 6.5% for R&D. This compares to a defense sector share in output of around 4%. The later defense cutbacks under Bush Senior and Clinton then curbed the growth in technological intensity by around 2%.
167/2013 - Gregory S.Crawford, Nicola Pavanini and Fabiano SchivardiAsymmetric Information and Imperfect Competition in the Loan Market167/2013 - Gregory S.Crawford, Nicola Pavanini and Fabiano Schivardi
We measure the consequences of asymmetric information in the Italian market for small business lines of credit. Exploiting detailed, proprietary data on a random sample of Italian firms, the population of medium and large Italian banks, individual lines of credit between them, and subsequent individual defaults, we estimate models of demand for credit, loan pricing, loan use, and firm default based on the seminal work of Stiglitz and Weiss (1981) to measure the extent and consequences of asymmetric information in this market. While our data include a measure of observable credit risk comparable to that available to a bank during the application process, we allow firms to have private information about the underlying riskiness of their project. This riskiness influences banks’ pricing of loans as higher interest rates attract a riskier pool of borrowers, increasing aggregate default probabilities. Data on default, loan size, demand, and pricing separately identify the distribution of private riskiness from heterogeneous firm disutility from paying interest. Preliminary results suggest evidence of asymmetric information, separately identifying adverse selection and moral hazard. We use our results to quantify the impact of asymmetric information on pricing and welfare, and the role imperfect competition plays in mediating these effects.
166/2013 - Peter J. Hammond, Federica Liberini and Eugenio ProtoDo Happier Britons Have More Income? First-Order Stochastic Dominance Relations166/2013 - Peter J. Hammond, Federica Liberini and Eugenio Proto
Using British Household Panel Survey data, for subjects not reporting the highest permitted satisfaction level, we show that the conditional income distribution given a higher reported level of life satisfaction first-order stochastically dominates the corresponding conditional distribution given any lower satisfaction level. Subjects reporting the highest satisfaction level, however, have an income distribution dominated by distributions for some less satisfied individuals. Interestingly, this "top anomaly" is undetectable by standard ordered probit analysis. An alternative binary probit model for reporting maximal satisfaction suggests a possible explanation: more educated subjects not only tend to have higher income, but are also less likely to report maximal satisfaction.
This paper investigates the heterogeneous response of exporters to real exchange rate fluctuations due to product quality. We combine a unique data set of highly disaggregated Argentinean firm-level wine export values and volumes between 2002 and 2009 with experts wine ratings as a measure of quality. In response to a real depreciation, we find that firms significantly increase more their markups and less their export volumes for higher quality products, but only when exporting to high income destination countries. These results remain robust to different measures of quality, samples, specifications and to the potential endogeneity of quality. To motivate our Findings we extend the model of Corsetti and Dedola (2005) with local distribution costs and allow firms to export multiple products with heterogeneous levels of quality. The model shows that the elasticity of demand perceived by exporters decreases with a real depreciation and with quality, leading to more pricing-to-market and to a smaller response of export volumes to a real depreciation for higher quality goods. Overall our results help to explain the low exchange rate pass-through that is typically observed in aggregate data.
164/2013 - Debin Ma and Weipeng YuanDiscovering Chinese Economic History from Footnotes: the Living Tale of a Private Merchant Archive (1800-1850)164/2013 - Debin Ma and Weipeng Yuan
This article recounts our unique encounter –through the last seven years of our research - with the Tong Taisheng (统泰升) merchant account books in the Ninjing county of Northern China in 1800-1850. By tracing the personal history of the original owner or donor, we address a large historiographical and epistemological issue behind the current Great Divergence debate on why Industrial Revolution occurred in England but not in China. Our article showcases how the development of political ideology and academic discipline in the modern era impacts our understanding of historical statistics and realities of the early modern era, a critical issue largely neglected in the current Great Divergence debate.
163/2013 - Susanto Basu, Luigi Pascali and Fabio SchiantarelliProductivity and the Welfare of Nations163/2013 - Susanto Basu, Luigi Pascali and Fabio Schiantarelli
We show that the welfare of a country's infinitely-lived representative consumer is summarized, to a first order, by total factor productivity (TFP) and by the capital stock per capita. These variables suffice to calculate welfare changes within a country, as well as welfare differences across countries. The result holds regardless of the type of production technology and the degree of product market competition. It applies to open economies as well, if TFP is constructed using domestic absorption, instead of gross domestic product, as the measure of output. Welfare relevant TFP needs to be constructed with prices and quantities as perceived by consumers, not firms. Thus, factor shares need to be calculated using after-tax wages and rental rates, and will typically sum to less than one. These results are used to calculate welfare gaps and growth rates in a sample of advanced countries with high-quality data on output, hours worked, and capital. We also present evidence for a broader sample that includes both advanced and developing countries.
162/2013 - Stelios Michalopoulos and Elias PapaioannouThe Long-Run Effects of the Scramble for Africa162/2013 - Stelios Michalopoulos and Elias Papaioannou
We examine the long-run consequences of the scramble for Africa among European powers in the late 19th century and uncover the following empirical regularities. First, utilizing information on the spatial distribution of African ethnicities before colonization, we show that apart from the land mass and water area of an ethnicity’s historical homeland, no other geographic, economic, and historical trait, including proxies of pre-colonial conflict, predicts partitioning by the national borders. Second, we exploit a detailed geo-referenced database that records various types of conflict across African regions and show that civil conflict is concentrated in the historical homeland of partitioned ethnicities. We also document that violence against civilians (child soldiering, village burning, abductions, rapes) and territorial changes between rebel groups, militias, and government forces are more prevalent in the homelands of split groups. These results are robust to a rich set of local controls, the inclusion of country fixed effects and ethnic-family fixed effects. The uncovered evidence brings in the foreground the violent repercussions of an important aspect of European colonization, that of ethnic partitioning.
161/2013 - Fernanda Brollo and Ugo TroianoWhat Happens When a Woman Wins an Election? Evidence from Close Races in Brazil161/2013 - Fernanda Brollo and Ugo Troiano
This paper analyzes the effect of the gender of local policymakers on policy outcomes. Analyzing a rich dataset from Brazilian municipalities and using a regression discontinuity design, we find that municipalities ruled by female mayors have better health outcomes, receive more federal discretionary transfers, and have lower corruption. Additionally, male mayors hire more temporary public employees than their female counter-parts when they are allowed to run for re-election, and when municipal elections are approaching. These findings suggest that male mayors may promote more political patronage than female mayors and that men and women may respond differently to local election incentives.
This paper “accounts” for the Great Divergence between Europe and Asia in two ways. In the sense of measurement: (1) the traditional view, in which the Great Divergence had late medieval origins and was already well under way during the early modern period, is confirmed (2) However, revisionists are correct to point to regional variation within both continents (3) There was a Little Divergence within Europe, with a reversal of fortunes between the North Sea Area and Mediterranean Europe. (4) There was a Little Divergence within Asia, with Japan overtaking China and India. However, Japan started at a lower level of per capita income than the North Sea Area and grew at a slower rate, so continued to fall behind until after the Meiji Restoration of 1868. Any explanation needs to be able to account for the Little Divergences within Europe and Asia as well as the Great Divergence between the two continents. The divergences arose from the differential impact of shocks hitting economies with different structural features. The structural factors include: (1) The large share of pastoral farming in agriculture which helped to put the North Sea Area on the path to high-value-added, capital-intensive, non-human-energy intensive production. (2) Late marriage in the North Sea Area, which lowered fertility and encouraged human capital formation (3) Labour supply, with an industrious revolution helping to explain the Little Divergences within both Asia and Europe (4) Institutions, with the role of the state helping to explain the success of the North Sea Area. The two key shocks were (1) The Black Death, which led to a permanent per capita income gain in the North Sea Area, but not in the rest of Eurasia (2) The new trade routes which opened up from Europe to Asia and the Americas around 1500.
1A simple dynamic framework is used to show how consolidation plans that are robust and effective at capacity output can be undermined by demand failure. If the market panics and interest rates rise, the process can indeed become dynamically unstable. Tightening fiscal policy to reassure financial markets can lead to a low level “consolidation trap”, however. Better that the Central Bank acts to keep interest rates low; and that fiscal consolidation efforts be state contingent – allowing room for economic stabilisation. The pro-cyclicality of fiscal policy could also be reduced if, as Shiller has argued, debt amortization were state contingent, being indexed to GDP.
We provide experimental evidence that subjects blame others based on events they are not responsible for. In our experiment an agent chooses between a lottery and a safe asset; payment from the chosen option goes to a principal who then decides how much to allocate between the agent and a third party. We observe widespread blame: regardless of their choice, agents are blamed by principals for the outcome of the lottery, an event they are not responsible for. We provide an explanation of this apparently irrational behavior with a delegated-expertise principal-agent model, the subjects’ salient perturbation of the environment.
157/2013 - Luigi Grossi and Michael WatersonGerman Energy Market Fallout from the Japanese Earthquake157/2013 - Luigi Grossi and Michael Waterson
The German response to the Fukushima nuclear power plant incident was possibly the most significant change of policy towards nuclear power outside Japan, leading to a sudden and very significant shift in the underlying power generation structure in Germany. This provides a very useful natural experiment on the impact of changing proportions of conventional fuel inputs to power production, helping us to see how changed proportions in future as a result of policy moves in favour of renewables are likely to impact. We find through exploration of a conventional demand- supply framework that despite the swift, significant change, the main impact was a relatively modest increase in prices occasioned by a shift of the supply curve; there were no appreciable quantity effects on the market, such as power outages, despite some views that the impacts would be significant.
156/2013 - Sanjay Jain, Sumon Majumdar and Sharun MukandWalk the Line: Conflict, State Capacity and the Political Dynamics of Reform156/2013 - Sanjay Jain, Sumon Majumdar and Sharun Mukand
This paper develops a dynamic framework to analyze the political sustainability of economic reforms in developing countries. First, we demonstrate that economic reforms that are proceeding successfully may run into a political impasse, with the reform’s initial success having a negative impact on its political sustainability. Second, we demonstrate that greater state capacity, to make compensatory transfers to those adversely a.ected by reform, need not always help the political sustainability of reform, but can also hinder it. Finally, we argue that in ethnically divided societies, economic reform may be completed not despite ethnic conflict, but because of it.
This study explores the consequences and origins of between-ethnicity economic inequality both across and within countries. First, combining satellite images of nighttime luminosity with the historical homelands of ethnolinguistic groups we construct measures of ethnic inequality for a large sample of countries and show that the latter is strongly inversely related to comparative development. Second, diﬀerences in geographic endowments across ethnic homelands explain a sizable portion of ethnic inequality contributing to its persistence over time. Third, exploiting across-district within-African countries variation using individual-level data on ethnic identiﬁcation and well-being from the Afrobarometer Surveys we ﬁnd that between ethnic-group inequality is systematically linked to regional under-development. In this sample we also explore the channels linking ethnic inequality to (under) development, ﬁnding that ethnic inequality maps to political inequality, heightened perceptions of discrimination and undersupply of public goods.
154/2013 - Stelios Michalopoulos and Elias PapaioannouNational Institutions and Subnational Development in Africa154/2013 - Stelios Michalopoulos and Elias Papaioannou
We investigate the role of national institutions on subnational African development in a novel framework that accounts both for local geography and cultural-genetic traits. We exploit the fact that the political boundaries in the eve of African independence partitioned more than two hundred ethnic groups across adjacent countries subjecting similar cultures, residing in homogeneous geographic areas, to diﬀerent formal institutions. Using both a matching-type and a spatial regression discontinuity approach we show that differences in countrywide institutional structures across the national border do not explain within-ethnicity diﬀerences in economic performance, as captured by satellite images of light density. The average non-eﬀect of national institutions on ethnic development masks considerable heterogeneity partially driven by the diminishing role of national institutions in areas further from the capital cities.
This paper surveys the experience of economic growth in the 20th century with a focus on technological change at the frontier together with issues related to success and failure in catch-up growth. A detailed account of growth performance based on historical national accounts data is given and is accompanied by a review of growth accounting evidence on the sources of economic growth. The key features of our analysis of divergence in growth outcomes are an emphasis on the importance of ‘directed’ technical change, of institutional quality, and of geography. We provide brief case studies of the experience of individual countries to illustrate these points.
152/2013 - Sayantan Ghosal, Smarajit Jana, Anandi Mani, Sandip Mitra and Sanchari RoyBelieving in Oneself: Can Psychological Training Overcome the Effects of Social Exclusion?152/2013 - Sayantan Ghosal, Smarajit Jana, Anandi Mani, Sandip Mitra and Sanchari Roy
This paper examines whether psychological empowerment can mitigate mental constraints that impede efforts to overcome the effects of social exclusion. Using a randomized control trial, we study a training program specifically designed to reduce stigma and build selfefficacy among poor and marginalized sex workers in Kolkata, India. We find positive and significant impacts of the training on self-reported measures of efficacy, happiness and selfesteem in the treatment group, both relative to the control group as well as baseline measures. We also find higher effort towards improving future outcomes as measured by the participants’ savings choices and health-seeking behaviour, relative to the control group. These findings highlight the need to account for psychological factors in the design of antipoverty programmes.
This chapter introduces the author’s selected papers on the economics of coercion and conflict. It defines coercion and conflict and relates them. In conflict, adversaries make costly investments in the means of coercion. The application of coercion does not remove choice but limits it to options that leave the victim worse off than before. Coercion and conflict are always political, but a number of key concepts from economics can help us understand them. These include rational choice, strategic interaction, increasing and diminishing returns, scale and state capacity, surplus extraction, and Type I errors. The chapter concludes that the economist’s toolkit, although not complete, is useful.
150/2013 - Ran Abramitzky and Victor LavyHow Responsive is Investment in Schooling to Changes in Redistributive Policies and in Returns?150/2013 - Ran Abramitzky and Victor Lavy
This paper uses an unusual pay reform to test the responsiveness of investment in schooling to changes in redistribution schemes that increase the rate of return to education. We exploit an episode where different Israeli kibbutzim shifted from equal sharing to productivity-based wages in different years and find that students in kibbutzim that reformed earlier invested more in high school education. This effect is stronger for males and is largely driven by students whose parents have lower levels of education. We also show that, in the long run, students in kibbutzim that reformed earlier were more likely to complete post-high school academic colleges. Our findings support the prediction that education is highly responsive to changes in the redistribution policy, especially for students from weaker backgrounds.
What obstacles prevent the most productive technologies from spreading to less developed economies from the world’s technological frontier? In this paper, we seek to shed light on this question by quantifying the geographic and human barriers to the transmission of technologies. We argue that the intergenerational transmission of human traits, particularly culturally transmitted traits, has led to divergence between populations over the course of history. In turn, thisdivergence has introduced barriers to the di¤usion of technologies across societies. We provide measures of historical and genealogical distances between populations, and document how such distances, relative to the world’s technological frontier, act as barriers to the di¤usion of development and of specific innovations. We provide an interpretation of these results in the context of an emerging literature seeking to understand variation in economic development as the result of factors rooted deep in history.
148/2013 - Nicholas Crafts and Nikolaus WolfThe Location of the UK Cotton Textiles Industry in 1838:148/2013 - Nicholas Crafts and Nikolaus Wolf
We examine the geography of cotton textiles in Britain in 1838 to test claims about why the industry came to be so heavily concentrated in Lancashire. Our analysis considers both first and second nature aspects of geography including the availability of water power, humidity, coal prices, market access and sunk costs. We show that some of these characteristics have substantial explanatory power. Moreover, we exploit the change from water to steam power to show that the persistent effect of first nature characteristics on industry location can be explained by a combination of sunk costs and agglomeration effects.
