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Shrinking dictators: how much economic growth can we attribute to national leaders?

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National leaders – especially autocratic ones - are often given credit for high average rates of economic growth while they are in office (and draw criticism for poor growth rates). Drawing on the literature assessing the performance of schoolteachers and a simple variance components model, we develop a new methodology to produce optimal (least squares) estimates of each leader’s contribution to economic growth. We find that even in the world where leaders affect growth, the average rate of growth during a leader’s tenure is mostly uninformative about that leader’s contribution to growth...

William Easterly and Steven Pennings

Political Turnover, Bureacratic Turnover, and the Quality of Public Services

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We study how political party turnover in mayoral elections in Brazil affects the provision of public education. Exploiting a regression discontinuity design for close elections, we find that municipalities with a new party in office have test scores that are 0.05-0.08 standard deviations lower than comparable municipalities with no change in the political party. 

Akhtari, Mitra, Diana Moreira, and Laura Trucco

Broken Cities: The Effect of Government Responsiveness on Citizens' Participation

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What is the impact of government responsiveness on citizens’ participation in local public goods provision? I explore whether government receptiveness to requests for maintenance work (e.g., sidewalk repairs, tree pruning) affects the likelihood that citizens will demand new government projects. I ran a field experiment in collaboration with the Government of the City of Buenos Aires that generated an exogenous increase in repairs of broken sidewalks reported by citizens. I find that when the government repairs sidewalks after citizens file complaints, other citizens are more likely to issue additional requests for public maintenance work.

Laura Trucco

The Surprising Instability of Export Specializations

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We study the instability of hyper-specialization of exports. We have two main findings. (1) Specializations are surprisingly unstable: Export ranks are not persistent, and new top products and destinations replace old ones. Measurement error is unlikely to be the main or only determinant of this pattern. (2) Source-country factors are not the main explanation of this instability: Only 20% of the variation in export growth can be explained by variation in comparative advantage (source-by-product factors), while another 20% of the variation in export growth can be explained by variation in bilateral (source-by-destination) factors.

How much long-run economic growth happens at the country level?

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Policy and academic discussions of economic growth usually focus on country-level outcomes and determinants. But how much of the variation in long-run growth really happens at the country level? To answer this question, we collect data on growth at the national level (from standard sources), or at the provincial level (from Gennaioli et al.  (2014 )), and decompose it into variation due to province, country-level or supra-national factors. 

By Diego Anzoategui, William Easterly, and Steven Pennings

The European Origins of Economic Development

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Although a large literature argues that European settlement outside of Europe during colonization had an enduring effect on economic development, researchers have been unable to assess these predictions directly because of an absence of data on colonial European settlement. We construct a new database on the European share of the population during colonization and examine its association with economic development today. We find a strong, positive relation between current income per capita and colonial European settlement that is robust to controlling for the current proportion of the population of European descent, as well as many other country characteristics. The results suggest that any adverse effects of extractive institutions associated with small European settlements were, even at low levels of colonial European settlement, more than offset by other things that Europeans brought, such as human capital and technology. 

William Easterly and Ross Levine

Socio-Religious Institutions and Economic Migration: Case Study of the Bai Clansmen from Anxi, Fujian in Southeast Asia, c. 1880-present

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Spanning over 24 generations, the descendants of Bai Yingshun have dispersed all over southeast Asia away from their homeland, the Chinese city of Longmen. Thousands of miles away from Longmen, the Bai maintain a strong sense of the identity of their forefathers in a way that has affected their economic outcomes. The story of the Bai suggests that, even outside the nation-state, an informal institution like an ethnic group can be a powerful force in shaping one's economic well-being. 

Kwee Hui Kian

The Murid Ethic and the Spirit of Entrepreneurship: Faith, Business and Mobility among Murid immigrants in Gabon

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The Muridiyya order founded by the Senegalese Muslim cleric, Shaykh Ahmadu Bamba Mbakke, at the turn of the 20th century, has been the object of extensive scholarly investigation.[1] From its inception research on the Murid organization has focused primarily on the political and economic dimensions of the order. Scholars have investigated the role of the Muridiyya in Senegal’s colonial economy they have also explored the relationships between the Murid leadership and the colonial and post-colonial Senegalese state.  By reconstructing the history of Murid migration to Gabon, this paper contributes to the growing scholarship on Murid international migration. 

Cheikh Anta Babou

A Long History of a Short Block: Four Centuries of Development Surprises on a Single Stretch of a New York City Street

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Economic development is usually analyzed at the national level, but the literature on creative destruction and misallocation suggests the importance of understanding what is happening at much smaller units. This paper does a development case study at an extreme micro level (one city block in New York City), but over a long period of time (four centuries). 

William Easterly, Laura Freschi, and Steven Pennings

The Influence of Ancestral Lifeways on Individual Economic Outcomes in Sub-Saharan Africa

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We explore the role of an individual’s historical lineage in determining economic status, holding constant his or her current location. This is contemporary to the more common approach to studying how history shapes economic outcomes across locations. Motivated by a large literature in social sciences stressing the beneficial influence of agricultural transition on contemporary economic performance at the level of countries, we examine the relative status of descendants of agriculturalists vs. pastoralists.

Stelios Michalopoulos, Louis Putterman and David N. Weil

The New Economic Case for Migration Restrictions

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A new strand of research posits that migration restrictions could be not only desirably redistributive, but in fact globally efficient. This is the new economic case for migration restrictions. The case rests on the possibility that without tight restrictions on migration, migrants from poor countries could transmit low productivity (“A ” or Total Factor Productivity) to rich countries—offsetting efficiency gains from the spatial reallocation of labor from low to high-productivity places. We provide a novel assessment, proposing a simple model of dynamically efficient migration under productivity transmission and calibrating it with new macro and micro data.

Listen to the podcast episode here.
See the infographic here.

Michael Clemens & Lant Pritchett

Housing Affordability: Top-Down Design and Spontaneous Order

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Urban planners are often suspicious of spontaneous order, associating it with chaos and anarchy. Though top-down design is indispensable for the construction of city infrastructure, it too often imposes excessive regulatory standards, which make housing unaffordable to the poor. In rapidly urbanizing countries, poor migrants from the countryside are especially hard hit. Subsidized housing provided to low-income households by governments rarely helps, as often this housing is too limited in scope.
Alain Bertaud

Read the working paper here. 
Listen to the podcast episode here.