In this paper, we analyze the International Great Depression in the US and Western Europe using the business cycle accounting method a la Chari, Kehoe and McGrattan (CKM 2007). We extend the business cycle accounting model by incorporating endogenous factor utilization which turns out to be an important transmission mechanism of the disturbances in the economy. Our main findings are that in the U.S. labor wedges account for roughly half of the drop in output while efficiency and investment wedges each account for a quarter of it during the 1929-1933 period while in Western Europe labor wedges account for more than one-third of the output drop and e¢ ciency, government and investment wedges are responsible for the remaining during the 1929-1932 period. Our findings are consistent with several strands of existing descriptive and empirical literature on the International Great Depression.
This paper examines Gibrat's law in England and Wales between 1801 and 1911 using a unique data set covering the entire settlement size distribution.We find that Gibrat's law broadly holds even in the face of population doubling every fifty years, an industrial and transportrevolution, and the absence of zoning laws to constrain growth. The result is strongest for the later period, and in counties most affected by the industrial revolution. The exception were villages in areas bypassed by the industrial revolution.We argue that agglomeration externalities balanced urban disamenities such as commuting costs and poor living conditions to ensure steady growth of many places, rather than exceptional growth of few.
We use individual records of 920,000 burials and 630,000 baptisms to reconstruct the spatial and temporal patterns of birth and death in London from 1560 to 1665, a period dominated by recurrent plague. The plagues of 1563, 1603, 1625, and 1665 appear of roughly equal magnitude, with deaths running at five to six times their usual rate, but the impact on wealthier central parishes falls markedly through time. Tracking the weekly spread of plague before 1665 we find a consistent pattern of elevated mortality spreading from the same northern suburbs. Looking at the seasonal pattern of mortality, we find that the characteristic autumn spike associated with plague continued into the early 1700s. Given that individual cases of plague and typhus are frequently indistinguishable, claims that plague suddenly vanished after 1665 should be treated with caution. Natural increase improved as smaller plagues disappeared after 1590, but fewer than half of those born survived childhood.
144/2013 - Marcus Miller and Dania ThomasEurozone Sovereign Debt Restructuring: promising legal prospects?144/2013 - Marcus Miller and Dania Thomas
The Eurozone debt crisis has stimulated lively debate on mechanisms for sovereign debt restructuring. The immediate threat of exit and the breakup of the currency union may have abated; but the problem of dealing with significant debt overhang remains. After considering two broad approaches - institutional versus contractual – we look at a hybrid solution that combines the best of both. In addition to debt contracts with Collective Action Clauses, this includes a key amendment to the Treaty establishing the European Stability Mechanism, together with innovative state-contingent contracts and a Special Purpose Vehicle to market them.
Cooperating and trusting behavior may be explained by preferences over social outcomes (people care about others, are unselfish and helpful), or attitudes to work and social responsibilities (plans have to be carriedout, norms have to be followed). If the first hypothesis is true, Agreeableness, reporting stated empathy for others, should matter most; if the second, higher score in traits expressing attitude to work, intrinsic motivation (Conscientiousness) should be correlated with cooperating behavior and trust. We find experimental support for the second hypothesis when subjects provide real mental effort in two treatments with identical task, differing by whether others' payment is affected.
If the Eurozone follows the precedent of the 1930s, it will not survive. The attractions of escaping from the gold standard then were massive and they point to a strategy of devalue and default for today’s crisis countries. A fully-federal Europe with a banking union and a fiscal union is the best solution to this problem but is politically infeasible. However, it may be possible to underpin the Euro by a ‘Bretton-Woods compromise’ that accepts a retreat from some aspects of deep economic integration since exit entails new risks of financial crisis that were not present eighty years ago.
Europe’s monetary union is part of a broader process of integration that started in the aftermath of World War II. In this “political guide for economists” we look at the creation of the euro within the bigger picture of European integration. How and why were European institutions established? What are the goals and determinants of European Integration? What is European integration really about? We address these questions from a political-economy perspective, building on ideas and results from the economic literature on the formation of states and political unions. Specifically, we look at the motivations, assumptions, and limitations of the European strategy, initiated by Jean Monnet and his collaborators, of partially integrating policy functions in a few areas, with the expectation that more integration will follow in other areas, in a sort of chain reactions towards an “ever-closer union.” The euro with its current problems is a child of that strategy and its limits.
We examine the empirical relationship between the occurrence of inter-state conflicts and the degree of relatedness between countries, measured by genetic distance. We find that populations that are genetically closer are more prone to go to war with each other, even after controlling for numerous measures of geographic distance and other factors that affect conflict, including measures of trade and democracy. These findings are consistent with a framework in which conflict over rival and excludable goods (such as territory and resources) is more likely among populations that share more similar preferences, and inherit such preferences with variation from their ancestors.
139/2013 - Ola Olsson and Christopher PaikA Western Reversal Since the Neolithic? The Long-Run Impact of Early Agriculture139/2013 - Ola Olsson and Christopher Paik
While it is widely believed that regions which experienced a transition to Neolithic agriculture early also become institutionally and economically more advanced, many indicators suggest that within the Western agricultural core (including Europe, North Africa, the Middle East, and Southwest Asia), communities that adopted agriculture early in fact have weaker institutions and poorly functioning economies today. In the current paper, we attempt to integrate both of these trends in a coherent historical framework. Our main argument is that countries that made the transition early also tended to develop autocratic societies with social inequality and pervasive rent seeking, whereas later adopters were more likely to have egalitarian societies with stronger private property rights. These di¤erent institutional trajectories implied a gradual shift of dominance from the early civilizations towards regions in the periphery. We document this relative reversal within the Western core by showing a robust negative correlation between years since transition to agriculture and contemporary levels of income and institutional development, on both the national and the regional level. Our results further indicate that the reversal had become manifest already before the era of European colonization.
If voters of different countries adhere to different and deeply rooted cultural norms, the country leaders may find it impossible to agree on effcient policies especially in hard times. The conformity constraint -political leaders’ unwillingness or impossibility to depart from these norms - has resulted in lack of timely intervention which has amplfied an initially manageable debt crisis for some European countries to the point of threatening the Euro as a single currency. We show the conditions under which the introduction of a fiscal union can be obtained with consensus and be beneficial. Perhaps counterintuitively, cultural diversity makes a fiscal union even more desirable. Some general lessons can also be drawn on the interaction of cultural evolution and institutional choice.
137/2013 - Thomas Barnebeck Andersen, Jeanet Bentzen, Carl-Johan Dalgaard and Paul SharpPre-Reformation Roots of the Protestant Ethic137/2013 - Thomas Barnebeck Andersen, Jeanet Bentzen, Carl-Johan Dalgaard and Paul Sharp
We hypothesize that cultural appreciation of hard work and thrift, the Protestant ethic according to Max Weber, had a pre-Reformation origin. The proximate source of these values was, according to the proposed theory, the Catholic Order of Cistercians. In support, we first document an impact from the Order on growth within the epicenter of the industrial revolution; English counties that were more exposed to Cistercian monasteries experienced faster productivity growth from the 13th century onwards. Consistent with a cultural influence, this impact is also found after the monasteries were dissolved in the 1530s. Second, we find that the values emphasized by Weber are relatively more pervasive in European regions where Cistercian monasteries were located historically, and that the legacy of the Cistercians can be detected in present-day employment rates across European sub-regions.
136/2013 - Stephen Hansen and Michael McMahonEstimating Bayesian Decision Problems with Heterogeneous Priors136/2013 - Stephen Hansen and Michael McMahon
In many areas of economics there is a growing interest in how expertise and preferences drive individual and group decision making under uncertainty. Increasingly, we wish to estimate such models to quantify which of these drive decision making. In this paper we propose a new channel through which we can empirically identify expertise and preference parameters by using variation in decisions over heterogeneous priors. Relative to existing estimation approaches, our "PriorBased Identification" extends the possible environments which can be estimated, and also substantially improves the accuracy and precision of estimates in those environments which can be estimated using existing methods.
135/2013 - Marcus Miller and Lei ZhangThe Invisable Hand and the Banking Trade: Seigniorage, Risk-shifting and more135/2013 - Marcus Miller and Lei Zhang
The classic Diamond-Dybvig model of banking assumes perfect competition and abstracts from issues of moral hazard, hardly appropriate when considering modern UK banking. We therefore modify the classic model to incorporate franchise values due to market power; and risk-taking by banks with limited liability. We go further to show how the capacity of franchise values to mitigate risk taking may be undermined by the bailout option; with explicit analytical results provided for the case of extreme risk-aversion. After a brief discussion of how this may impact on the distribution of income, we outline the ways in which the Vickers Report seeks to remedy these problems.
134/2013 - Erlend Berg, Maitressch Ghatak, R. Manjula, D. Rajasekhar, Sanchari RoyMotivating knowledge Agents: Can Incentive Pay Overcome Social Distance?134/2013 - Erlend Berg, Maitressch Ghatak, R. Manjula, D. Rajasekhar, Sanchari Roy
This paper studies the interaction of incentive pay and social distance in the dissemination of information. We analyse theoretically as well as empirically the e ect of incentive pay when agents have pro-social objectives, but also preferences over dealing with one social group relative to another. In a randomised eld experiment undertaken across 151 villages in South India, local agents were hired to spread information about a public health insurance programme. Relative to at pay, incentive pay improves knowledge transmission to households that are socially distant from the agent, but not to households similar to the agent.
There is a long-standing debate as to whether the Fisher effect operated during the classical gold standard period. We break new ground on this question by developing a market-based measure of inflation expectations during the gold standard. We derive a measure of silver-gold inflation expectations using the interest-rate differential between Austrian silver and gold perpetuity bonds. Our use of the silver-gold interest rate differential is motivated by the fact that both gold and silver served as numeraires in the pre-WWI period, so that a change in the price of either precious metal would impact the prices of all goods and services. The empirical evidence suggests that silver-gold inflation expectations exhibited significant persistence at the weekly, monthly, and annual frequencies. Further, we find that there is a one-to-one relationship between silver-gold inflation expectations and the interest rate on Austrian perpetuity bonds that were denominated in paper currency. The analysis suggests the operation of a Fisher effect during the classical gold standard period.
132/2013 - Kris Mitchener and Kirsten WandschneiderCapital controls and Recovery from the financial Crisis of the 1930s132/2013 - Kris Mitchener and Kirsten Wandschneider
We examine the first widespread use of capital controls in response to a global or regional financial crisis. In particular, we analyze whether capital controls mitigated capital flight in the 1930s and assess their causal effects on macroeconomic recovery from the Great Depression. We find evidence that they stemmed gold outflows in the year following their imposition; however, time-shifted, difference-indifferences (DD) estimates of industrial production, prices, and exports suggest that exchange controls did not accelerate macroeconomic recovery relative to countries that went off gold and floated. Countries imposing capital controls also appear to perform similar to the gold bloc countries once the latter group of countries finally abandoned gold. Time series regressions further demonstrate that countries imposing capital controls refrained from fully utilizing their newly acquired monetary policy autonomy. Even so, capital controls remained in place as instruments for manipulating trade flows and for preserving foreign exchange for the repayment of external debt.
The paper examines the role of policy intervention in engendering institutional change. We show that ﬁrst order changes in the political structure (e.g. introduction of democracy) may be undermined by local political interests and result in persistence in institutions and the (poor) quality of governance. The paper identiﬁes two eﬀects of development policy as a tool for institutional change. One, by increasing political accountability, it may encourage nascent democratic governments to invest in good institutions – the incentive eﬀect. However, we show that it also increases the incentive of the rentier elite to tighten their grip on political institutions – the political control eﬀect. Which of these dominate determine the overall impact on institutional quality. Under some conditions, by getting the elite to align their economic interests with that of the majority, development policy can lead to democratic consolidation and economic improvement. However if elite entrenchment is pervasive, then comprehensive change may require more coercive means.
130/2013 - Jennifer C SmithPay Growth, Fairness and Job Satisfaction: Implication for Nominal and Real Wage Rigidity130/2013 - Jennifer C Smith
Theories of wage rigidity often rely on a positive relationship between pay changes and utility, arising from concern for fairness or gift exchange. Supportive evidence has emerged from laboratory experiments, but the link has not yet been established with field data. This paper contributes a first step, using representative British data. Workers care about the level and the growth of earnings. Below-median wage increases lead to an insult effect except when similar workers have real wage reductions or firm production is falling. Nominal pay cuts appear insulting even when the firm is doing badly
129/2013 - Manmohan Agarwal and John WhalleyChina and India: Reforms and the Response: How Differently have the Economies Behaved129/2013 - Manmohan Agarwal and John Whalley
The relative performance of China and India is compared using two different methods and they provide a very different picture of their relative performance. We compare the average absolute values of indictors for the decade of the 1980s, 1990s and the 2000s. We use indicators such as the current account balance (CAB), exports of goods and services (XGS), foreign direct investment inflow (FDI), gross domestic savings, gross fixed capital formation (GFCF), aid, private capital inflows (PrK) and workers’ remittances, all as a percentage of GDP. We also look at the growth rate of per capita GDP, exports of goods and services and of gross fixed capital formation.Using a two tailed- test we find that China does better than India for most of these indicators. For instance, China has a higher growth rate of per capita income, XGS and GFCF as also a higher share of XGS, GFCF etc in GDP than does India. We also find that China usually has a lower CV, namely a more stable performance. But over the three decades the CV falls in India so it is approaching that in China, namely the two economies are becoming more similar.We also compare the dynamic performance of the two economies since their reforms. We form index numbers for the indicators. So for example, we from an index number for share of exports in GDP with year 1 of reform in China being 100, i.e. the index for the share in 1979 is 100. Year 2 would be the index number for 1980, namely the value of the share in 1980 with the share in 1979 being 100, etc. In the case of India year 1 would be 1992 once the reforms started, year 2 would be 1993 and so on, so the index would have 1992 as the base year. We find that the indices behave very similarly in the two economies for many of the indicators, namely the pattern of change in China after 1979 is the same as in India after 1992.
This paper analyzes the effects of the reforms initiated in India following the balance of payments (BOP) crisis of 1991 on economic performance. We do not find persuasive the contention of many analysts that growth accelerated after the mid-1980s when reforms were initiated. Nor does statistical analysis support the contention that reforms in the mid-1980s resulted in a growth acceleration. We show that there is an accelerating rate of growth of GDP after the mid 1970s and it is difficult to relate this gradual acceleration to specific policy changes. The changed policies in the 1980s did not mean a basic change in the policy framework. Furthermore, since corporate investment as a share of GDP did not increase in the 1980s it is difficult to identify the mechanism by which the more pro-business policies of the government were translated to higher growth as claimed by Rodrik and Subramaniam (2005).We show that increasing exports of goods, non-factor services, and labour services, through remittances, played an important role in growth in India. Furthermore, the share of exports of goods and services grew as rapidly in India as in China, so that it cannot be said that growth in India was based more on domestic demand. The increased value of exports of manufactures was important as their value grew from about 16 percent of the manufacturing sector’s value added in the early 1980s to about 60 percent currently. Also, there is no significant difference between the growth rates of value-added in the manufacturing and services sectors except for the period of the Ninth Plan (1997-2001).We find that most of 12 economic indicators show improved performance in the decade 2001-10 compared to the earlier decade 1981-1990. The better performance consisted both in the level and lower variability. Furthermore, we find that the reforms had a gradual effect; the change in the period 1992-2000 was smaller and statistically less significant.We also find that the differences with East Asia and particularly China depend on the basis of the comparison. We compare changes in performance since the reforms, which started in China in 1979 and in India in 1991. Such a comparison shows more similarities than differences. We finally examine social progress. We find that South Asia lags behind other regions in making progress towards the Millennium Development Goals (MDGs) and India lags behind other South Asian countries. The responsiveness of the improvement in the MDGs to increases in per capita income is usually low in Asia and particularly in India.
127/2013 - Stephen Hansen and Michael McMahonEstimating Bayesian Decision Problems with Heterogenous Priors127/2013 - Stephen Hansen and Michael McMahon
In many areas of economics there is a growing interest in how expertise and preferences drive individual and group decision making under uncertainty. Increasingly, we wish to estimate such models to quantify which of these drive decision making. In this paper we propose a new channel through which we can empirically identify expertise and preference parameters by using variation in decisions over heterogeneous priors. Relative to existing estimation approaches, our "Prior-Based Identification" extends the possible environments which can be estimated, and also substantially improves the accuracy and precision of estimates in those environments which can be estimated using existing methods.
126/2013 - Emanuele Bracco, Francesco Porcelli and Michela RedoanoPolitical Competition, Tax Salience and Accountability: Theory and Some Evidence from Italy126/2013 - Emanuele Bracco, Francesco Porcelli and Michela Redoano
This paper argues that high political competition does not necessarily induce policy makers to perform better as previous research has shown. We develop a political economy model and we show that when political competition is tight, and elected politicians can rely on more tax instruments, they will substitute salient taxes with less salient ones, which are not necessarily preferable. These predictions are largely confirmed using a dataset on Italian municipal elections and taxes.
Despite the importance attributed to the e¤ects of diversity on the stability and prosperity of nations, the origins of the uneven distribution of ethnic and cultural fragmentation across countries have been underexplored. Building on the role of deeply-rooted biogeographical forces in compar-ative development, this research empirically demonstrates that genetic diversity, predominantly determined during the prehistoric “out of Africa” migration of humans, is an underlying cause of various existing manifestations of ethnolinguistic heterogeneity. Further exploration of this uncharted territory may revolutionize the understanding of the e¤ects of deeply-rooted factors on economic development and the composition of human capital across the globe.
We use the global games approach to study key factors aﬀecting the credit risk associated with roll-over of bank debt. When creditors are heterogenous, these include the extent of short-term borrowing and capital market liquidity for repo ﬁnancing. Speciﬁcally, in a model with a large institutional creditor and a continuum of small creditors independently making their roll-over decisions based on private information, we ﬁnd that increasing the proportion of short-term debt and/or decreasing market liquidity reduces the willingness of creditors to roll over. This raises credit risk in equilibrium. The presence of a large creditor does not always reduce credit risk, however, unless it is better informed.
123/2013 - Jonathan de Quidt, Thiemo Fetzer, and Maitreesh GhatakMarket Structure and Borrower Welfare in Micro Finance123/2013 - Jonathan de Quidt, Thiemo Fetzer, and Maitreesh Ghatak
Motivated by recent controversies surrounding the role of commercial lenders in microfinance, we analyze borrower welfare under different market structures, considering a benevolent non-profit lender, a for-profit monopolist, and a competitive credit market. To understand the magnitude of the effects analyzed, we simulate the model with parameters estimated from the MIX Market database. Our results suggest that market power can have severe implications for borrower welfare, while despite possible information frictions competition typically delivers similar borrower welfare to non-profit lending. In addition, for-profit lenders are less likely to use joint liability than non-profits.
122/2013 - Madhav S. Aney, Maitreesh Ghatak, and Massimo MorelliCan Market Failure Cause Political Failure?122/2013 - Madhav S. Aney, Maitreesh Ghatak, and Massimo Morelli
We study how ineffciencies of market failure may be further amplified by political choices made by interest groups created in the inefficient market. We take an occupational choice framework, where agents are endowed heterogeneously with wealth and talent. In our model, market failure due to unobservability of talent endogenously creates a class structure that affects voting on institutional reform. In contrast to the world without market failure where the electorate unanimously vote in favour of surplus maximising institutional reform, we find that the preferences of these classes are often aligned in ways that creates a tension between surplus maximising and politically feasible institutional reforms.
121/2013 - Maitreesh Ghatak, Sandip Mitra, Dilip Mookherjee and Anusha NathLand Acquisition and Compensation in Singur: What Really Happened?121/2013 - Maitreesh Ghatak, Sandip Mitra, Dilip Mookherjee and Anusha Nath
This paper reports results of a household survey in Singur, West Bengal concerning compensation offered by the state government to owners of land acquired to make way for a car factory. While on average compensations o.ered were close to the reported market valuations of land, owners of high grade multi-cropped (Sona) lands were undercompensated, which balanced over-compensation of low grade mono-cropped (Sali) lands. This occurred owing to misclassification of most Sona land as Sali land in the official land records. Under-compensation relative to market values significantly raised the chance of compensation offers being rejected by owners. There is considerable evidence of the role of financial considerations in rejection decisions. Land acquisition significantly reduced incomes of owner cultivator and tenant households, despite their efforts to increase incomes from other sources. Agricultural workers were more adversely affected relative to non-agricultural workers, while the average impact on workers as a whole was insignificant. Adverse wealth effects associated with under-compensation significantly lowered household accumulation of consumer durables, while effects on other assets were not perceptible. Most households expressed preferences for non-cash forms of compensation, with diverse preferences across different forms of non-cash compensation depending on occupation and time preferences.
120/2013 - Maitreesh Ghatak & Alexander KaraivanovContractual Structure in Agriculture with Endogenous Matching120/2013 - Maitreesh Ghatak & Alexander Karaivanov
We analyze optimal contractual forms and equilibrium matching in a double-sided moral hazard model of sharecropping similar to Eswaran and Kotwal (1985). We show that, with endogenous matching, the presence of moral hazard can reverse the matching pattern relative to the first best, and that even if sharecropping is optimal for an exogenously given pair of agent skills, it may not be observed in equilibrium with endogenous matching. The economy with endogenous matching features less sharecropping compared to an economy with agent skills drawn at random from the same distribution. This suggests that studies of agency costs in sharecropping may underestimate their extent if focusing only on the intensive margin and ignoring the extensive margin.
The Spanish Inquisition (1478-1834) lasted for more than three centuries and conducted more than 100,000 trials. Why would the Spanish Crown adopt this type of repressive institution? What were the actual motives of its activity? This paper explores the role of the Spanish Inquisition as a repressive tool of the Spanish Crown. When the Crown had to move military resources abroad to fight a war, the likelihood of an internal revolt against the Crown increased. To minimize the threat of rebellion, the Crown would use the Inquisition to increase repression (trials) in Spain. In a theoretical framework, I show that while the Inquisition would conduct more trials the higher the intensity of the wars fought abroad, it would however decrease its level of repression (trials) if the likelihood of an internal revolt were large enough. This behavior indicates an inverse-U relationship between inquisitorial and war intensity. To test this prediction, I assemble time series data for seven Spanish inquisitorial districts on annual trials of the Inquisition and wars conducted by the Spanish Crown between 1478 and 1808. I show that there is an inverse-U relationship between wars and inquisitorial activity. My results are robust to the inclusion of data on the severity of the weather (droughts) and to adjustments for spillover e.ects from districts other than the main district under analysis. Moreover, using a new database of 35,000 trials of the Inquisition, I show that religious persecution was especially significant during early stages of the Inquisition, while repressive motives better explain its behavior in later periods.
118/2013 - Kris James Mitchener and Gary RichardsonDoes "Skin in the Game" Reduce Risk Taking? Leverage, Liability and the Long-Run Consequences of New Deal Financial Reforms118/2013 - Kris James Mitchener and Gary Richardson
We examine how the Banking Acts of the 1933 and 1935 and related New Deal legislation influenced risk taking in the financial sector of the U.S. economy. Our analysis focuses on contingent liability of bank owners for losses incurred by their firms and how the elimination of this liability influenced leverage and lending by commercial banks. Using a new panel data set that compares balance sheets of state and national banks, we find contingent liability reduced risk taking, particularly when coupled with rules requiring banks to join the Federal Deposit Insurance Corporation. Leverage ratios are higher in states with limited liability for bank owners. Banks in states with contingent liability converted each dollar of capital into fewer loans, and thus could sustain larger loan losses (as a fraction of their portfolio) than banks in limited liability states. The New Deal replaced a regime of contingent liability with stricter balance sheet regulation and increased capital requirements, shifting the onus of risk management from banks to state and federal regulators. By separating investment banks from commercial banks, the Glass-Steagall Act left investment banks to manage their own leverage, a feature of financial regulation that, in part, depended on their partnership structure.
117/2013 - Loren Brandt, Debin Ma, and Thomas G. RawskiFrom Divergence to Convergence: Re-evaluating the History Behind China’s Economic Boom117/2013 - Loren Brandt, Debin Ma, and Thomas G. Rawski
China’s long-term economic dynamics pose a formidable challenge to economic historians. The Qing Empire (1644-1911), the world’s largest national economy before 1800, experienced a tripling of population during the 17th and 18th centuries with no signs of diminishing per capita income. While the timing remains in dispute, a vast gap emerged between newly rich industrial nations and China’s lagging economy in the wake of the Industrial Revolution. Only with an unprecedented growth spurt beginning in the late 1970s did this great divergence separating China from the global leaders substantially diminish, allowing China to regain its former standing among the world’s largest economies. This essay develops an integrated framework for understanding that entire history, including both the divergence and the recent convergent trend. We explain how deeply embedded political and economic institutions that contributed to a long process of extensive growth before 1800 subsequently prevented China from capturing the benefits associated with the Industrial Revolution. During the 20th century, the gradual erosion of these historic constraints and of new obstacles erected by socialist planning eventually opened the door to China’s current boom. Our analysis links China’s recent development to important elements of its past, while using recent success to provide fresh perspectives on the critical obstacles undermining earlier modernization efforts, and their eventual removal.
116/2013 - David McKenzie and Christopher WoodruffWhat are we learning from business training and entrepreneurship evaluations116/2013 - David McKenzie and Christopher Woodruff
Business training programs are a popular policy option to try to improve the performance of enterprises around the world. The last few years have seen rapid growth in the number of evaluations of these programs in developing countries. We undertake a critical review of these studies with the goal of synthesizing the emerging lessons and understanding the limitations of the existing research and the areas in which more work is needed. We find that there is substantial heterogeneity in the length, content, and types of firms participating in the training programs evaluated. Many evaluations suffer from low statistical power, measure impacts only within a year of training, and experience problems with survey attrition and measurement of firm profits and revenues. Over these short time horizons, there are relatively modest impacts of training on survivorship of existing firms, but stronger evidence that training programs help prospective owners launch new businesses more quickly. Most studies find that existing firm owners implement some of the practices taught in training, but the magnitudes of these improvements in practices are often relatively modest. Few studies find significant impacts on profits or sales, although a couple of the studies with more statistical power have done so. Some studies have also found benefits to microfinance organizations of offering training. To date there is little evidence to help guide policymakers as to whether any impacts found come from trained firms competing away sales from other businesses versus through productivity improvements, and little evidence to guide the development of the provision of training at market prices. We conclude by summarizing some directions and key questions for future studies.
Informal, kin-based groups play an important role in developing country economies. I point out two facts:communities are divided into smaller groups, and many groups prohibit interactions with outsiders. These facts are rationalized in a model in which division of the community into non-interacting groups allows agents to support higher levels of cooperation. Group segregation is sustained in equilibrium through a reputatione ect. I test the empirical implication that there should be less cooperation between members of groups that make up a larger percentage of their communities. I discuss implications for underinvestment in education, misallocation of resources, and institutional change.
This research advances the hypothesis that reversal of fortunes in the process of economic development can be traced to the effect of natural land productivity on the desirable level of cooperation in the agricultural sector. In early stages of development, unfavorable land endowment enhanced the economic incentive for cooperation in the creation of agricultural infrastructure that could mitigate the adverse effect of the natural environment. Nevertheless, despite the benefcial effects of cooperation on the intensive margin of agriculture, low land productivity countries lagged behind during the agricultural stage of development. However, as cooperation, and its persistent effect on social capital, have become increasingly important in the process of industrialization, the transition from agriculture to industry among unfavorable land endowment economies was expedited, permitting those economies that lagged behind in the agricultural stage of development, to overtake the high land productivity economies in the industrial stage of development. Exploiting exogenous sources of variations in land productivity across countries the research further explores the testable predictions of the theory. It establishes that: (i) reversal of fortunes in the process of development can be traced to variation in natural land productivity across countries. Economies characterized by favorable land endowment dominated the world economy in the agricultural stage of development but were overtaken in the process of industrialization; (ii) lower level of land productivity in the past is associated with higher levels of contemporary social capital; (iii) cooperation, as reflected by agricultural infrastructure, emerged primarily in places were land was not highly productive and collective action could have diminished the adverse effects of the environment and enhance agricultural output.
We propose a unified growth theory to investigate the mechanics generating the economic and demographic transition, and the role of mortality differences for comparative development. The framework can replicate the quantitative patterns in historical time series data and in contemporaneous cross-country panel data, including the bi-modal distribution of the endogenous variables across countries. The results suggest that differences in extrinsic mortality might explain a substantial part of the observed differences in the timing of the take-off across countries and the worldwide density distribution of the main variables of interest.
112/2013 - Nicholas Crafts and Alexander KlienGeography and Intra-National Home Bias: U.S. Domestic Trade in 1949 and 2007112/2013 - Nicholas Crafts and Alexander Klien
This paper examines home bias in U.S. domestic trade in 1949 and 2007. We use a unique data set of 1949 carload waybill statistics produced by the Interstate Commerce Commission, and 2007 Commodity Flow Survey data. The results show that home bias was considerably smaller in 1949 than in 2007 and that home bias in 1949 was even negative for several commodities. We argue that the difference between the geographical distribution of the manufacturing activities in 1949 and that of 2007 is an important factor explaining the differences in the magnitudes of home-bias estimates in those years.
111/2013 - Bishnupriya GuptaDiscrimination or Social Networks? Industrial Investment in Colonial India111/2013 - Bishnupriya Gupta
Industrial investment in Colonial India was segregated by the export oriented industries, such as tea and jute that relied on British firms and the import substituting cotton textile industry that was dominated by Indian firms. The literature emphasizes discrimination against Indian capital. Instead informational factors played an important role. British entrepreneurs knew the export markets and the Indian entrepreneurs were familiar with the local markets. The divergent flows of entrepreneurship can be explained by the comparative advantage enjoyed by social groups in information and the role of social networks in determining entry and creating separate spheres of industrial investment.
110/2013 - Sascha O Becker and Ludger WoessmannNot the Opium of the People: Income and Secularization in a Panel of Prussian Counties110/2013 - Sascha O Becker and Ludger Woessmann
The interplay between religion and the economy has occupied social scientists for long. We construct a unique panel of income and Protestant church attendance for six waves of up to 175 Prussian counties spanning 1886-1911. The data reveal a marked decline in church attendance coinciding with increasing income. The cross-section also shows a negative association between income and church attendance. But the association disappears in panel analyses, including firstdifferenced models of the 1886-1911 change, panel models with county and time fixed effects, and panel Granger-causality tests. The results cast doubt on causal interpretations of the religion economy nexus in Prussian secularization.
In the large literature on firm performance, economists have given little attention to entrepreneurs. We use deaths of more than 500 entrepreneurs as a source of exogenous variation, and ask whether this variation can explain shifts in firm performance. Using longitudinal data, we find large and sustained effects of entrepreneurs at all levels of the performance distribution. Entrepreneurs strongly affect firm growth patterns of both very young firms and for firms that have begun to mature. We do not find significant differences between small and larger firms, family and non-family firms, nor between firms located in urban and rural areas, but we do find stronger effects for founders with high human capital. Overall, theresults suggest that an often overlooked factor –individual entrepreneurs –plays a large role in affecting firm performance.
Some firms say they care about the happiness and ‘well-being’ of their employees. But are such claims hype? Or might they be scientific good sense? This study provides evidence that happiness makes people more productive. First, we examine fundamental real-world shocks (bereavement and family illness) imposed by Nature. We show that lower happiness is associated with lower productivity. Second, within the laboratory, we design two randomized controlled trials. Some individuals are deliberately made happier, while those in a control group are not. The treated individuals have 10-12% greater productivity than those in the control group. These complementary kinds of evidence, with their different strengths and weaknesses, point to a consistent pattern. They suggest that happiness raises human performance.