Bases, Bullets, and Ballots: The Effect of US Military Aid on Political Conflict in Colombia

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Does foreign military assistance strengthen or further weaken fragile states facing internal conflict? Aid may strengthen the state by bolstering its repressive capacity vis-à-vis armed nonstate actors or weaken it if resources are diverted to these very groups. We examine how US military aid affects political violence in Colombia. . . 
Oeindrila Dube, New York University / Suresh Naidu, Columbia University

Site Selection Bias in Program Evaluation

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“Site selection bias” can occur when the probability that a program is adopted or evaluated is correlated with its impacts. I test for site selection bias in the context of the Opower energy conservation programs, using 111 randomized control trials involving 8.6 million households across the U.S. Predictions based on rich microdata from the first ten replications substantially overstate efficacy in the next 101 sites...
Hunt Alcott

Breaking Clientelism or Rewarding Incumbents? Evidence From an Urban Titling Program in Mexico

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Clientelism is common in developing countries, and often detrimentally affects political accountability and public good provision. However, little is known empirically about how clientelistic ties can be broken, particularly because policy reforms that could reduce voter dependence on incumbents for special favors may also cause voters to reward the reform's architects. 

Larreguy, Horacio, John Marshall, and Laura Trucco

Aspirations and Inequality

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This paper develops a theory in which society-wide economic outcomes shape individual milestones or aspirations, which affect the investment incentives of individuals. Through its impact on investments, individual milestones in turn affect ambient social outcomes. We explore this two-way link. A central feature is that aspirations that are moderately above an individual’s current standard of living tend to encourage investment, while still higher aspirations may lead to frustration and lower investment . . . 

Productivity Response in Contract Change

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We study a contract change for tea pluckers on an Indian plantation, obeying a government notification stipulating a new minimum wage. Baseline wages were hiked, and marginal piece rates lowered. Yet, in the following month, output increased by 20–80%. This response contradicts the standard model and several variants, is only partly explicable by greater supervision, and appears to be “behavioral.” Yet in subsequent months, the increase is comprehensively reversed. While not an unequivocal indictment of “behavioral” models, these findings suggest that non-standard responses may be ephemeral, and should ideally be tracked over an extended period of time . . . 

From Local to Global: External Validity in a Fertility Natural Experiment

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Experimental evidence on a range of interventions in developing countries is accumulating rapidly. Is it possible to extrapolate from an experimental evidence base to other locations of policy interest (from “reference” to “target” sites)? And which factors determine the accuracy of such an extrapolation? We investigate applying the Angrist and Evans (1998) natural experiment (the effect of boy-boy or girl-girl as the first two children on incremental fertility and mothers’ labor force participation) to data from International IPUMS on 166 country-year censuses. We define the external validity function with extrapolation error depending on covariate differences between reference and target locations, and find that smaller differences in geography, education, calendar year, and mothers’ labor force participation lead to lower extrapolation error . . . 

Incorporating Climate Uncertainty into Estimates of Climate Change Impacts

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Quantitative estimates of the impacts of climate change on economic outcomes are important for public policy. We show that the vast majority of estimates fail to account for well-established uncertainty in future temperature and rainfall changes, leading to potentially misleading projections. We reexamine seven well-cited studies and show that accounting for climate uncertainty leads to a much larger range of projected climate impacts and a greater likelihood of worst-case outcomes, an important policy parameter. Incorporating climate uncertainty into future economic impact assessments will be critical for providing the best possible information on potential impacts.
Shanker Satyanath, Marshall Burke, John Dykema, David B. Lobell, Edward Miguel

Unintended Negative Consequences of Rewards for Student Attendance

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n an experiment in non-formal schools in Indian slums, an incentive for attending a target number of school days increased average attendance when the incentive was in place, but had heterogeneous effects after it was removed. Among students with high baseline attendance, the post-incentive attendance returned to previous levels and test scores were unaffected. Among students with low baseline attendance, post-incentive attendance dropped even below previous levels, and test scores decreased . . . 

Do Natural Resources Influence Who Comes to Power, and How?

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Do natural resources impair institutional outcomes? Existing work studies how natural resources influence the behavior of leaders in power. We study how they influence who comes to power. Our analysis focuses on oil price shocks and local democracy in Colombia, a country mired in civil conflict. We find that when the price of oil rises internationally, legislators affiliated with right-wing paramilitary groups win office more in oil-producing municipalities. These effects are larger in conflict-ridden locations, where armed groups are poised to intervene in local elections . . . 

Renewable Natural Resource Shocks and Conflict Intensity: Findings from India’s Ongoing Maoist Insurgency

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An interesting stream of the civil conflict literature has identified an important subset of civil conflicts with disastrous consequences, that is, those that emerge as a consequence of shocks to renewable natural resources like land and water. This literature is, however, reliant on qualitative case studies when claiming a causal relationship leading from renewable resource shocks to conflict. In this article, we seek to advance the literature by drawing out the implications of a well-known formal model of the renewable resources–conflict relationship and then conducting rigorous statistical tests of its implications in the case of a serious ongoing civil conflict in India. We find that a one standard deviation decrease in our measure of renewable resources increases killings by nearly 60 percent over the long run . . . 
Shanker Satyanath, Kishore Gawande, Devesh Kapur

Housing Affordability: Top-Down Design and Spontaneous Order

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At what scale level should top-down planning progressively vanish to allow a spontaneous order to emerge? And what local norms are necessary for this spontaneous order to result in viable neighborhoods that are easily connected to a metropolitan-wide infrastructure? Examples from Southeast Asia show that an equilibrium between top-down designed infrastructure and neighborhoods created through spontaneous order mechanisms can be achieved. Spontaneous order ignored or persecuted by government results only in slums.
Alain Bertaud

Read the policy brief here.
Listen to the podcast episode here.
See the infographic here.