This paper provides an axiomatic characterization of choices in a setting where a decision-maker may not fully internalize all the consequences of her choices on herself. Such a departure from rationality, it turns out, is common across a variety of positive behavioral models and admits the standard rational choice model as a special case. We show that choice data satisfying (a) Sen’s axioms and fully characterize behavioral decisions, and (b) Sen’s axiom and fully characterize standard decision-making. In addition, we show that (a) it is possible to identify a minimal and a maximal set of psychological states using choice data alone, and (b) under specific choice scenarios, "revealed mistakes" can be inferred directly from choice data.
106/2012 - Nicholas Crafts and Terence C MillsFiscal Policy in a Depressed Economy: Was There a 'Free Lunch' in 1930s' Britain?106/2012 - Nicholas Crafts and Terence C Mills
We report estimates of the fiscal multiplier for interwar Britain based on quarterly data and time-series econometrics. We find that the government-expenditure multiplier was in the range 0.3 to 0.9 even during the period that interest rates were at the lower bound. The scope for a ‘Keynesian solution’ to recession was much less than is generally supposed. In the later 1930s but not before Britain’s exit from the gold standard, there was a ‘fiscal free lunch’ in that deficit-financed government spending would have improved public finances enough to pay for the interest on the extra debt.
105/2012 - Kerry HicksonThe Untold Standards of Living Story: The GDP value of Twentieth Century Health Improvements in Developed Economies105/2012 - Kerry Hickson
Economists are aware that conventional measures of national income do not capture everything that is important to individuals. In particular, the value of huge improvments in health over the twentieth century has gone uncalculated. Usher (1980) and Nordhaus (2002) have emphasised the virtues of including mortality improvments in some form of extended national income measure. This paper therefore sets out a methodology that can be used to calculate the value of mortality and morbidity improvements. The results indicate that health improvements in developed economies have been worth at least $1 trillion. As such not accounting for historical health gains leads to a significant underestimate of improvements in standards of living and economic development.
This paper employs the concept of ‘defence news’ proposed by Ramey (2009) to develop a time series of shocks to UK defence spending in the interwar period at a quarterly frequency. ‘Defence news’ is the present value of changes to defence spending plans. Information on this is taken from contemporary sources, in particular, The Economist. The estimates in this paper can be used as an input to assessing the size of the fiscal multiplier in interwar Britain as in Crafts and Mills (2012).
103/2012 - Nicholas Crafts and Terence C MillsRearmament to the Rescue? New Estimates of the Impact of 'Keynesian' Policies in 1930s' Britain103/2012 - Nicholas Crafts and Terence C Mills
We report estimates of the fiscal multiplier for interwar Britain based on quarterly data, time-series econometrics, and ‘defense news’. We find that the government expenditure multiplier was in the range 0.5 to 0.8, much lower than previous estimates. The scope for a Keynesian solution to recession was much lower than is generally supposed. We do find that rearmament gave a substantial boost to real GDP after 1935 but this was because the private sector responded to news of massive future defense spending and does not imply that the multiplier effect of temporary public works programs would have been large.
This paper provides a simple theoretical model of capital tax competition between countries that di¤er in spatial location, and where cross-border investment costs are proportional to distance (a gravity model). We model EU membership as a reduction in ‘distance’ between countries. Precise predictions about reaction functions’ intercepts and slopes are derived. In particular we find that joining the Union lowers tax reaction function’s intercept and that all countries react more to member countries than they do to non-members. These predictions are largely confirmed using a panel data set of statutory corporate tax rates on Western European countries.
This paper derives a micro-founded gravity equation based on a translog demand system that allows for flexible substitution patterns across goods. In contrast to the standard CES-based gravity equation, translog gravity generates an endogenous trade cost elasticity. Trade is more sensitive to trade costs if the exporting country only provides a small share of the destination country’s imports. As a result, trade costs have a heterogeneous impact across country pairs, with some trade flows predicted to be zero. I test the translog gravity equation and find empirical evidence that is in many ways consistent with its predictions.
100/2012 - Jan-Emmanuel De Neve and Andrew J. OswaldEstimating the influence of life satisfaction and positive affect on later income using sibling fixed-effects100/2012 - Jan-Emmanuel De Neve and Andrew J. Oswald
The question of whether there is a connection between income and psychological well-being is a long-studied issue across the social, psychological, and behavioral sciences. Much research has found that richer people tend to be happier. However, relatively little attention has been paid to whether happier individuals perform better financially in the first place. This possibility of reverse causality is arguably understudied. Using data from a large US representative panel we show that adolescents and young adults who report higher life satisfaction or positive affect grow up to earn significantly higher levels of income later in life. We focus on earnings approximately one decade after the person’s well-being is measured; we exploit the availability of sibling clusters to introduce family fixed-effects; we account for the human capacity to imagine later socio-economic outcomes and to anticipate the resulting feelings in current wellbeing. The study’s results are robust to the inclusion of controls such as education, IQ, physical health, height, self-esteem, and later happiness. We consider how psychological well-being may influence income. Sobel-Goodman mediation tests reveal direct and indirect effects that carry the influence from happiness to income. Significant mediating pathways include a higher probability of obtaining a college degree, getting hired and promoted, having higher degrees of optimism and extraversion, and less neuroticism.
99/2012 - David Hugh Jones and Martin LerochReciprocity towards groups: a laboratory experiment on the causes99/2012 - David Hugh Jones and Martin Leroch
Field studies of conflict report cycles of mutual revenge between groups, often linked to perceptions of intergroup injustice. We test the hypothesis that people are predisposed to reciprocate against groups. In a computerized laboratory experiment, subjects who were harmed by a partner’s uncooperative action reacted by harming other members of the partner’s group. This group reciprocity was only observed when one group was seen to be unfairly advantaged. Our results support a behavioral mechanism leading from perceived injustice to intergroup conflict. We discuss the relevance of group reciprocity to economic and political phenomena including conflict, discrimination and team competition.
98/2012 - Suresh de Mel, David McKenzie, Christopher WoodruffBusiness Training and Female Enterprise Start-up, Growth, and Dynamics: Experimental evidence from Sri Lanka98/2012 - Suresh de Mel, David McKenzie, Christopher Woodruff
We conduct a randomized experiment among women in urban Sri Lanka to measure the impact of the most commonly used business training course in developing countries, the Start-and-Improve Your Business (SIYB) program. We work with two representative groups of women: a random sample of women operating subsistence enterprises and a random sample of women who are out of the labor force but interested in starting a business. We track impacts of two treatments – training only and training plus a cash grant – over two years with four follow-up surveys and find that the short- and medium-term impacts differ. For women already in business, training alone leads to some changes in business practices but has no impact on business profits, sales or capital stock. In contrast the combination of training and a grant leads to large and significant improvements in business profitability in the first eight months, but this impact dissipates in the second year. For women interested in starting enterprises, we find that business training speeds up entry but leads to no increase in net business ownership by our final survey round. Both profitability and business practices of the new entrants are increased by training, suggesting training may be more effective for new owners than for existing businesses. We also find that the two treatments have selection effects, leading to entrants being less analytically skilled and poorer.
97/2012 - Sascha O. Becker, Karolina Ekholm and Marc-Andreas MuendlerOffshoring and the Onshore Composition of Tasks and Skills97/2012 - Sascha O. Becker, Karolina Ekholm and Marc-Andreas Muendler
We analyze the relationship between offshoring and the onshore workforce composition in German multinational enterprises (MNEs), using plant data that allow us to discern tasks, occupations, and workforce skills. Offshoring is associated with a statistically significant shift towards more non-routine and more interactive tasks, and with a shift towards highly educated workers. The shift towards highly educated workers is in excess of what is implied by changes in either the task or the occupational composition. Offshoring to low-income countries—with the exception of Central and Eastern European countries—is associated with stronger onshore responses. We find offshoring to predict between 10 and 15 percent of observed changes in wage-bill shares of highly educated workers and measures of non-routine and interactive tasks.
96/2012 - Sascha O. Becker, Francesco Cinnirella, Erik Hornung and Ludger WoessmanniPEHD - The ifo Prussian Economic History Database96/2012 - Sascha O. Becker, Francesco Cinnirella, Erik Hornung and Ludger Woessmann
This paper provides a documentation of the ifo Prussian Economic History Database (iPEHD), a county-level database covering a rich collection of variables for 19th -century Prussia. The Royal Prussian Statistical Office collected these data in several censuses over the years 1816-1901, with much county-level information surviving in archives. These data provide a unique source for microregional empirical research in economic history, enabling analyses of the importance of such factors as education, religion, fertility, and many others for Prussian economic development in the 19th century. The service of iPEHD is to provide the data in a digitized and structured way.
95/2012 - Victor LavyExpanding School Resources and Increasing Time on Task: Effects of a Policy Experiment in Israel on Student Academic Achievement and Behavior95/2012 - Victor Lavy
In this paper, I examine how student academic achievements and behavior were affected by a school finance policy experiment undertaken in elementary schools in Israel. Begun in 2004, the funding formula changed from a budget set per class to a budget set per student, with more weight given to students from lower socioeconomic and lower educational backgrounds. The experiment altered teaching budgets, the length of the school week, and the allocation of time devoted to core subjects. The results suggest that spending more money and spending more time at school and on key tasks all lead to increasing academic achievements with no behavioral costs. I find that the overall budget per class has positive and significant effects on students' average test scores and that this effect is symmetric and identical for schools that gained or lost resources due to the funding reform. Separate estimations of the effect of increasing the length of the school week and the subject-specific instructional time per week also show positive and significant effects on math, science, and English test scores. However, no cross effects of additional instructional time across subjects emerge, suggesting that the effect of overall weekly school instruction time on test scores reflects only the effect of additional instructional time in these particular subjects. As a robustness check of the validity of the identification strategy, I also use an alternative method that exploits variation in the instruction time of different subjects. Remarkably, this alternative identification strategy yields almost identical results to the results obtained based on the school funding reform. Additional results suggest that the effect on test scores is similar for boys and girls but it is much larger for pupils from low socioeconomic backgrounds and it is also more pronounced in schools populated with students from homogenous socioeconomic backgrounds. The evidence also shows that a longer school week increases the time that students spend on homework without reducing social and school satisfaction and without increasing school violence.
94/2012 - Eugenio Proto and Aldo RustichiniA Reassessment of the Relationship Between GDP and Life Satisfaction94/2012 - Eugenio Proto and Aldo Rustichini
Determining the relation between life satisfaction and aggregate income at country level has been problematic, because cross-country and times-series analysis generally give different conclusions. Here we analyze this relation without imposing any polynomial structure to the estimated model and eliminating potentially confounding country-specific factors.We show the existence of a bliss point in the interval between 26,000$ and 30,000$ (2005 in PPP) in relationship between individual life satisfaction and GDP. An almost identical result is found when the relationship between aggregate income of Western European regions and life satisfaction of their residents is analyzed: in this case, data suggest a bliss point between 30,000$ and 33,000$. In both samples, we find first evidence of a decreasing level of life satisfaction after the bliss points. Therefore, the analysis overall shows the existence of a hump-shaped pattern between GDP and life satisfaction.We discuss possible explanations of the hump-shaped pattern linked to external effects of the aggregate income on life satisfaction due, for example, to habit formation and income comparison and present an econometric test of this potential explanation based on some recent findings of the ve-factor personality theory.
93/2012 - Gianluca Grimalday , Anirban Karz and Eugenio ProtoEveryone Wants a Chance: Initial Positions and Fairness in Ultimatum Games93/2012 - Gianluca Grimalday , Anirban Karz and Eugenio Proto
Fairness emerges as a relevant factor in redistributive preferences in surveys and experiments. We study experimentally the impact of varying the probability with which players are assigned to initial positions in Ultimatum Games (UGs). In the baseline case players have equal opportunities of being assigned the proposer position –arguably the more advantaged one in UGs. Chances become increasingly unequal across three treatments. We also manipulate the inter-temporal allocation of opportunities over rounds. We find that: (1) The more initial chances are distributed unequally, the lower the acceptance rates of a given offer; consequently, offers increase; (2) Being assigned a mere 1% chance of occupying the proposer role compared to none, significantly increases acceptance rates and decreases offers; (3) Players accept even extreme amounts of unequal chances within each round in exchange for overall equality of opportunities across rounds. Procedural fairness–both static and dynamic - has clear relevance for individuals.
The paper examines the range of national experiences of communist rule in terms of the aspiration to ‘overtake and outstrip the advanced countries economically’. It reviews the causal beliefs of the rulers, the rise and fall of their economies (or, in the case of China, its continued rise), the core institutions of communist rule and their evolution, and other outcomes. The process of overcoming a development lag so as to approach the global technological frontier has required continual institutional change and policy reform in the face of resistance from established interests. So far, China is the only country where communist rule has been able to meet this requirement, enabled by a new deal with political and economic stakeholders. The paper places the “China Deal” on a spectrum previously limited to the Soviet Big and Little Deals.
This paper reviews selected aspects of the history of UK supply-side policy in terms of their productivity implications. An important change after the 1970s which improved productivity performance was the adoption of policies to end protectionism and strengthen competition. A review of horizontal industrial policies shows weaknesses in education, infrastructure, taxation and, especially, land-use planning but, on the positive side, a regulatory stance conducive to the rapid adoption of ICT. A big implication is that any return to a more active industrial policy should be designed to minimize adverse effects on competition.
90/2012 - Amrita Dhillon, Vegard Iversen and Gaute TorsvikEmployee referral, social proximity and worker discipline90/2012 - Amrita Dhillon, Vegard Iversen and Gaute Torsvik
We study ex-post hiring risks in low income countries with limited legal and regulatory frameworks. In our theory of employee referral, the new recruit internalises the rewards and punishments of the in-house referee meted out by the hiring rm. This social mechanism makes it cheaper for the rm to induce worker discipline. The degree of internalization depends on the unobserved strength of the endogenous social tie between the referee and the recruit.When the referee's utility is increasing in the strength of ties, referee workplace incentives do not matter and referee and employer incentives are aligned: in this case industries and jobs with high costs of opportunism and where dense kinship networks can match the skill requirements of employers will have clusters of close family and friends. This no longer applies if the referee's utility is decreasing in the strength of ties: referrals are then more costly for rms and require higher referee wages. We illustrate how these insights add to our understanding of South-Asian labour markets.
89/2012 - Sascha O. Becker, Peter H. Egger and Maximilian von EhrlichAbsorptive Capacity and the Growth and Investment Effects of Regional Transfers: A Regression Discontinuity Design with Heterogeneous Treatment Effects89/2012 - Sascha O. Becker, Peter H. Egger and Maximilian von Ehrlich
Researchers often estimate average treatment e ects of programs without investigating heterogeneity across units. Yet, individuals, rms, regions, or countries vary in their ability, e.g., to utilize transfers. We analyze Objective 1 Structural Funds transfers of the European Commission to regions of EU member states below a certain income level by way of a regression discontinuity design with systematically heterogeneous treatment effects. Only about 30% and 21% of the regions - those with suffcient human capital and good-enough institutions - are able to turn transfers into faster per-capita income growth and per-capita investment. In general, the variance of the treatment effect is much bigger than its mean.
88/2012 - Mariela Dal Borgo, Peter Goodridge, Jonathan Haskel and Annarosa PesoleProductivity and Growth in UK Industries: An Intangible Investment Approach88/2012 - Mariela Dal Borgo, Peter Goodridge, Jonathan Haskel and Annarosa Pesole
This paper tries to calculate some facts for the “knowledge economy”. Building on the work of Corrado, Hulten and Sichel (CHS, 2005,9), using new data sets and a new micro survey, we (1) document UK intangible investment and (2) see how it contributes to economic growth. Regarding investment in knowledge/intangibles, we find (a) this is now greater than tangible investment at, in 2008, £141bn and £104bn respectively; (b) that R&D is about 11% of total intangible investment, software 15%, design 17%, and training and organizational capital 22%; (d) the most intangible-intensive industry is manufacturing (intangible investment is 20% of value added) and (e) treating intangible expenditure as investment raises market sector value added growth in the 1990s due to the ICT investment boom, but slightly reduces it in the 2000s. Regarding the contribution to growth, for 2000-08, (a) intangible capital deepening accounts for 23% of labour productivity growth, against computer hardware (12%) and TFP (40%); (b) adding intangibles to growth accounting lowers TFP growth by about 15% (c) capitalising R&D adds 0.03% to input growth and reduces lnTFP by 0.03% and (d) manufacturing accounts for just over 40% of intangible capital deepening plus TFP.
87/2012 - Emanuele Bracco, Michela Redoano and Francesco PorcelliIncumbent Effects and Partisan Alignment in Local Elections: a Regression Discontinuity Analysis Using Italian Data87/2012 - Emanuele Bracco, Michela Redoano and Francesco Porcelli
This paper provides a simple model to explain effect of political alignment between different tiers of government on policy choices and election outcomes. We derive precise predictions that, as long as voters attribute most of the credit for providing public goods to the local government: (i) aligned municipalities receive more grants, set lower taxes and provide more public goods, (ii) that the probability that the local incumbent is re-elected is higher in aligned municipalities compared to not aligned ones. Our empirical strategy to identify the alignment effects is built upon the fact that being or not aligned changes discontinuously at 50% of the vote share of local parties. This allows us to use sharp regression discontinuity design. Our theoretical predictions are largely confirmed using a new dataset on Italian public finance and electoral data at the central and local level.
86/2012 - Eugenio Proto and Aldo RustichiniLife Satisfaction, Household Income and Personality Traits86/2012 - Eugenio Proto and Aldo Rustichini
We show that personality traits mediate the e ect of income on Life Satisfaction. The effect is strong in the case of Neuroticism, which measures the sensitivity to threat and punishment, in both the British Household Panel Survey and the German Socioeconomic Panel. Neuroticism increases the usually observed concavity of the relationship: Individuals with higher Neuroticism score enjoy income more than those with lower score if they are poorer and enjoy income less if they are richer. When the interaction between income and neuroticism is introduced, income does not have significant effect on his own.To interpret the results, we present a simple model where we assume that (i) Life Satisfaction is dependent from the gap between aspired and realized income, and this is modulated by Neuroticism and (ii) income increases in aspirations with a slope less than unity, so that the gap between aspired and realized income increase with aspirations. From the estimation of this model we argue that poorer tend to overshoot in their aspiration, while rich tend to under-shoot. The estimation of the model also shows substantial effect of traits on income.
This paper analyzes how opportunistic governments choose between alternative fiscal policies in order to increases their chances of re-election. To increase the provision of public goods shortly before elections – and thus, to generate a fiscal political business cycles – governments may either increase deficits or redistribute governmental resources from longterm efficient sources to short-term efficient public programs. We argue that incumbents who face highly competed elections principally have an incentive to spend more on public goods even though these investments are not efficient in the long term. In principal, they would do so by increasing the deficits (with re-balancing the budget after the election). However, our model demonstrates that incumbents would even electioneer at the cost of long-term investments if the extent of fiscal transparency does not allow them to finance the provision of public goods with higher deficits. In other words, if elections are close and voters may observe the governmental deficit, then governments tend to increase the provision of public goods – and consequently, their electoral prospects – by a redistribution of budget resources from long-term efficient investment to a short-term provision of public goods. We test the predictions with new data on the composition of government consumption for 17 OECD countries over 35 years. The preliminary findings suggest that governments indeed reshuffle resources from long-term efficient investment to short-term public goods before electionsespecially if elections are contested.
This paper attempts at giving theoretical and empirical answers to the remaining puzzles in the literature on tax competition: the persistently high tax rates on mobile capital and the large variation in domestic tax systems. I argue that governments face a political trilemma, in which they cannot maintain the politically optimal level of public good provision, reduce capital taxes to competitive levels and implement a political support-maximizing mix of tax rates on capital and labour simultaneously. In particular, while legal restriction on capital flows have been eliminated by virtually all OECD countries, de facto capital mobility falls short of being perfect. Limits to full capital mobility result from ownership structures: the higher the concentration of capital, the higher the de facto mobility of capital and the lower the equilibrium tax rate. Second, the demand for the provision of public goods further constraints governments’ choices of the capital tax rate. If revenue from taxation of mobile factors declines, politicians cannot necessarily cut back spending without losing political support. Policy makers, accordingly, do not face a simple optimization problem when deciding on capital taxation. Rather, they have to choose a tax system which allows them to supply an appropriate level of public goods. Policy makers finally face a trade-off resulting from the redistributive conflict between capital-owners and workers. This conflict does not resemble a mere zero-sum game, because lower levels of capital taxation are likely to improve aggregate welfare, but the decision on capital taxation also cannot be analyzed in isolation from the distributive effects of reducing taxes on mobile factors. This political logic of tax competition generates important predictions which are tested empirically for 23 OECD countries over 30 years within a spatial econometrics framework.
83/2012 - Thomas Plümper and Vera E. TroegerTax Competition and Income Inequality: Why did the Welfare State Survive83/2012 - Thomas Plümper and Vera E. Troeger
Contrary to the belief of many, tax competition did not undermine the foundations of the welfare state and did not even abolish the taxation of capital. Instead, tax competition caused governments to shift the tax burden from capital to labor, thereby increasing income inequality in liberal market economies that traditionally redistribute income by relatively high effective capital taxes and relatively low effective labor taxes. In contrast, income inequality did increase little or not at all in social welfare states that dominantly use social security transfers to redistribute income. Governments in social welfare states found it easy to maintain high social expenditures because they increasingly taxed labor, which is relatively immobile, to finance social security transfers. We test the predictions of this theory using a simultaneous equation approach that accounts for the endogeneity of tax policies, fiscal policies, and deficits.
82/2012 - Vera E. TroegerMonetary Policy Flexibility in floating Exchange Rate Regimes: Currency Denomination and Import Shares82/2012 - Vera E. Troeger
This paper argues that the degree of monetary flexibility a government enjoys does not only depend on the implemented monetary institutions such as exchange rate arrangements and central bank independence but also on the economic and financial relationships with key currency areas. I develop a formal theoretical framework explaining the degree of monetary independence in open economies under flexible exchange rate regimes by trading relations and financial integration. The model suggests that a) higher import shares from the key currency area increase the imported inflation when monetary authorities try to offset an exogenous shock by cutting back the interest rate while the base country does not encounter a similar shock, and b) the more cross border assets of a country are denominated in the base currency the higher the exchange rate effects of interest rate differences to the interest rate of the key currency area. The presented empirical evidence largely supports the theoretical predictions.
81/2012 - Stephen Broadberry and Bishnupriya GuptaIndia and The Great Divergence: An Anglo-Indian Comparison of GDP per capita, 1600-187181/2012 - Stephen Broadberry and Bishnupriya Gupta
This paper provides estimates of Indian GDP constructed from the output side for the pre-1871 period, and combines them with population estimates to track changes in living standards . Indian per capita GDP declined steadily during the seventeenth and eighteenth centuries before stabilising during the nineteenth century. As British living standards increased from the mid-seventeenth century, India fell increasingly behind. Whereas in 1600, Indian per capita GDP was over 60 per cent of the British level, by 1871 it had fallen to less than 15 per cent. As well as placing the origins of the Great Divergence firmly in the early modern period, the estimates suggest a relatively prosperous India at the height of the Mughal Empire, with living standards well above bare bones subsistence.
We study the effect of railroad access on urban population growth. Using GIS techniques, we match triennial population data for roughly 1000 cities in nineteenth-century Prussia to georeferenced maps of the German railroad network. We find positive short- and long-term effects of having a station on urban growth for different periods during 1840-1871. Causal effects of (potentially endogenous) railroad access on city growth are identified using instrumental-variable and fixed-effects estimation techniques. Our instrument identifies exogenous variation in railroad access by constructing straight-line corridors between terminal stations. Counterfactual models using pre-railroad growth yield no evidence in support of the hypothesis that railroads appeared as a consequence of a previous growth spurt.
As with global warming, so with financial crises – externalities have a lot to answer for. We look at three of them. First the financial accelerator due to 'fire sales' of collateral assets - - a form of pecuniary externality that leads to liquidity being undervalued. Second the 'risk-shifting' behaviour of highly-levered financial institutions who keep the upside of risky investment while passing the downside to others thanks to limited liability. Finally, the network externality where the structure of the financial industry helps propagate shocks around the system unless this is checked by some form of circuit breaker , or 'ring-fence'.The contrast between crisis-induced Great Recession and its aftermath of slow growth in the West and the rapid - and (so far) sustained - growth in the East suggests that successful economic progress may depend on how well these externalities are managed.
78/2012 - Fabian WaldingerBombs, Brains, and Science: The Role of Human and Physical Capital for the Creation of Scientific Knowledge78/2012 - Fabian Waldinger
This paper analyzes the effects of human capital (HC) and physical capital (PC) for the productivity of science departments. To address the endogeneity of input choices I use two extensive but temporary shocks to the HC and PC of science departments. As HC shock I use the dismissal of mostly Jewish scientists in Nazi Germany. As PC shock I use the destruction of facilities by Allied bombings during WWII. In the short run, a 10 percent to HC lowered departmental productivity by about 0.21sd. A 10 percent shock to PC lowered departmental productivity by about 0.05sd in the short run. While the HC shock persisted until the end of my sample period (1980), departments experiencing a PC shock recovered very quickly (by 1961). Additional results show that the dismissal 'star scientists' was particularly detrimental, and that a fall in the quality of hires was an important mechanism for the persistence of the HC shock.
77/2012 - Patrick Legros, Andrew F. Newman and Eugenio ProtoSmithian Growth Through Creative Organisation77/2012 - Patrick Legros, Andrew F. Newman and Eugenio Proto
We consider a model in which appropriate organization fosters innovation, but because of contractibility problems, this benefit cannot be internalized. The organizational design element we focus on is the division of labor, which as Adam Smith argued, facilitates invention by observers of the production process. However, entrepreneurs choose its level only to facilitate monitoring their workers. Whether there is innovation depends on the interaction of the markets for labor and for inventions. A high level of specialization is chosen when the wage share is low. But low wage shares arise only when there are few entrepreneurs, which limits the market for innovations therefore and discourages inventive activity. When there are many entrepreneurs, the innovation market is large, but the rate of invention is low because there is little specialization. Rapid technological progress therefore requires a balance between these opposing effects, which occurs with a moderate relative scarcity of entrepreneurs and workers. In a dynamic version of the model in which a credit constraint limits entry into entrepreneurship, this relative scarcity depends on the wealth distribution, which evolves endogenously. There is an inverted-U relation between growth rates driven by innovation and the level of inequality. Institutional improvements have ambiguous effects on growth. In light of the model, we offer a reassessment of the mechanism by which organizational innovations such as the factory may have spawned the industrial revolution.
76/2012 - Andrew Powell, Antonia Maier and Marcus MillerPrudent Banks and Creative Mimics: Can we tell the difference?76/2012 - Andrew Powell, Antonia Maier and Marcus Miller
The recent financial crisis has forced a rethink of banking regulation and supervision and the role of financial innovation. We develop a model where prudent banks may signal their type through high capital ratios. Capital regulation may ensure separation in equilibrium but deposit insurance will tend to increase the level of capital required. If supervision detects risky behaviour ex ante then it is complementary to capital regulation. However, financial innovation may erode supervisors' ability to detect risk and capital levels should then be higher. But regulators may not be aware their capacities have been undermined. We argue for a four-prong policy response with higher bank capital ratios, enhanced supervision, limits to the use of complex financial instruments and Coco's. Our results may support the institutional arrangements proposed recently in the UK.
We perform an experiment designed to assess the accuracy of beliefs about distributions. The beliefs relate to behavior (mobile phone purchasing decisions, hypothetical restaurant choices), attitudes (happiness, politics) and observable characteristics (height, weight) and are typically formed through real world experiences. We find a powerful and ubiquitous bias in perceptions that is "self-centered" in the sense that an individual's beliefs about the population distribution changes with their own position in the distribution. In particular, those at extremes tend to perceive themselves as closer to the middle of the distribution than is the case. We discuss possible explanations for this bias.
This paper describes the main trends of the Russian economy through the Great War (1914 to 1917), Civil War (1918 to 1921), and postwar famine (1921 to 1922) for the general reader. During its Great War mobilization the Russian economy declined, but no more than other continental economies under similar pressures. In contrast, the Civil War inflicted the greatest economic trauma that Russians suffered in the course of the twentieth century. The paper identifies the main shocks in each period evaluates the relative contributions of circumstances and policy, and sums up their historical significance.
73/2012 - Marcus Miller, Neil Rankin and Lei ZhangBorrowing from thy neighbour: a European perspective on sovereign debt73/2012 - Marcus Miller, Neil Rankin and Lei Zhang
European capital markets show increasing concern about the extent of sovereign debts and their sustainability. Here we explore some insights that the Overlapping Generations (OLG) framework has to offer on such issues. The OLG framework implies, for example, that there is a limit to the amount of debt that may be sustained in a closed economy - with high debt raising interest rates and crowding out capital formation. But capital market integration with less indebted partners allows for a fall in interest rates as a result of borrowing from one's neighbour. Indeed we find that - in equilibrium - most of the debt of a high indebted country will be transferred to partner countries.Rather like ECB discount policy, our formal analysis is conducted without taking sovereign default risk properly into account, however. We go on to discuss three possible sources of default risk - creditor panic, exogenous interest rate shocks and "over-borrowing" - and we emphasize the need for comparative statics to be complemented by disequilibrium dynamics.
A powerful test of Varian's (1982) generalised axiom of revealed preference (GARP) with two goods requires the consumer's budget line to pass through two demand vectors revealed as chosen given other budget sets. In an experiment using this idea, each of 41 student subjects faced a series of 16 successive grouped portfolio selection problems. Each group of selection problems had up to three stages, where later budget sets depended on that subject's choices at earlier stages in the same group. Only 49% of subjects' choices were observed to satisfy GARP exactly, even by our relatively generous non-parametric test.
This paper surveys the recent history of Western European growth. It concludes that this experience has been disappointing and that further reforms are desirable in many countries. The requirement for reform comes both from achieving 'close-to-frontier' status and from the opportunities provided by the new technological era. The paper goes on to consider the effects that the current crisis may have on medium-term growth rates. The lesson from the 1930s is that, if the current crisis leads to a similarly bad downturn, the policy reaction in terms of greater state intervention will not be conducive to improved growth prospects.
70/2012 - Sascha O. Becker, Peter H. Egger and Maximilian von EhrlichToo much of a good thing? On the growth effects of the EU's regional policy70/2012 - Sascha O. Becker, Peter H. Egger and Maximilian von Ehrlich
The European Union (EU) provides grants to disadvantaged regions of member states from two pools, the Structural Funds and the Cohesion Fund. The main goal of the associated transfers is to facilitate convergence of poor regions (in terms of per-capita income) to the EU average. We use data at the NUTS3 level from the last two EU budgetary periods (1994-99 and 2000-06) and generalized propensity score estimation to analyze to which extent the goal of fostering growth in the target regions was achieved with the funds provided and whether or not more transfers generated stronger growth effects. We find that, overall, EU transfers enable faster growth in the recipient regions as intended, but we estimate that in 36% of the recipient regions the transfer intensity exceeds the aggregate efficiency maximizing level and in 18% of the regions a reduction of transfers would not even reduce their growth. We conclude that some reallocation of the funds across target regions would lead to higher aggregate growth in the EU and could generate even faster convergence than the current scheme does.