Financial development and occupational choice: Evidence from India

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Theory suggests that capital market frictions might inhibit entrepreneurship, and that financial market development is likely to be associated with an increase in self-employment. But what are the effects of increasing access to finance in developing countries where the bulk of the self-employed work in micro-enterprises? Evidence from a large survey of over one million randomly selected Indian households suggests that opposite effects may be observed . . . 
By: Rajeev Dehejia, and Nandini Gupta

The Tyranny of Experts: Economists, Dictators, and the Forgotten Rights of the Poor

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Over the last century, global poverty has largely been viewed as a technical problem that merely requires the right “expert” solutions. Yet all too often, experts recommend solutions that fix immediate problems without addressing the systemic political factors that created them in the first place. Further, they produce an accidental collusion with “benevolent autocrats,” leaving dictators with yet more power to violate the rights of the poor . . . 

Cross-Border Spillover: U.S. Gun Laws and Violence in Mexico

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To what extent, and under what conditions, does access to arms fuel violent crime? To answer this question, we exploit a unique natural experiment: the 2004 expiration of the U.S. Federal Assault Weapons Ban exerted a spillover on gun supply in Mexican municipios near Texas, Arizona, and New Mexico, but not near California, which retained a pre-existing state-level ban. We find first that Mexican municipios located closer to the non-California border states experienced differential increases in homicides, gun-related homicides, and crime gun seizures after 2004 . . . 
Oeindrila Dube
 

Substitution Bias and External Validity: Why an innovative anti-poverty program showed no net impact

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The net impact of development interventions can depend on the availability of close substitutes to the intervention. We analyze a randomized trial of an innovative anti-poverty program in South India which provides “ultra-poor” households with inputs to create a new, sustainable livelihood. We find no statistically significant evidence of lasting net impact on consumption, income or asset accumulation. Instead, income from the new livelihood substituted for earnings from wage labor. A very similar intervention made a large difference elsewhere in South Asia, however, where wage labor alternatives were less compelling. The analysis highlights the roles of substitution bias and dropout bias in shaping evaluation results and delimiting external validity.
Jonathan Morduch, Shamika Ravi, and Jonathan Bauchet

Cultural Change as Learning: The Evolution of Female Labor Force Participation Over a Century.

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his paper investigates the role of changes in culture in generating the dramatic increase in married women’s labor force participation over the last century. It develops a dynamic model of culture in which individuals hold heterogeneous beliefs regarding the relative long-run payoffs for women who work in the market versus the home. These beliefs evolve endogenously via an intergenerational learning process. Women are assumed to learn about the long-term payoffs of working by observing (noisy) private and public signals. This process generically generates the S-shaped figure for female labor force participation found in the data . . . 
Raquel Fernandez

The Impact of Microcredit on the Poor in Bangladesh: Revisiting the Evidence

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We replicate and re-analyze the most influential study of microcredit impacts (Pitt and Khandker, 1998). That study was celebrated for showing that microcredit reduces poverty, a much hoped-for possibility (though one not confirmed by recent randomized controlled trials). We show that the original results on poverty reduction disappear after dropping outliers, or when using a robust linear estimator. Using a new program for estimation of mixed process maximum likelihood models, we show how assumptions critical for the original analysis, such as error normality, are contradicted by the data. We conclude that questions about impact cannot be answered in these data.
David Roodman and Jonathan Morduch

Poverty and Self-Control

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The absence of self-control is often viewed as an important correlate of persistent poverty. Using a standard intertemporal allocation problem with credit constraints faced by an individual with quasi-hyperbolic preferences, we argue that poverty damages the ability to exercise self-control. Our theory invokes George Ainslie’s notion of “personal rules,” interpreted as subgame-perfect equilibria of an intrapersonal game played by a time-inconsistent decision maker. Our main result pertains to situations in which the individual is neither so patient that accumulation is possible from every asset level, nor so impatient that decumulation is unavoidable from every asset level. Such cases always possess a threshold level of assets above which personal rules support unbounded accumulation, and a second threshold below which there is a “poverty trap” . . . 
B. Douglas Bernheim, Debraj Ray, and Sevin Yeltekin

Banks and Microbanks

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We combine two datasets to examine whether the scale of an economy’s banking system affects the profitability and outreach of microfinance institutions. We find evidence that competition matters. Greater bank penetration in the overall economy is associated with microbanks pushing toward poorer markets, as reflected in smaller average loans sizes and greater outreach to women. The evidence is particularly strong for microbanks that rely on commercial-funding, use traditional bilateral lending contracts (rather than group lending methods favored by microfinance NGOs), and take deposits. We consider plausible alternative explanations for the correlations, including relationships that run through the nature of the regulatory environment and the structure of the banking environment, but we fail to find strong support for these alternative hypotheses.
Robert Cull, Asli Demirgüç-Kunt and Jonathan Morduch

Think Tanks

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This paper is the first to investigate the relationship between think tanks and economic policy empirically. We use panel data for the US states to examine state-based, free market (SBFM) think tanks’ relationship to eight key economic policy objectives. We find little evidence that SBFM think tanks are associated with more “pro-market” policies along the policy dimensions they aim to influence. However, we find stronger evidence that SBFM think tanks are associated with more “pro-market” citizen attitudes about the role of government vs. markets in economic policy. These results suggest that if think tanks’ connection to economic policy is important at all, its importance may be long term and operate via the channel of “ideas" . . . 
Peter T. Leeson, Matt E. Ryan and Claudia R. Williamson

Eroding the Culture of Contracting: Aid, Not Trade?

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We analyze how two well-known development policies—international trade and aid—affects the ‘culture of contracting.’ The culture of contracting refers to those cultural characteristics—trust, respect, level of self-determination, and level of obedience—which allow for the impersonal exchange necessary for growth and development. Theoretically, trade and aid may affect the culture of contracting for better or worse. We empirically analyze both possibilities and find that international trade generates, on net, positive effects while foreign aid generates negative effects on the culture of contracting. The more open a country is to trade and the less aid it receives, the more likely it is to possess a stronger culture of contracting.
Christopher J. Coyne and Claudia R. Williamson

Liquidity Traps and Expectation Dynamics: Fiscal Stimulus or Fiscal Austerity?