69/2012 - Arthur Blouin , Sayantan Ghosal and Sharun W. MukandGlobalization and the (Mis)Governance of Nations69/2012 - Arthur Blouin , Sayantan Ghosal and Sharun W. Mukand
We analyze whether or not the globalization of capital, 'disciplines' governments and improves governance. We demonstrate that globalization affects governance, by increasing a country's vulnerability to sudden capital flight. This increased threat of capital flight can discipline governments and improve governance and welfare by placing countries in a 'golden straitjacket'. However, globalization may also 'overdiscipline' governments - resulting in a perverse impact on governmental incentives that catalyzes (mis)governance. Accordingly, the paper suggests a novel (and qualified) role for capital controls. Finally, we provide some suggestive evidence consistent with the predictions from our theoretical framework.
When financial markets freeze in fear, borrowing costs for solvent governments may fall towards zero in a flight to quality – but credit-worthy private borrowers can be starved of external funding. In Kiyotaki and Moore (2008), where liquidity crisis is captured by the effective rationing of private credit, tightening credit constraints have direct effects on investment. If prices are sticky, the effects on aggregate demand can be pronounced – as reported by FRBNY for the US economy using a calibrated DSGE-style framework modified to include such frictions.In such an environment, two factors stand out. First the recycling of credit flows by central banks can dramatically ease credit-rationing faced by private investors: this is the rationale for Quantitative Easing. Second, revenue-neutral fiscal transfers aimed at would-be investors can have similar effects. We show these features in a stripped-down macro model of inter-temporal optimisation subject to credit constraints
This paper applies mechanism design to conflict resolution. We determine when and how unmediated communication and mediation reduce the ex ante probability of conflict in a game with asymmetric information. Mediation improves upon unmediated communication when the intensity of conflict is high, or when asymmetric information is significant. The mediator improves upon unmediated communication by not precisely reporting information to conflicting parties, and precisely, by not revealing to a player with probability one that the opponent is weak. Arbitrators who can enforce settlements are no more effective than mediators who only make non-binding recommendations.
66/2011 - Marcus Miller, Lei Zhang, and Han Hao LiWhen bigger isn’t better: bailouts and bank behaviour66/2011 - Marcus Miller, Lei Zhang, and Han Hao Li
Lending retail deposits to SMEs and household borrowers may be the traditional role of commercial banks: but banking in Britain has been transformed by increasing consolidation and by the lure of high returns available from wholesale Investment activities. With appropriate changes to the baseline model of commercial banking in Allen and Gale (2007), we show how market power enables banks to collect 'seigniorage'; and how 'tail risk' investment allows losses to be shifted onto the taxpayer.In principle, the high franchise values associated with market power assist regulatory capital requirements to check risk-taking. But when big banks act strategically, bailout expectations can undermine these disciplining devices: and the taxpayer ends up 'on the hook' - as in the recent crisis. That structural change is needed to prevent a repeat seems clear from the Vickers report, which proposes to protect the taxpayer by a 'ring fence' separating commercial and investment banking
This paper considers the optimal taxation of savings intermediation and payment services in a dynamic general equilibrium setting, when the government can also use consumption and income taxes. When payment services are used in strict proportion to final consumption, and the cost of intermediation services is fixed and the same across firms, the optimal taxes are generally indeterminate. But, when firms differ exogenously in the cost of intermediation services, the tax on savings intermediation should be zero. Also, when household time and payment services are substitutes in transactions, the optimal tax rate on payment services is determined by the returns to scale in the conditional demand for payment services, and is generally different to the optimal rate on consumption goods. In particular, with constant returns to scale, payment services should be untaxed. These results can be understood as applications of the Diamond-Mirrlees production efficiency theorem. Finally, as an extension, we endogenize intermediation, in the form of monitoring, and show that it may be oversupplied in equilibrium when banks have monopoly power, justifying a Pigouvian tax in this case.
64/2011 - Anandi ManiMine, Yours or Ours? The Efficiency of Household Investment Decisions: An Experimental Approach64/2011 - Anandi Mani
We conduct an experiment to measure the relative importance of key factors that influence the efficiency of household investment decisions. We find that, both for men and women, their spouse's access to information does not affect efficiency. However, they are willing to sacrifice much efficiency for greater personal control over household income. Intriguingly, even when spouses' control over household income is exogenously assigned, inefficiency persists: As a wife's assigned share increased, husbands undercut their own income to reduce hers. This self-destructive and spiteful behaviour is best explained by non-economic factors such as identity, seldom emphasized in the mainstream household economic models.
63/2011 - Lakshmi Iyer, Anandi Mani, Prachi Mishra and Petia TopalovaThe Power of Political Voice: Women's Political Representation and Crime in India63/2011 - Lakshmi Iyer, Anandi Mani, Prachi Mishra and Petia Topalova
Using state-level variation in the timing of political reforms, we find that an increase in female representation in local government induces a large and significant rise in documented crimes against women in India. Our evidence suggests that this increase is good news, as it is driven primarily by greater reporting rather than greater incidence of such crimes. In contrast, we find no increase in crimes against men or gender-neutral crimes. We also examine the effectiveness of alternative forms of political representation: large scale membership of women in local councils affects crime against them more than their presence in higher level leadership positions.
62/2011 - Stephen Broadberry, Claire Giordano and Francesco ZollinoA Sectoral Analysis of Italy's Development: 1861-201062/2011 - Stephen Broadberry, Claire Giordano and Francesco Zollino
Italy‘s economic growth over its 150 years of unified history did not occur at a steady pace nor was it balanced across sectors . Relying on an entirely new input (labour and capital) database by us built and presented in the Appendix, together with new Banca d‘Italia estimates of GDP by sector, this paper evaluates the different labour productivity growth trends within the Italian economy's sectors, as well as the contribution of structural change to productivity growth. Italy‘s performance is then set in an international context: a comparison of sectoral labour productivity growth rates and levels within a selected sample of countries (UK, US, Germany, Japan, India) allows us to better time, quantify and gauge the causes of Italy's catching-up process and subsequent more recent slowdown. Finally, the paper analyses the proximate sources of Italy's growth, relative to the other countries, in a standard growth accounting framework, in an attempt also to disentangle the contribution of both total factor productivity growth and capital deepening to the country's labour productivity dynamics.
After the Golden Age, Italy experienced increasing difficulties in adjusting its economy to the changing external context and to the requirements for sustaining catch-up growth at a higher level of economic development. The adjustment issue is common to advanced countries but the difficulties experienced in Italy look particularly severe. Cushioned by inflation and devaluation, growth remained relatively high in the 1970s. In the subsequent decade, in spite of improved conditions for addressing macroeconomic disequilibria structural adjustments were neglected. Major supply side reforms were eventually implemented in the aftermath of the 1992 crisis. Nevertheless, in the second half of the decade growth fell below the EU average. These necessary reforms fell however short of what was required. Participation in EMU did not help as far as the improvement of growth prospects was concerned. In the last section some of the economic and meta-economic factors explaining the ineffectiveness of the reform process are briefly explored.
The nineteenth century witnessed the triumph of capitalism; the twentieth century saw the bloodiest wars in history. Is there a connection? The paper reviews the literature and evidence. It considers first whether capitalism has lowered the cost of war; then, whether capitalism has shown a preference for war. Both questions are considered comparatively. Neither question receives a clear cut answer, but to simplify: Yes; No.
The Soviet state counted people, resources – and secret papers. The need to account for secrets was a transaction cost of autocratic government. This paper finds archival evidence of significant costs, multiplied by secrecy’s recursive aspect: the system of accounting for secrets was also secret and so had to account for itself. The evidence suggests that most Soviet officials complied most of the time. Numerous instances also imply that careless handling could take root and spread locally until higher authorities intervened. The paper uses the case of a small regional bureaucracy, the Lithuania KGB, to estimate the aggregate costs of handling secret paperwork. Over the period from 1954 to 1982, accounting for secrets makes up around one third of this organization’s archived records. This figure is surprisingly large, and is the main new fact contributed by the paper. There is much time variation, some of it not easily explained.
This paper considers the future of economic history in the context of its relationship with economics. It is argued that there are strong synergies between the two disciplines and that awareness of the economic past is an important resource for today’s economists. Examples are given that illustrate these points. It is clear that the past has useful economics but the potential value of economic history to economics will only be realized if economic historians are fluent in economics and organize the presentation of their research findings with a view to addressing questions that matter from a policy perspective.
57/2011 - Natalie Chen, Paola Conconi and Carlo PerroniMulti-Trait Matching and Intergenerational Mobility: A Cinderella Story57/2011 - Natalie Chen, Paola Conconi and Carlo Perroni
Empirical studies of intergenerational social mobility have found that women are more mobile than men. To explain this finding, we describe a model of multi-trait matching and inheritance, in which individuals’ attractiveness in the marriage market depends on their market and non-market characteristics. We show that the observed gender differences in social mobility can arise if market characteristics are relatively more important in determining marriage outcomes for men than for women and are more persistent across generations than non-market characteristics. Paradoxically, the female advantage in social mobility may be due to their adverse treatment in the labor market. A reduction in gender discrimination in the labor market leads to an increase in homogamy in the marriage market, lowering social mobility for both genders.
56/2011 - Stephen BroadberryRecent developments in the theory of very long run growth: A historical appraisal56/2011 - Stephen Broadberry
This paper offers a historical appraisal of recent developments in the theory of very long run growth, focusing on two main areas: (1) linkages between wages, population and human capital and (2) interactions between institutions, markets and technology. Historians as well as economists have recently begun to break away from the traditional practice of using different methods to analyse the world before and after the industrial revolution. However, tensions remain between the theoretical and historical literatures, particularly over the unit of analysis (the world or particular countries) and the role of historical contingency.
In an incentivized experiment we identify a powerful and ubiquitous bias: individuals regard their own characteristics and choices as more common than is the case. We establish this "false consensus" bias in terms of happiness, political stance, mobile phone brand and on the attitude to deference in a hypothetical restaurant choice, and show that it is not limited to the distribution of hard to observe characteristics and choices but also to weight and height. We also show that the bias is not driven by the fact that the tallest, happiest, most left/right-wing, etc. are more salient.
54/2011 - Stephen Broadberry, Sayantan Ghosal and Eugenio ProtoIs Anonymity the Missing Link Between Commercial and Industrial Revolution?54/2011 - Stephen Broadberry, Sayantan Ghosal and Eugenio Proto
The Industrial Revolution is often characterized as the culmination of a process of commercialisation; however, the precise nature of such a link remains unclear. This paper models and analyses one such link: the impact of a higher degree of anonymity of market transactions on relative factor prices. Commercialisation raises wages as impersonal labour market transactions replace personalized customary relations. This leads, in equilibrium, to higher real wages to prevent shirking. To the extent that capital and labor are (imperfect) substitutes, the resulting shift in relative factor prices leads to the adoption of a more capital-intensive production technology which, in turn, results in a faster rate of technological progress via enhanced learning by doing. We provide evidence using European historical data consistent our results.
Surprisingly high levels of within-group cooperation are observed in conflict situations. Experiments confirm that external threats lead to higher cooperation. The psychological literature suggests proximate explanations in the form of group processes, but does not explain how these processes can evolve and persist. We provide an ultimate explanation, in which cooperation is a rational response to an external threat. We introduce a model in which groups vary in their willingness to help each other against external attackers. Attackers infer cooperativeness of groups from members’ behaviour under attack, and may be deterred by a group that bands together against an initial attack. Then, even self-interested individuals may defend each other when threatened in order to deter future attacks. We argue that a group’s reputation is a public good with a natural weakest-link structure. We extend the model to cooperative and altruistic behaviour in general.
People exhibit group reciprocity when they retaliate, not against a person who harmed them, but against another person in that person's group. We tested for group reciprocity in laboratory experiments. Subjects played a Prisoner's Dilemma with partners from different groups. They then allocated money between themselves and other participants. In punishment games, subjects whose partner had defected punished participants from the partner's group more, compared to their punishment of participants from a third group. In dictator-style games, subjects did not exhibit group reciprocity. We examine possible correlates of group reciprocity, including group identification and cooperativeness.
In the aftermath of the financial crisis, governments have proposed saving money by reforming public services. This paper argues that tight budget constraints make reform harder. Governments are uncertain which departments are effective. Normally, effective departments can be identified by increasing their budget, since they can use the increase to produce more than ineffective departments. When budgets must be cut, however, ineffective departments can mimic effective ones by reducing their output. Budget cuts thus harm both short-run productive efficiency, and long-run allocative efficiency. These predictions are confirmed in a panel of US libraries. Low marginal productivity libraries reduce output by more than expected in response to a budget cut, and budget setters respond less to observed short-run output elasticity after cutback years.
50/2011 - Marcel Fafchamps, David McKenzie, Simon Quinn and Christopher WoodruffWhen is capital enough to get female microenterprises growing? Evidence from a randomized experiment in Ghana50/2011 - Marcel Fafchamps, David McKenzie, Simon Quinn and Christopher Woodruff
Standard models of investment predict that credit-constrained firms should grow rapidly when given additional capital, and that how this capital is provided should not affect decisions to invest in the business or consume the capital. We randomly gave cash and in-kind grants to male- and female-owned microenterprises in urban Ghana. Our findings cast doubt on the ability of capital alone to stimulate the growth of female microenterprises. First, while the average treatment effects of the in-kind grants are large and positive for both males and females, the gain in profits is almost zero for women with initial profits below the median, suggesting that capital alone is not enough to grow subsistence enterprises owned by women. Second, for women we strongly reject equality of the cash and in-kind grants; only in-kind grants lead to growth in business profits. The results for men also suggest a lower impact of cash, but differences between cash and in-kind grants are less robust. The difference in the effects of cash and in-kind grants is associated more with a lack of self-control than with external pressure. As a result, the manner in which funding is provided affects microenterprise growth.
This paper surveys the literature on the Marshall Plan which was designed to help the reconstruction of Europe after World War II. A basic description of how the Marshall Plan was implemented is provided but the focal point is a consideration of the impact of American aid on European growth. It is concluded that the direct effects were positive but modest. The indirect effects working through induced policy changes may have been larger. If so, the Marshall Plan may be thought of as a successful structural adjustment program of the kind advocated by believers in the Washington Consensus.
48/2011 - Kimberley ScharfPrivate Provision of Public Goods and Information Diffusion in Social Groups48/2011 - Kimberley Scharf
We describe a model of fundraising in social groups, where private information about quality of provision is transmitted by social proximity. Individuals engage in voluntary provision of a pure collective good that is consumed by both neighbours and non-neighbours. We show that, unlike in the case of private goods, better informed individuals face positive incentives to incur a cost to share information with their neighbours. These incentives are stronger, and provision of the pure public good greater, the smaller are individuals’ social neighbourhoods.
47/2011 - Mark HarrisonSecrecy, Fear and Transaction Costs: The Business of Soviet Forced Labour in the Early Cold War47/2011 - Mark Harrison
This paper is about the costs of doing business under a harsh, secretive dictator. In 1949 the Cold War was picking up momentum. The Soviet state had entered its most secretive phase. The official rationale of secrecy was defense against external enemies. One of the Gulag’s most important secrets was the location of its labour camps, scattered across the length and depth of the Soviet Union. As this secret was guarded more and more closely, the camps began to drop out of the Soviet economic universe, losing the ability to share necessary information and do business with civilian persons and institutions without disclosing a state secret: their own location. For some months in 1949 and 1950, the Gulag’s camp chiefs and central administrators struggled with this dilemma and failed to resolve it. This episode teaches us about the costs of Soviet secrecy and raises basic questions about how secrecy was calibrated.