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We examine global dynamics under infinite-horizon learning in New Keynesian models where the interest-rate rule is subject to the zero lower bound. As in Evans, Guse and Honkapohja (2008), the intended steady state is locally but not globally stable. Unstable deflationary paths emerge after large pessimistic shocks to expectations. For large expectation shocks that push interest rates to the zero bound, a temporary fiscal stimulus or a policy of fiscal austerity, appropriately tailored in magnitude and duration, will insulate the economy from deflation traps. However "fiscal switching rules" that automatically kick in without discretionary fine tuning can be equally effective.
By Jess Benhabib, George W. Evans, and Seppo Honkapohja

Credit Constraints, Job Mobility and Entrepreneurship: Evidence from a Property Reform in China

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This paper provides new evidence on the impact of private property rights and employer-provided housing on entrepreneurship. I find an increase in self-employment following a reform in urban China that allowed state employees who were renting state-owned housing the opportunity to buy their homes at subsidized prices. I develop a model of job choice to test two mechanisms that might explain how the reform increased entrepreneurship. I find evidence that the reform reduced labor mobility costs and alleviated credit constraints by allowing households to capitalize on the value of the real estate.
Shing-Yi Wang

Commercial Imperialism? Political Influence During the Cold War

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We provide evidence that increased political influence, arising from CIA interventions during the Cold War, was used to create a larger foreign market for American products. Following CIA interventions, imports from the US increased dramatically, while total exports to the US were unaffected. The surge in imports was concentrated in industries in which the US had a comparative disadvantage, not a comparative advantage. Our analysis is able to rule out decreased trade costs, changing political ideology, and an increase in US loans and grants as alternative explanations . . . 
Daniel Berger, William Easterly, Nathan Nunn, Shanker Satyanath

Indicators as a Technology of Global Governance

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The use of indicators is a prominent feature of contemporary global governance. Indicators are used to compare and rank states for purposes as varied as deciding how to allocate foreign aid or investment and determining whether states have complied with their treaty obligations. This article defines the concept of an indicator, analyzes distinctive features of indicators as technologies of governance, and identifies various ways in which the use of indicators has the potential to alter the topology and dynamics of global governance. Particular attention is paid to how indicators can affect processes of standard setting, decisionmaking, and contestation in global governance. The World Bank Doing Business indicators and the United Nations Human Development Index are analyzed as case studies.
Kevin E. Davis, Benedict Kingsbury, Sally Engle Merry

Ethnicity and Conflict: Theory and Facts

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Over the second half of the twentieth century, conflicts within national boundaries have become increasingly dominant. One third of all countries have experienced civil conflict. Many (if not most) such conflicts involve violence along ethnic lines. Based on recent theoretical and empirical research, this paper provides evidence that pre-existing ethnic divisions do influence social conflict. The analysis also points to particular channels of influence. Specifically, it is shown that two different measures of ethnic division — polarization and fractionalization — jointly influence conflict, the former more so when the winners enjoy a “public” prize (such as political power or religious hegemony), the latter more so when the prize is “private” (such as looted resources, government subsidies or infrastructures). The available data appear to stand in strong support of existing theories of inter-group conflict. Our argument also provides indirect evidence that ethnic conflicts are likely to be instrumental, rather than driven by primordial hatreds.
Laura Mayoral, Joan Esteban, Debraj Ray

Discovering Law: Hayekian Competition in Medieval Iceland

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It is commonplace to assume that legal institutions must be established and enforced by government. The general consensus, even among defenders of free markets, is that some minimal government need exist to provide law. However, between 930 and 1262 the Icelandic Commonwealth (or Free State) functioned in the absence of a coercive state, relying instead on market mechanisms and private institutions. An elaborate legal system developed that guided social interaction and coordinated conflict resolution, without a central government. This article utilizes Hayek’s theory of competition as a discovery process to examine the general social structure and private legal institutions within Medieval Iceland. The goal is to provide an economic theoretical lens to more adequately explain the particular private legal institutions that enabled Iceland to function successfully without a central government for over 300 years.
Carrie B. Kerekes and Claudia R. Williamson

Property Rights and Intra-Household Bargaining

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This paper examines whether an individual-level transfer of property rights increases the individual's bargaining power within the household. The question is analyzed in the context of a housing reform that occurred in China that gave existing tenants the opportunity to purchase the homes that they had been renting from their state employers. The rights to each housing unit were granted to a particular employee, so property rights were de ned at the individual level rather than the household level. The results indicate that transferring ownership rights to men increased household consumption of some male-favored goods and women's time spent on chores. Transferring ownership rights to women decreased household consumption of some male-favored goods.
Shing-Yi Wang

The Amplification Effect: Foreign Aid's Impact on Political Institutions

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How does foreign aid affect recipient countries’ political institutions? Two competing hypotheses offer contradictory predictions. The first sees aid, when delivered correctly, as an important means of making dictatorial recipient countries more democratic. The second sees aid as a corrosive force on recipient countries’ political institutions that makes them more dictatorial. This paper offers a third hypothesis about how aid affects recipients’ political institutions that we call the “amplification effect.” We argue that foreign aid has neither the power to make dictatorships more democratic nor to make democracies more dictatorial. It only amplifies recipients’ existing political institutions. We investigate this hypothesis using panel data for 124 countries between 1960 and 2009. Our findings support the amplification effect. Aid strengthens democracy in already democratic countries and dictatorship in already dictatorial regimes. It doesn’t alter the trajectory of recipients’ political institutions.
Nabamita Dutta, Peter T. Leeson and Claudia R. Williamson

The Role of Growth Slowdowns and Forecast Errors in Public Debt Crises

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According to the well‐known arithmetic of debt dynamics, a growth slowdown results in rising debt ratios if fiscal policy does not adjust. This mechanical effect plays a role in a surprisingly wide variety of public debt crises, from the Latin American debt crisis of the 80s and 90s to the low income HIPC crisis of the same period to the current Eurozone debt crisis and US debt crisis. Growth slowdowns often result in growth projections by fiscal authorities that are too optimistic, one of the possible reasons for which fiscal policy fails to adjust. Sound forecasting practices of projecting mean reversion and being more conservative the worse the debt situation are ignored in some major debt crises.
William Easterly

Dignity and Development

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This paper explores how expanding the notion of informal institutions in the broader institutional framework provides a more complete explanation for development. Specifically, I incorporate McCloskey’s notion of ‘dignity and liberty’ as part of the institutional nexus. By doing so, a richer explanation and understanding of the importance of institutions in explaining different economic outcomes is offered. Focusing on bourgeois dignity offers a precise mechanism to explain how institutions matter to support economic growth. In addition, analyzing the changing attitudes towards the bourgeoisie provides a specific example of mechanisms that can lead to institutional change.
Claudia R. Williamson

Reconstructing Empire in British and French Africa. Past and Present

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It was indeed empire that European leaders at the end of World War II needed to reconstruct. They had come very close to losing a struggle with another form of empire, the Nazi Reich, and in South East Asia they had lost valued territories to a country that had dared to play the empire-game with them— Japan. At the same time, both British and French leaders felt, with some reason, that they had been saved by their empires: by the resources in men and material contributed by the dominions and colonies of Great Britain and by the symbolic importance of French Equatorial Africa’s refusal to follow Vichy, followed by the contributions of North African territories and diverse African people to the reconquest of European France from the Mediterranean . . . 
Frederick Cooper

Does Regulatory Supervision Curtail Microfinance Profitability and Outreach?