This paper examines the impact of women's property inheritance rights on their education. Using exogenous variation created by state level reforms to the inheritance law in India, I find that mean educational attainment of women who were of primary school-going age at the time of reform increased by 0.5 years in reforming relative to non-reforming states. The impact is present only for women in landowning and "Hindu" households, with no concomitant impact on men. I also provide suggestive evidence on the underlying mechanism that in order to prevent fragmentation of household property, parents compensate daughters by investing in their education.
We study competition between nonprofit providers that supply a collective service through increasing-returns-to-scale technologies under conditions of free entry. When providers adopt a not-for-profit mission, the absence of a residual claimant can impede entry, protecting the position of an inefficient incumbent. Moreover, when providers supply goods that are at least partly public in nature, they may be unable to sustain the adoption of more efficient technologies that feature fixed costs, because buyers (private donors) face individual incentives to divert donations towards charities that adopt inferior, lower-fixed-cost technologies. These incentives may give rise to a technological race to the bottom, where non-profit providers forgo opportunities to exploit scale economies. In these situations, government grants in support of core costs can have a non-neutral effect on entry, technology adoption, and industry performance.
Antidepressants as a commodity have been remarkably little-studied by economists. This study shows in new data for 27 European countries that 8% of people (and 10% of those middle-aged) take antidepressants each year. The probability of antidepressant use is greatest among those who are middle-aged, female, unemployed, poorly educated, and divorced or separated. A hill-shaped age pattern is found. The adjusted probability of using antidepressants reaches a peak -- approximately doubling -- in people's late 40s. This finding is consistent with, and provides a new and independent form of corroboration of, recent claims in the research literature that human well-being follows a U-shape through life.
43/2011 - Sharun Mukand and Ethan KaplanThe Persistence of Political Partisanship: Evidence from 9/1143/2011 - Sharun Mukand and Ethan Kaplan
This paper empirically examines whether the act of deciding to support a political party can impact partisan leanings years later. We use the discontinuity in the probability of being registered to vote around the 18th birthday to look at the impact of registration after the 9/11/01 attacks on party of registration. We first show that 9/11 increased Republican registration by approximately 2%. Surprisingly, these differences in registration patterns fully persist over the two year period from 2006 to 2008, even for a group of registrants who moved and changed their registration address. We find full persistence for those registered in zip codes within two miles of a four year university, suggesting that persistence is unlikely to be explained by lack of easy access to or inability to process information. Instead, we suggest an interpretation of our findings based upon either cognitive or social biases.
This paper examines the role of competition in productivity performance in Britain over the period from the late-nineteenth to the early twenty-first century. A detailed review of the evidence suggests that the weakness of competition from the 1930s to the 1970s undermined productivity growth but since the 1970s stronger competition has been a key ingredient in ending relative economic decline. The productivity implications of the retreat from competition resulted in large part from inter actions with idiosyncratic British institutional structures in terms of corporate governance and industrial relations. This account extends familiar insights from cliometrics both analytically and chronologically.
41/2011 - Sascha O. Becker, Francesco Cinnirella and Ludger WoessmannDoes Parental Education Affect Fertility? Evidence from Pre-Demographic Transition Prussia41/2011 - Sascha O. Becker, Francesco Cinnirella and Ludger Woessmann
While women’s employment opportunities, relative wages, and the child quantity‐quality trade‐off have been studied as factors underlying historical fertility limitation, the role of parental education has received little attention. We combine Prussian county data from three censuses—1816, 1849, and 1867—to estimate the relationship between women’s education and their fertility before the demographic transition. Despite controlling for several demand and supply factors, we find a negative residual effect of women’s education on fertility. Instrumental‐variable estimates, using exogenous variation in women's education driven by differences in landownership inequality, suggest that the effect of women’s education on fertility is causal.
40/2011 - Sascha O. Becker, Katrin Boeckh, Christa Hainz and Ludger WoessmannThe Empire Is Dead, Long Live the Empire! Long-Run Persistence of Trust and Corruption in the Bureaucracy40/2011 - Sascha O. Becker, Katrin Boeckh, Christa Hainz and Ludger Woessmann
Do empires affect attitudes towards the state long after their demise? We hypothesize that the Habsburg Empire with its localized and well-respected administration increased citizens’ trust in local public services. In several Eastern European countries, communities on both sides of the long-gone Habsburg border have been sharing common formal institutions for a century now. Identifying from individuals living within a restricted band around the former border, we find that historical Habsburg affiliation increases current trust and reduces corruption in courts and police. Falsification tests of spuriously moved borders, geographic and pre-existing differences, and interpersonal trust corroborate a genuine Habsburg effect.
This paper describes the findings from a new, and intrinsically interdisciplinary, literature on happiness and human well-being. The paper focuses on international evidence. We report the patterns in modern data; we discuss what has been persuasively established and what has not; we suggest paths for future research. Looking ahead, our instinct is that this social-science research avenue will gradually merge with a related literature -- from the medical, epidemiological, and biological sciences -- on biomarkers and health. Nevertheless, we expect that intellectual convergence to happen slowly.
Wars are increasingly frequent, and the trend has been steadily upward since 1870. The main tradition of Western political and philosophical thought suggests that extensive economic globalization and democratization over this period should have reduced appetites for war far below their current level. This view is clearly incomplete: at best, confounding factors are at work. Here, we explore the capacity to wage war. Most fundamentally, the growing number of sovereign states has been closely associated with the spread of democracy and increasing commercial openness, as well as the number of bilateral conflicts. Trade and democracy are traditionally thought of as goods, both in themselves, and because they reduce the willingness to go to war, conditional on the national capacity to do so. But the same factors may also have been increasing the capacity for war, and so its frequency.
We study the public policy implications of a model in which agents do not fully internalize all the consequences of their actions. Such a model unifies seemingly disconected models with behavioral agents. We evaluate the scope of paternalistic and libertarian-parternalistic policies in the light of our model, and propose an alternative type of approach, called soft-libertarian, which guides the decision makers in the internalization of all the consequences of their actions. Psychotherapy is one example of a soft-libertarian policy. Moreover, we show that in our behavioral framework, policies that increase the set of opportunities or provide more information to the agent may not longer be individual welfare improving.
36/2010 - Stephen Broadberry & Nicholas CraftsOpenness, protectionism and Britain's productivity performance over the long run36/2010 - Stephen Broadberry & Nicholas Crafts
We explore the links between openness and economic performance in Britain between 1870 and 1999. The key findings are: (1) As a result of the openness of the British economy, agriculture was unusually small in nineteenth century Britain, allowing resources to be deployed in the higher value added industrial and service sectors. This benefit of openness is rarely considered alongside the costs to British industry of retaining open markets when tariffs were being raised against British exports. (2) Many writers criticise the cosmopolitan service sector for neglecting domestic industry. However, this ignores the importance of the outward orientation of services for service sector productivity, and the growing importance of services for productivity performance overall. (3) The trend of British industrial performance was not improved by protection when it was applied in the 1930s, despite the claims of the tariff reformers. Furthermore, protective attempts to avoid de-industrialisation after World War II had an adverse effect on productivity performance in industry and in the aggregate economy.
35/2010 - Stephen Broadberry, Bruce Campbell, Alexander Klein, Mark Overton and Bas van LeeuwenBritish Economic Growth: 1270 - 187035/2010 - Stephen Broadberry, Bruce Campbell, Alexander Klein, Mark Overton and Bas van Leeuwen
We provide annual estimates of GDP for England between 1270 and 1700 and for Great Britain between 1700 and 1870, constructed from the output side. The GDP data are combined with population estimates to calculate GDP per capita. We find English per capita income growth of 0.20 per cent per annum between 1270 and 1700, although growth was episodic, with the strongest growth during the Black Death crisis of the fourteenth century and in the second half of the seventeenth century. For the period 1700-1870, we find British per capita income growth of 0.48 per cent, broadly in line with the widely accepted Crafts/Harley estimates. This modest trend growth in per capita income since 1270 suggests that, working back from the present, living standards in the late medieval period were well above “bare bones subsistence”. This can be reconciled with modest levels of kilocalorie consumption per head because of the very large share of pastoral production in agriculture.
Attempting to satisfy their political masters in a target-driven culture, Soviet managers had to optimize on many margins simultaneously. One of these was the margin of truthfulness. False accounting for the value of production was apparently widespread in some branches of the economy and at some periods of time. A feature of accounting fraud was that cases commonly involved the aggravating element of conspiracy. The paper provides new evidence on the nature and extent of accounting fraud; the scale and optimal size of conspiratorial networks; the authorities’ willingness to penalize it and the political and social factors that secured leniency; and inefficiency in the socialist market where managers competed for political credit.
33/2010 - David S Jacks, Christopher Meissner and Dennis NovyTrade Booms, Trade Busts and Trade Costs33/2010 - David S Jacks, Christopher Meissner and Dennis Novy
What has driven trade booms and trade busts in the past and present? We derive a micro-founded measure of trade frictions from leading trade theories and use it to gauge the importance of bilateral trade costs in determining international trade flows. We construct a new balanced sample of bilateral trade flows for 130 country pairs across the Americas, Asia, Europe, and Oceania for the period from 1870 to 2000 and demonstrate an overriding role for declining trade costs in the pre-World War I trade boom. In contrast, for the post-World War II trade boom we identify changes in output as the dominant force. Finally, the entirety of the interwar trade bust is explained by increases in trade costs.
This paper derives a micro-founded gravity equation in general equilibrium based on a translog demand system that allows for endogenous markups and substitution patterns across goods. In contrast to standard CES-based gravity equations, trade is more sensitive to trade costs if the exporting country only provides a small share of the destination country’s imports. As a result, trade costs have a heterogeneous impact across country pairs, with some trade flows predicted to be zero. I test the translog gravity equation and find strong empirical support in its favor.
31/2010 - Luciana Juvenal and Paulo Santos MonteiroTrade and Synchronization in a Multi-Country Economy31/2010 - Luciana Juvenal and Paulo Santos Monteiro
Substantial evidence suggests that countries with stronger trade linkages have more synchronized business cycles. The standard international business cycle framework cannot replicate this finding, uncovering the trade-comovement puzzle. We show that under certain macro-level conditions but irrespective of the micro-level assumptions concerning trade the puzzle arises because trade fails to substantially increase the correlation between each country's import penetration ratio and the trade partner's technology shock. Within a large class of trade models, there are three channels through which bilateral trade may increase business cycle synchronization. Specically, increased bilateral trade may (i) raise the correlation between each country's technology shocks, (ii) raise the correlation between each country's share of expenditure on domestic goods, and (iii) raise the response of the domestic import penetration ratio to foreign technology shocks. Empirical evidence strongly supports the first and second channels. We show that the trade-comovement puzzle can be resolved if productivity shocks are more correlated between country-pairs that trade more.
We develop a model of decision-making with endogenous frames and contrast the normative implications of our model to those of choice theoretic models in which observed choices are determined by exogenous frames or ancillary conditions. We argue that, frames, though they may be taken as given by the decision-maker at the point when choices are made, matter for both welfare and policy purposes .
29/2010 - Sayantan Ghosal and Kannika ThampanishvongDoes strengthening Collective Action Clauses (CACs) help?29/2010 - Sayantan Ghosal and Kannika Thampanishvong
Does improving creditor coordination by strengthening CACs lead to efficiency gains in the functioning of sovereign bond markets? We address this question in a model featuring both debtor moral hazard and creditor coordination under incomplete information. Conditional on default, we characterize the interim efficient CAC threshold and show that strengthening CACs away from unanimity results in interim welfare gains. However, once the impact of strengthening CACs on debtor's incentives are taken into account, we demonstrate the robust possibility of a conflict between ex ante and interim efficiency. We calibrate our model to quantify such a welfare trade-off and discuss the policy implications of our results.
28/2010 - Andrei Markevich and Mark HarrisonGreat War, Civil War, and Recovery: Russia’s National Income, 1913 to 192828/2010 - Andrei Markevich and Mark Harrison
The last remaining gap in the national accounts of Russia and the USSR in the twentieth century, 1913 to 1928, includes the Great War, the Civil War, and postwar recovery. Filling this gap, we find that the Russian economy did somewhat better in the Great War than was previously thought; in the Civil War it did correspondingly worse; war losses persisted into peacetime, and were not fully restored under the New Economic Policy. We compare this experience across regions and over time. The Great War and Civil War produced the deepest economic trauma of Russia’s troubled twentieth century.
Bank crises, by interrupting liquidity provision, have been viewed as resulting in welfare losses. In a model of banking with moral hazard, we show that second best bank contracts that improve on autarky ex ante require costly crises to occur with positive probability at the interim stage. When bank payoffs are partially appropriable, either directly via imposition of fines or indirectly by the use of bank equity as a collateral, we argue that an appropriately designed ex-ante regime of policy intervention involving conditional monitoring can prevent bank crises.
Previous theories of globalization have examined factor mobility’s effect on the political conflict between social classes. But factor mobility also increases competition between state rulers in providing services for citizens. I ask how this interstate competition affects the process of political change. In a simple model, interstate competition substitutes for democracy, by forcing rulers to invest in public goods so as to avoid capital and labor leaving the country. As a result, citizens are less willing to struggle for democracy, and rulers are less willing to oppose it, when interstate competition is strong. Therefore, there is less conflict over the level of democracy. The theory is tested on a post-war panel of countries, using neighboring countries’ financial openness as a proxy for factor mobility. As the theory predicts, states experience fewer changes in their level of democracy when their neighbors are financially open
25/2010 - David Hugh JonesExplaining Institutional Change: Why Elected Politicians Implement Direct Democracy25/2010 - David Hugh Jones
Why did representative politicians introduce direct democratic reforms, thus binding their own hands? This paper presents a formal model in which (1) voters are uncertain about their representative’s preferences; (2) direct and representative elections are substitute methods for voters to control outcomes. Some politicians benefit from the introduction of direct democracy, since they are more likely to survive representative elections. Historical evidence from the introduction of the initiative, referendum and recall in America supports the theory, which also explains two puzzling empirical results: legislators are trusted less, but reelected more, in US states with direct democracy.
We develop a framework to empirically examine how politicians with electoral pressures control bureaucrats with career concerns as well as the consequences for bureaucrats' career investments. Unique micro-level data on Indian bureaucrats support our key predictions. Politicians use frequent reassignments (transfers) across posts of varying importance to control bureaucrats. High-skilled bureaucrats face less frequent political transfers and lower variability in the importance of their posts. We find evidence of two alternative paths to career success: officers of higher initial ability are more likely to invest in skill, but caste affinity to the politician's party base also helps secure important positions.
This paper provides a survey of the Great Depression comprising both a narrative account and a detailed review of the empirical evidence focusing especially on the experience of the United States. We examine the reasons for and flawed resolution of the American banking crisis as well as the conduct of fiscal and monetary policy. We also consider the pivotal role of the gold standard in the international transmission of the slump and leaving gold as a route to recovery. Policy lessons from the Great Depression for today are discussed as are some implications for macroeconomics.
We develop a model of internal constraints to show that a greater degree of initial disadvantage results in a higher likelihood of low aspirations and low achievement. Our model and results are supported by evidence from anthropology, sociology and social psychology. Our analysis suggests that internal constraints are a key ingredient in perpetuating poverty traps. We show that a poor person will choose to restrict her cognitive window (the set of other individuals who are her role models) and study the conditions under which a role model could alter her aspirations and achievement. We show how enodgenously chosen cognitive windows interact with the inital distribution of status to determine whether or not a society is connected, and hence the transmission of aspirations across individuals in that society. Our work provides a normative justification for programs that aim at empowering disadvantaged individuals by directly shocking their aspirations.