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Regulation allows microfinance institutions to take deposits and expand their banking functions, but complying with regulation can be costly. We examine implications for institutions’ profitability and their outreach to small-scale borrowers and women, using a newly-constructed dataset on 245 leading institutions. Controlling for the non-random assignment of supervision via treatment effects and instrumental variables regressions, we find evidence consistent with the hypothesis that profit-oriented microfinance institutions respond to supervision by maintaining profit rates but curtailing outreach to women and customers that are costly to reach. Institutions with a weaker commercial focus instead tend to reduce profitability but maintain outreach.
Jonathan Morduch, Robert Cull, and Asli Demirgüç-Kunt

Reestablishing the Income-Democracy Nexus

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Reestablishing the Income-Democracy Nexus
A number of recent empirical studies have cast doubt on the “modernization theory” of democratization, which posits that increases in income are conducive to increases in democracy levels. This doubt stems mainly from the fact that while a strong positive correlation exists between income and democracy levels, the relationship disappears when one controls for country fixed effects. This raises the possibility that the correlation in the data reflects a third causal characteristic, such as institutional quality. In this paper, we reexamine the robustness of the income-democracy relationship . . . 
Jess Benhabib, Alejandro Corvalan and Mark M. Spiegel

Climate and Civil War: Is the Relationship Robust?

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A recent paper by Burke et al. (henceforth “we”) finds a strong historical relationship between warmer than-average temperatures and the incidence of civil war in Africa (Burke et al. 2009). These findings have recently been challenged by Buhaug (2010) who finds fault with how we controlled for other potential explanatory variables, how we coded civil wars, and with our choice of historical time period and climate dataset. We demonstrate that Buhaug’s proposed method of controlling for confounding variables has serious econometric shortcomings . . . 
Marshall Burke, John Dykema, David Lobell, Edward Miguel and Shanker Satyanath

Re-examining Economics Shocks and Civil Conflict.

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Miguel, Satyanath, and Ernest Sergenti (2004), henceforth MSS, show that economic growth is negatively related to civil conflict in Africa, using annual rainfall variation as an IV for growth. Antonio Ciccone (2011) argues that thanks to rainfall’s mean-reverting nature, rainfall levels are preferable to annual changes. We make three points. First, MSS’s  findings hold using rainfall levels as instruments. Second, Ciccone (2011) does not provide theoretical justification for preferring rainfall levels. Third, the first-stage relationship between rainfall and growth is weaker after 2000, suggesting that alternative instruments are needed when studying recent conflicts. We highlight the accumulating microeconomic evidence that adverse economic shocks lead to political violence.
Shanker Satyanath and Edward Miguel

Rhetoric versus Reality: The Best and Worst of Aid Agency Practices

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Foreign aid critics, supporters, recipients and donors have produced eloquent rhetoric on
the need for better aid practices – has this translated into reality? This paper attempts to monitor the best and worst of aid practices among bilateral, multilateral, and UN agencies. We create aid practice measures based on aid transparency, specialization, selectivity, ineffective aid channels and overhead costs. We rate donor agencies from best to worst on aid practices. We find that the UK does well among bilateral agencies, the US is below average, and Scandinavian donors do surprisingly poorly . . . 

Democratic Transitions and Implicit Power: An Econometric Approach

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Recent works of political economy have emphasized the importance of distinguishing between transfers of explicit and implicit power over economic decision making in democratic transitions. Scholars have so far provided interesting anecdotal evidence supporting their claims of potential divergence between transfers of explicit and implicit power. In this paper we apply econometric techniques to examine if a transfer of explicit power has not also been accompanied by a transfer of implicit power. We do so in the context of a major country where considerable uncertainty remains over the military’s implicit role in economic decision making . . . 
Shanker Satyanath and Gokce Goktepe

Marriage Networks, Nepotism and Labor Market Outcomes in China

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This paper considers the potential role of marriage in improving labor market outcomes through the expansion of an individuals' networks. I focus on the impact of a father-in-law on a young man's career using panel data from China. Particular features of the Chinese context allows for an identification strategy that isolates the network effects related to a man's father-in-law by comparing the post-marriage death of a father-in-law with the death of a mother-in-law. The estimates suggest that the loss of the father-in-law translates into a decrease in a man's earnings by 20%. Furthermore, the evidence indicates that the decline in wages can be attributed to nepotism rather than a decline in job information.
Shing-Yi Wang

Efficiency Considerations of Donor Fatigue, Universal Access to ARTs and Health Systems.

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There is great need to consider how the limited resources available can be used most efficiently to increase the number of lives saved and to ensure that these resources also benefit health systems. Improving efficiency is much more than just improving the productive efficiency and also about ensuring that resources are going to where they will be the most beneficial and making investments that are the most efficient over time. These choices may be essential to achieving the goal of universal access to treatment as well as the sustainability of these programmes.
Karen Grépin

State Misallocation and Housing Prices: Theory and Evidence from China.

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This paper examines the equilibrium price effects of the privatization of housing assets that were previously owned and allocated by the state. I develop a theoretical framework that shows that privatization can have ambiguous effects on prices in the private market, and that the degree of misallocation of the assets prior to privatization determines the subsequent price effects. I test the predictions of the model using a large-scale housing reform in China. The results suggest that the removal of price distortions allowed households to increase their consumption of housing and led to an increase in equilibrium housing prices.
Shing-yi Wang

Leveraging HIV Programs to Deliver an Integrated Package of Health Services: Some Words of Caution

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Over the past decade, HIV programs have been successfully scaled up in many developing countries, leading some to wonder how the investments made into HIV infrastructure could be leveraged to deliver additional health services. Although the concept is appealing from many perspectives, integrating additional health services into existing vertical HIV infrastructure may not mitigate some of the challenges these programs have introduced in implementing countries . . . 
Karen Grepin

Ethnicity and Conflict: An Empirical Study

  |  

This paper examines the impact of ethnic divisions on conflict. The empirical specification is informed by a theoretical model of conflict (Esteban and Ray, 2011) in which equilibrium conflict is related to just three distributional indices of diversity: ethnic polarization, ethnic fractionalization, and a Greenberg-Gini index constructed across ethnic groups. Our empirical findings verify that these distributional measures are significant correlates of conflict . . . 
Joan Esteban, Laura Mayoral and Debraj Ray

Linking Conflict to Inequality and Polarization.

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In this paper we study a behavioral model of conflict that provides a basis for choosing certain indices of dispersion as indicators for conflict. We show that a suitable monotone transform of the equilibrium level of conflict can be proxied by a linear function of the Gini coefficient, the Herfindahl-Hirschman fractionalization index, and a specific measure of polarization due to Esteban and Ray.
Debraj Ray and Joan Esteban

A Model of Ethnic Conflict

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We present a model of conflict in which discriminatory government policy or social intolerance is responsive to various forms of ethnic activism, including violence. It is this perceived responsiveness—captured by the probability that the government gives in and accepts a proposed change in ethnic policy—that induces individuals to mobilize, often violently, to support their cause. Yet, mobilization is costly and militants have to be compensated accordingly. The model allows for both financial and human contributions to conflict and allows for a variety of individual attitudes (“radicalism”) towards the cause. The main results concern the effects of within-group heterogeneity in radicalism and income, as well as the correlation between radicalism and income, in precipitating conflict.
Debraj Ray and Joan Esteban

Civilizing Society

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This paper attempts to answer two important questions in economics. First, what virtues are important for promoting economic progress? Second, what is the source of these virtues? To answer these questions, I rely on recent studies suggesting that the virtues of trustworthiness, tolerance and respect, and individual determination are important for understanding how civil society supports economic prosperity. Specifically, trust, respect, and individual motivation encourage and support economic freedom. I also explore competing explanations for the determinants of virtues including religion, the role of government, and the act of economic exchange for civilizing society. My analysis finds support for the latter source. . . 
Claudia R. Williamson

Civil War Exposure and Violence

  |  

In recent years scholars have begun to focus on the consequences of individuals’ exposure to civil war, including its severe health and psychological consequences. Our innovation is to move beyond the survey methodology that is widespread in this literature to analyze the actual behavior of individuals with varying degrees of exposure to civil war in a common institutional setting. We exploit the presence of thousands of international soccer (football) players with different exposures to civil conflict in the European professional leagues, and find a strong relationship between the extent of civil conflict in a player’s home country and his propensity to behave violently on the soccer field, as measured by yellow and red cards . . . 
Shanker Satyanath, Sebastian Saiegh, and Edward Miguel

The Distribution of Wealth and Fiscal Policy in Economies with Finitely Lived Agents

  |  

We study the dynamics of the distribution of wealth in an overlapping generation economy with finitely lived agents and intergenerational transmission of wealth. Financial markets are incomplete, exposing agents to both labor and capital income risk. We show that the stationary wealth distribution is a Pareto distribution in the right tail and that it is capital income risk, rather than labor income, that drives the properties of the right tail of the wealth distribution. We also study analytically the dependence of the distribution of wealth—of wealth inequality in particular—on various fiscal policy instruments like capital income taxes and estate taxes, and on different degrees of social mobility. We show that capital income and estate taxes can significantly reduce wealth inequality, as do institutions favoring social mobility. Finally, we calibrate the economy to match the Lorenz curve of the wealth distribution of the U.S. economy.
Alberto Bisin, Jess Benhabib and Shenghao Zhu

Ethnic Identity and Labor Market Outcomes of Immigrants in Europe

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We study the relationship between ethnic identity and labour market outcomes of non-EU immigrants in Europe. Using the European Social Survey, we find that there is a penalty to be paid for immigrants with a strong identity. Being a first generation immigrant leads to a penalty of about 17% while second- generation immigrants have a probability of being employed that is not statistically different from that of natives. However, when they have a strong identity, second-generation immigrants have a lower chance of finding a job than natives. Our analysis also reveals that the relationship between ethnic identity and employment prospects may depend on the type of integration and labour market policies implemented in the country where the immigrant lives. More flexible labour markets help immigrants to access the labour market but do not protect those who have a strong ethnic identity.
Alberto Bisin, Eleonora Patacchini, Thierry Verdier, and Yves Zenou.

Climate Robustly Linked to Civil War in Africa

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We previously documented a link between climate variation and historical civil wars in sub-Saharan Africa . Buhaug disputes this link, generating a series of animated news reports. The relationship between climate and conflict is an important topic that deserves careful scientific scrutiny, but we believe Buhaug’s approach is undermined by basic econometric mistakes, leading to what is currently an unhelpful debate. We briefly describe two main shortcomings in his analysis here . . . 

Ethnicity and Conflict: An Empirical Study

  |  

Abstract: This paper examines the impact of ethnic divisions on conflict. The analysis relies on a theoretical model of conflict (Esteban and Ray, 2010) in which equilibrium conflict is shown to be accurately described by a linear function of just three distributional indices of ethnic diversity: the Gini coefficient, the Hirschman-Herndahl fractionalization index, and a measure of polarization. Based on a dataset constructed by James Fearon and data from Ethnologue on ethno-linguistic groups and the "linguistic distances" between them, we compute the three distribution indices. Our results show that ethnic polarization is a highly significant correlate of conflict. Fractionalization is also significant in some of the statistical exercises, but the Gini coefficient never is. In particular, inter-group distances computed from language and embodied in polarization measures turn out to be extremely important correlates of ethnic conflict.
Joan Esteban, Laura Mayoral and Debraj Ray

Statistical Discrimination, Productivity and the Height of Immigrants

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Building on the economic research that demonstrates a positive relationship between height and worker ability, this paper considers whether employers use height as a tool for statistical discrimination. The analysis focuses on immigrants and native-born individuals because employers are likely to have less reliable signals of productivity for an immigrant than a native-born individual. Using multiple data sets, the paper presents a robust empirical finding that the wage gains associated with height are almost twice as large for immigrants than for native-born individuals . . . 
Shing-Yi Wang