21/2010 - Stephen Broadberry, Bruce Campbell, Alexander Klein, Mark Overton and Bas van LeeuwenEnglish Economic Growth, 1270-170021/2010 - Stephen Broadberry, Bruce Campbell, Alexander Klein, Mark Overton and Bas van Leeuwen
We provide annual estimates of GDP for England over the period 1270-1700, constructed from the output side. The GDP data are combined with population estimates to calculate GDP per capita. Sectoral price data and estimates of nominal GDP are also provided. We find per capita income growth of 0.20 per cent per annum, although growth was episodic, with the strongest growth after the Black Death and in the second half of the seventeenth century. Living standards in the late medieval period were well above “bare bones subsistence”, although levels of kilocalorie consumption per head were modest because of the very large share of pastoral production in agriculture.
20/2010 - Stephen Broadberry and Bas van LeeuwenBritish Economic Growth and the Business Cycle, 1700-1870: Annual Estimates20/2010 - Stephen Broadberry and Bas van Leeuwen
This paper provides the first annual GDP series for Great Britain over the period 1700-1870. The series is constructed in real terms from the output side, using volume indicators and value added weights. Sectoral estimates are provided for agriculture, industry and services, and for a number of sub-sectors. Estimates of nominal GDP are also provided, based on a benchmark for 1841 and projected back to 1700 and forward to 1870 using the real output series and sectoral price indices. The new data are used to provide a consistent account of economic growth and the business cycle. The results are broadly consistent with the long run path of real output suggested by Crafts and Harley, although growth rates for sub-periods differ, largely as a result of changes in the growth of agriculture. Nominal GDP increased more rapidly than suggested by Lindert and Williamson during the eighteenth century, and more slowly than suggested by Deane and Cole during the first half of the nineteenth century, as a result of differences in the price indices. We also refine the business cycle chronologies of Ashton and Gayer, Rostow and Schwartz.
19/2010 - Sanjay Jain, Sumon Majumdar and Sharun W. MukandWorkers Without Borders: On Culture and The Politics of Migration19/2010 - Sanjay Jain, Sumon Majumdar and Sharun W. Mukand
This paper examines the role of cultural factors in driving the politics, size and nature (temporary versus permanent migration) of migration policy. We show that there exists a broad political failure that results in inefficiently high barriers restricting the import of temporary foreign workers and also admitting an inefficiently large number of permanent migrants. Strikingly, we show that countries that are poor at cultural assimilation are better positioned to take advantage of temporary foreign worker programs than more culturally diverse and tolerant countries. Furthermore, relaxing restrictions in the mobility of migrant workers across employers has the potential to raise host country welfare even though it increases migrant wages and lowers individual firms' profits. We also demonstrate the existence of multiple equilibria: some countries have mostly temporary migration programs and see a low degree of cultural assimilation by migrants, while other countries rely more on permanent migrants and see much more assimilation.
18/2010 - Torfinn Harding and Beata S JavorcikRoll out the Red Carpet and They Will Come: Investment Promotion and FDI Inflows18/2010 - Torfinn Harding and Beata S Javorcik
As red tape in host countries and information asymmetries constitute a significant obstacle to investment flows across international borders, an important policy question is: what can aspiring FDI destinations do to reduce such barriers? This study uses newly collected data on 124 countries to examine the effects of investment promotion on inflows of US FDI. We test whether sectors explicitly targeted by investment promotion agencies in their efforts to attract FDI receive more investment in the post-targeting period, relative to the pre-targeting period and non-targeted sectors. The results of our analysis are consistent with investment promotion leading to higher FDI flows to countries in which red tape and information asymmetries are likely to be severe. The data suggest that investment promotion works in developing countries but not in industrialized economies.
This paper examines how the quality of exports depends on relative country size and its remoteness. Specific transportation cost is the key variable in our analysis as it gives rise to the Alchian-Allen effect. In the model, we allow for endogenous quality choice by a producer serving many international locations. Higher quality comes at higher marginal cost of production, but can be delivered at the same absolute, and thus proportionally lower, transportation cost to a given destination. Our model complements the well documented demand-side response to the distribution of transportation costs (known as the Alchian-Allen effect) by the supply side response. We show that, ceteris paribus, equilibrium quality decreases in the domestic country size and increases in remoteness from foreign markets. This happens because a larger portion of the demand is affected by the Alchian-Allen effect for smaller countries’ producers, and the Alchian-Allen effect is stronger for remote countries. We confirm our predictions empirically on a detailed product level dataset of all exporters worldwide into a sample of Latin American importers.
This paper examines the effects of transit, documentation, and ports and customs delays on Africa’s exports. The authors find that transit delays have the most economically and statically significant effect on exports. A one-day reduction in inland travel times leads to a 7 percent increase in exports. Put another way, a one-day reduction in inland travel times translates to a 1.5 percentage point decrease in all importing-country tariffs. By contrast, longer delays in the other areas have a far smaller impact on trade. The analysis controls for the possibility that greater trade leads to shorter delays in three ways. First, it examines the effect of trade times on exports of new products. Second, it evaluates the effect of delays in a transit country on the exports of landlocked countries. Third, it examines whether delays affect time- sensitive goods relatively more. The authors show that large transit delays are relatively more harmful because of high within-country variation.
Specialization alters the incidence of trade costs to buyers and sellers, with pro-and anti-globalizing effects on 76 countries from 1990-2002. The structural gravity model yields measures of Constructed Home Bias and the Total Factor Productivity effect of changing incidence. A bit more than half the world's countries experience declining constructed home bias and rising real output while the remainder of countries experience rising home bias and falling real output. The effects are big for the outliers. A novel test of the structural gravity model restrictions shows it comes very close in an economic sense.
14/2010 - Menzie D ChinnSupply Capacity, Vertical Specialisation andTrade Costs: The Implications for Aggreagate US Trade Flow Equations14/2010 - Menzie D Chinn
This paper re-examines aggregate and disaggregate import and export demand functions for the United States over the 1975q1-2010q1 period. This re-examination is warranted because (1) income elasticities are too high to be warranted by standard theories, and (2) remain high even when it is assumed that supply factors are important. These findings suggest that the standard models omit important factors. An empirical investigation indicates that the rising importance of vertical specialization combined with changing tariff rates and transportation costs explains some of results. Accounting for these factors yields more plausible estimates of income elasticities.
Quantitative results from a large class of structural gravity models of international trade depend critically on a single parameter governing the elasticity of trade with respect to trade frictions. We provide a new method to estimate this elasticity and illustrate the merits of our approach relative to the estimation strategy of Eaton and Kortum (2002). We employ this method on data for 123 developed and developing countries for the year 2004 using new disaggregate price and trade flow data. Our benchmark estimate for all countries is approximately 4.5, nearly 50 percent lower than the alternative estimation strategy would suggest. This difference implies a doubling of the measured welfare costs of autarky across a large class of widely used trade models.
One of the most notable international economic events over the past 20 years has been the proliferation of bilateral free trade agreements (FTAs). Bilateral agreements account for 80 percent of all agreements notified to the WTO, 94 percent of those signed or under negotiation, and currently 100 percent of those at the proposal stage. Some have argued that the growth of bilateralism is attributable to governments having pursued a policy of "competitive liberalization" - implementing bilateral FTAs to offset potential trade diversion caused by FTAs of "third-country-pairs" - but the growth of bilateralism can also be attributed potentially to "tariff complementarity" - the incentive for FTA members to reduce their external tariffs on nonmembers. Guided by new comparative statics from the numerical general equilibrium monopolistic competition model of FTA economic determinants in Baier and Bergstrand (2004), we augment their parsimonious logit (and probit) model of the economic determinants of bilateral FTAs to incorporate theory-motivated indexes to examine the influence of existing memberships on subsequent FTA formations. The model can predict correctly 90 percent of the bilateral FTAs within five years of their formation, while still predicting "No-FTA" correctly in 90 percent of the observations when no FTA exists, using a sample of over 350,000 observations for pairings of 146 countries from 1960-2005. Even imposing the higher correct prediction rate of "No- FTA" of 97 percent in Baier and Bergstrand (2004), the parsimonious model still predicts correctly 75 percent of these rare FTA events; only 3 percent of the observations reflect a country-pair having an FTA in any year. The results suggest that - while evidence supports that "competitive liberalization" is a force for bilateralism - the effect on the likelihood a pair of countries forming an FTA of the pair's own FTAs with other countries (i.e., tariff complementarity) is likely just as important as the effect of third-country-pairs' FTAs (i.e., competitive liberalization) for the growth of bilateralism.
A currency union’s ability to increase international trade is one of the most debated questions in international macroeconomics. This paper studies the dynamics of these trade effects over time. First, empirical work with data from the European Monetary Union finds that the extensive margin of trade (entry of new firms or goods) responds several years ahead of overall trade volume and actual implementation of the monetary union. This implies a fall at the intensive margin (previously traded goods) in the run-up to EMU. A dynamic stochastic general equilibrium model of trade studies the announcement of a future monetary union as a news shock lowering future trade costs, and finds that the early entry of new firms in anticipation is explainable as a rational forward-looking response under certain conditions. Required elements are sunk costs of exporting and ex-ante heterogeneity among firms. The findings help identify which types of trading frictions are reduced by adopting a currency union. Findings also indicate that a significant fraction of the welfare gains from a monetary union are based upon expectations for the future, so that continued gains depend upon long-term credibility of the union.
This review essay looks at the recent books on the British Industrial Revolution by Robert Allen and Joel Mokyr. Both writers seek to explain Britain’s primacy. This paper offers a critical but sympathetic account of the main arguments of the two authors considering both the economic logic and the empirical validity of their rival claims. In each case, the ideas are promising but the evidence base seems in need of further support. It may be that eventually these explanations for British economic leadership at the turn of the nineteenth century are recognized as complementary rather than competing.
09/2010 - Shurojit Chatterji, Sayantan Ghosal, Sean Walsh and John WhalleyUnilateral measures and emissions mitigation09/2010 - Shurojit Chatterji, Sayantan Ghosal, Sean Walsh and John Whalley
Do unilateral measures to cut emissions provide an adequate foundation for global climate change negotiations from a post-Copenhagen perspective? We document the extent and variety for unilateral measures. In a formal model, we examine the conditions under which global learning, by building on the positive spillovers generated by unilateral measures, delivers cumulative emissions reduction over time. Using our results, we analyze the key features of a global policy regime builds on unilateral measures to accelerate convergence to a low carbon world.
08/2010 - Sumon Majumdar and Sharun W. MukandThe Leader as Catalyst: On Mass Movements and the Mechanics of Institutional Change08/2010 - Sumon Majumdar and Sharun W. Mukand
Why are some leaders able to rally mass support and successfully catalyze revolutionary change while others fail? We argue that the key to understanding a leader's effectiveness lies in dissecting the symbiotic relationship between the leader and his committed activist-followers. Good leaders attract committed activist-followers. In turn, these followers have a bottom-up role in empowering the leader by rallying support from the broader populace, resulting in a mass movement. This twoway leader-follower interaction can endogenously give rise to threshold effects: ‘small’ differences in leader ability have a dramatic impact on the prospects for change. Therefore, while underlying structural conditions and institutions are important, there is an independent first-order role for individual agency in bringing about institutional change and development. We show that for a leader ‘it is better to be feared than loved’. An ambitious, self-serving leader attracts activistfollowers who fear bad institutional change and hope to insulate themselves by becoming loyal followers. Indeed by empowering such a self-serving leader, these followers make him a more effective agent of (both good and bad) institutional change.
07/2010 - Stephen Broadberry and Bishnupriya GuptaIndian GDP, 1600-871: Some Preliminary Estimates and a Comparison with Britain07/2010 - Stephen Broadberry and Bishnupriya Gupta
This paper provides estimates of Indian GDP constructed from the output side for the period 1600-1871, and combines them with population estimates to track changes in living standards. Indian per capita GDP declined steadily. As British living standards increased from the mid-seventeenth century, India fell increasingly behind. Whereas in 1650, Indian per capita GDP was more than 80 per cent of the British level, by 1871 it had fallen to less than 15 per cent. As well as placing the origins of the Great Divergence firmly in the early modern period, these estimates suggest a relatively prosperous India at the height of the Mughal Empire, with living standards well above bare bones subsistence.
If decision-makers (DMs) do not always do what is in their best interest, what do choices reveal about welfare? This paper shows how observed choices can reveal whether the DM is acting in her own best interest. We study a framework that relaxes rationality in a way that is common across a variety of seemingly disconnected positive behavioral models and admits the standard rational choice model as a special case. We model a behavioral DM (boundedly rational) who, in contrast to a standard DM (rational), does not fully internalize all the consequences of her own actions on herself. We provide an axiomatic characterization of choice correspondences consistent with behavioral and standard DMs, propose a choice experiment to infer the divergence between choice and welfare, state an existence result for incomplete preferences and show that the choices of behavioral DMs are, typically, sub-optimal.
The textbook paradigm of economy-wide development rests on the premise of "balanced growth"; that is, on the presumption that all sectors will grow in unison over time as a country gets richer. This view has served us reasonably well in some circumstances, but is not particularly useful for accounts of modern (under)development.In many developing countries, economic growth has been fundamentally uneven: software development, the outsourcing of services, sectoral technological change, quick compositional shifts between agriculture and other sectors, the rise of particular exports, "special" economic zones, and so on. This paper will discuss both the sources of uneven growth, and its implications, with greater emphasis on the latter.The paper will argue that much of the distributional issues, or the reactions to globalization that we see in modern developing societies can be viewed as reactions to a growth process that is fundamentally uneven and is indeed perceived as such.
4/2010 - Alexander Klein and Nicholas CraftsMaking Sense of the Manufacturing Belt: Determinants of the US Industrial Location, 1880-19204/2010 - Alexander Klein and Nicholas Crafts
0This paper investigates the ability of the new economic geography to explain the persistence of the manufacturing belt in the United States around the turn of the 20th century using a model which subsumes both market-potential and factor-endowment arguments. The results show that market potential was central to the existence of the manufacturing belt, that it mattered more than factor endowments, and that its impact came through interactions both with scale economies and with linkage effects. Natural advantage played a role in industrial location but only through agricultural inputs which were important for a small subset of manufacturing.
Evidence shows that individuals do not always take tax attributes into account when making their choices. We focus on tax relief for charitable contributions. Although rational donors should view a match and a rebate of the same value as being equivalent, survey evidence shows that nominal donations are more likely to adjust in response to a change in the rebate than to a corresponding change in the match. We argue that these patterns are consistent with the predictions of a model of rational inattention, whereby a majority of individuals choose to process rebate changes while forgoing to process match changes.
03/2010 - Kim Scharf and Sarah SmithThe Price of Elasticity of Charitable Giving: Does the Form of Tax Relief Matter?03/2010 - Kim Scharf and Sarah Smith
This paper uses a survey-based approach to test alternative methods of channeling tax relief to donors – as a tax rebate for the donor or as a matched payment to the receiving charity. On accounting grounds these two are equivalent but, in line with earlier experimental studies, we find that gross donations are significantly more responsive to a match change than to a rebate change. We show that the difference can largely be explained by t he fact that a majority of donors do not adjust their nominal donations in response to a change in subsidy. This evidence adds to the growing empirical literature suggesting that consumers may not react to tax changes. In the case of tax subsidies for donations, this has implications for policy design – for the UK a match-based system is likely to be more effective at increasing money going to charities.
01/2010 - Nicholas CraftsThe Contribution of New Technology to Economic Growth: Lessons from Economic History01/2010 - Nicholas Crafts
Technological change is central to the study of economic history. Strong and sustained technolgical progress is the key characteristic of modern economic growth that distinguished the post-Industrial-Revolution world from earlier times and is the fundamental force which has raised living standards over the last 250 years. As Paul Romer said, "Our knowledge of economic history, of what production looked like 100 year ago, and of current events convinces us beyond any doubt that discovery, invention, and innovation are of overwhelming importance in economic growth" (1993, p. 562).