Occupational Choice and Development

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We study an economy in which firms use labor and various vintages of capital in a CES production function for the final good. We explicitly solve for the investment in capital of a given vintage as a function of its age, and for the resulting stocks of capital. We show that for reasonable parameter values, inverted-U- shaped dynamics of investment and S-shaped dynamics for capital arise in equilibrium. We view the model as an explanation of intra-firm adoption lags, i.e., the observation that firms adopt innovations over time and not instantaneously.
Boyan Jovanovic and Jan Eeckhout

Institutions and Economic Performance: An Introduction to the Literature

  |  

This essay serves as the introduction to a collection of critical writings on the relationship between institutions and economic performance. The essay not only provides an overview of the field but also explores some of the thorny questions surrounding the definition and measurement of institutions.
Kevin E. Davis

Uneven Growth: A Framework for Research in Development Economics

  |  

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 several circumstances, particularly those pertaining to macroeconomic models of long-term growth. An implicit view that growth is balanced across sectors, or something close to it, also underlies the notion of “trickle-down,” a stance that has strongly influenced development policy. Of course, we would all agree that balanced growth is an abstraction . .  
Debraj Ray

Implications of an Economic Theory of Conflict

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We study inter-group conflict driven by economic changes within groups. We show that if group incomes are “low”, increasing group incomes raises violence against that group,and lowers violence generated by it. These correlations are tests for group aggression or victimization, which we apply to Hindu-Muslim violence in India. Our main result is that an increase in per-capita Muslim expenditures generates a large and significant increase in future religious conflict, an increase in Hindu well-being has no significant effect. This robust empirical finding, combined with the theory, suggests that Hindu groups have been primarily responsible for Hindu-Muslim violence in post-Independence India.
Anirban Mitra and Debraj Ray

Peer-to-Peer Financing for Development: Regulating the Intermediaries

  |  

Private international finance for individual and small business recipients seeking to improve development outcomes is particularly in vogue, and a bewildering variety of intermediaries have emerged to channel the growing capital flows. Some of these intermediaries work much like conventional charities, collecting and transmitting private donations for private recipients advancing development—defined to include both private sector growth and institutional reform . . .

Civil War Exposure and Violence

  |  

n recent years scholars have begun to focus on the consequences of individuals’ exposure to civil war, including its severe health and psychological consequences. Our innovation is to move beyond the survey methodology that is widespread in this literature to analyze the actual behavior of individuals with varying degrees of exposure to civil war in a common institutional setting. We exploit the presence of thousands of international soccer (football) players with different exposures to civil conflict in the European professional leagues, and find a strong relationship between the extent of civil conflict in a player’s home country and his propensity to behave violently on the soccer field, as measured by yellow and red cards . . . 
Edward Miguel, Sebastian M. Saiegh and Shanker Satyanath

The Slave Trade and the Origins of Mistrust in Africa

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We show that current differences in trust levels within Africa can be traced back to the trans-Atlantic and Indian Ocean slave trades. Combining contemporary individual-level survey data with historic data on slave shipments by ethnic group, we find that individuals whose ancestors were heavily raided during the slave trade are less trusting today. Evidence from a variety of identification strategies suggest that the relationship is causal. Examining causal mechanisms, we show that most of the impact of the slave trade is through factors that are internal to the individual, such as cultural norms, beliefs, and values.
Leonard antchekon and Nathan Nunn

Women's Rights and Development

  |  

Why has the expansion of women's economic and political rights coincided with economic development? This paper investigates this question, focusing on a key economic right for women: property rights. The basic hypothesis is that the process of development (i.e., capital accumulation and declining fertility) exacerbated the tension in men's conflicting interests as husbands versus fathers, ultimately resolving them in favor of the latter. As husbands, men stood to gain from their privileged position in a patriarchal world whereas, as fathers, they were hurt by a system that afforded few rights to their daughters . . . 
Raquel Fernández

Selective Knowledge: Reporting Biases in Microfinance Data

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nswering surveys is usually voluntary, yet much of our knowledge depends on the willingness of households and institutions to answer. We explore the implications of voluntary reporting on knowledge about microfinance. We show systematic biases in microfinance institutions’ choices about which survey to respond to and which specific indicators to report. The analysis focuses on data for 2,072 microfinance institutions . . .
Jonathan Morduch and Jonathan Bauchet

Was the Wealth of Nations determined in 1000 BC?

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We assemble a dataset on technology adoption in 1000 Bc, 0 Ad, and 1500 AD for the predecessors to today’s nation states. Technological differences are surprisingly persistent over long periods of time. Our most interesting, strong, and robust results are for the association of 1500 AD technology with per capita income and technology adoption today . . . 

Does Culture Matter?

  |  

This paper reviews the literature on culture and economics, focusing primarily on the epidemiological approach. The epidemiological approach studies the variation in outcomes across different immigrant groups residing in the same country. Immigrants presumably differ in their cultures but share a common institutional and economic environment. This allows one to separate the effect of culture from the original economic and institutional environment. This approach has been used to study a variety of issues, including female labor force participation, fertility, labor market regulation, redistribution, growth, and …financial development among others.

Microfinance Games

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Microfinance banks use group-based lending contracts to strengthen borrowers’ incentives for diligence, but the contracts are vulnerable to free-riding and collusion. We systematically unpack micro nance mechanisms through ten experimental games played in an experimental economics laboratory in urban Peru. Risk-taking broadly conforms to theoretical predictions, with dynamic incentives strongly reducing risk-taking even without group-based mechanisms. Group lending increases risk-taking, especially for risk-averse borrowers, but this is moderated when borrowers form their own groups. Group contracts bene t borrowers by creating implicit insurance against investment losses, but the costs are borne by other borrowers, especially the most risk averse . . . 

Reply to Sutton et al.: Relationship Between Temperature and Conflict is Robust

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In a recent paper, we documented strong historical linkages between temperature and civil conflict in Africa. Sutton et al. raise two concerns with our findings: that the relationship between temperature and war is based on common trends and is therefore spurious, and that our model appears overly sensitive to small specification changes. Both concerns reflect a basic misunderstanding of the analysis.
Shanker atyanath, Marshall Burke, Edward Miguel, John Dykema, and David Lobell

Missing Women: Age and Disease

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Relative to developed countries and some parts of the developing world, most notably sub- Saharan Africa, there are far less women than men in India and China. It has been argued that as many as a hundred million women could be missing. The possibility of gender bias at birth and the mistreatment of young girls are widely regarded as key explanations. We provide a decomposition of these missing women by age and cause of death. While we do not dispute the existence of severe gender bias at young ages, our computations yield some striking new findings . . . 

Does the Globalization of Anti-corruption Law Help Developing Countries?

  |  

What role do foreign countries play in combating political corruption in developing countries? This chapter begins by describing the recently developed transnational anti-corruption regime, which encompasses legal instruments ranging from the dedicated multilateral agreements sponsored by the OECD and the United Nations, to the anti-corruption policies of the international financial institutions, to components of the international anti-money laundering regime, international norms governing government procurement, and private law norms concerning enforcement of corruptly procured contracts. It also surveys the evidence concerning a variety of claims about the potential advantages and disadvantages of having foreign institutions play a role in preventing, sanctioning, or providing redress for corruption on the part of local public officials . . . 
Kevin E. Davis

Warming Increases Risk of Civil War in Africa

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Armed conflict within nations has had disastrous humanitarian consequences throughout much of the world. Here we undertake the first comprehensive examination of the potential impact of global climate change on armed conflict in sub-Saharan Africa. We find strong historical linkages between civil war and temperature in Africa, with warmer years leading to significant increases in the likelihood of war. When combined with climate model projections of future temperature trends, this historical response to temperature suggests a roughly 54% increase in armed conflict incidence by 2030, or an additional 393,000 battle deaths if future wars are as deadly as recent wars. Our results suggest an urgent need to reform African governments’ and foreign aid donors’ policies to deal with rising temperatures.
Shanker atyanath, Marshall Burke, Edward Miguel, John Dykema, and David Lobell

Selling Out on the UN Security Council

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Election to the United Nations Security Council (UNSC) provides nations with an opportunity to trade policy support in exchange for aid and other forms of financial assistance. Nations elected to one of the ten temporary two year seats on the United Nations Security Council experience substantially lower economic growth during their time on the council than comparable nations not on the UNSC. Over the two year period of UNSC membership and the following two years, during which a nation is ineligible for reelection, UNSC nations experience a 3.5% contraction in their economy relative to nations not elected to the UNSC. Further, on average nations in the UNSC become less democratic and experience an increase in the level of restrictions on press freedom. The effects of UNSC membership on political and economic development are particularly strong in non-democratic states.
Alastair Smith, NYU and Bruce Bueno de Mesquita, NYU

A Model of Ethnic Conflict

  |  

This paper studies costly conflict in a world of complete information, in which society can commit to divisible transfers among all potentially warring groups. The difficulty in preventing conflict arises from the possibility that there may be several conflictual divisions of society, each based on a different marker, such as class, geography, religion, or ethnicity. It is shown that this diversity of societal markers is particularly conducive to social instability when potential conflict is over private, divisible resources. In contrast, when conflict is over public goods, such diversity promotes social stability . . .
Joan Esteban, Instituto de Analisis Economico and Debraj Ray, NYU

Inequality and Markets: Some Implications of Occupational Diversity

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This paper characterizes long run income distribution in a competitive economy with borrowing constraints. Parents decide both on financial bequests and investments in their children's education. The occupational structure is "rich": there is a continuum of occupations with varying entry costs that are imperfect substitutes in the production process. Occupational returns are endogenously determined by market conditions. If the span of occupational investments is wide enough, the wealth distribution is non- degenerate and long-run inequality arises. In this case, the average return to education must rise with the level of educational investment - the return to human capital is endogenously nonconcave. This finding, which contrasts with the usual presumption that the private return to human capital is decreasing, constitutes the central empirically testable proposition of this paper.
Dilip Mookherjee, Boston University and Debraj Ray, NYU

The Distribution of Wealth and Fiscal Policy in Economies with Finitely Lived Agents

  |  

We study the dynamics of the distribution of wealth in an overlapping generation economy with finitely lived agents and inter-generational transmission of wealth. Financial markets are incomplete, exposing agents to both labor and capital income risk. We show that the stationary wealth distribution is a Pareto distribution in the right tail and that it is capital income risk, rather than labor income, that drives the properties of the right tail of the wealth distribution. We also study analytically the dependence of the distribution of wealth, of wealth inequality in particular, on various fiscal policy instruments . . . 
Jes Benhabib, Alberto Bisin and Shenghao Zhu

Empirics of Strategic Interdependence: The Case of the Racial Tipping Point

  |  

The Schelling model of a “tipping point” in racial segregation, in which whites flee a neighborhood once a threshold of nonwhites is reached, is a canonical model of strategic interdependence. The idea of “tipping” explaining segregation is widely accepted in the academic literature and popular media. I use census tract data for metropolitan areas of the US from 1970 to 2000 to test the predictions of the Schelling model and find that this particular model of strategic interaction largely fails the tests. There is more “white flight” out of neighborhoods with a high initial share of whites than out of more racially mixed neighborhoods.
William Easterly, NYU

Democratic Transitions and Implicit Power: An Econometric Approach

  |  

Recent works of political economy have emphasized the importance of distinguishing between transfers of explicit and implicit power over economic decision making in democratic transition. Scholars have so far provided interesting anecdotal evidence supporting their claims of potential divergence between transfers of explicit and implicit power. This raises the question of whether it is possible to econometrically identify when a transfer of explicit power has not also been accompanied by a transfer of implicit power. This paper offers a straightforward and easily replicable approach to addressing this question using the tools of financial econometrics. We apply this approach here to a major country where considerable uncertainty remains over the military's implicit role in economic decision making long after an explicit transfer of power to elected leaders, namely Turkey. Our findings indicate a significant gap between the explicit and implicit aspects of Turkey's democratic transition, adding support to scholars' claims about the importance of distinguishing between these aspects of transitions.
Gokce Goktepe and Shanker Satyanath

Cultural Context: The Productivity of Capitalism

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Does capitalism perform better when embedded in certain cultures? Given the wide range of economic success and failure, we address potential causes for the effectiveness or ineffectiveness of institutional constraints. This paper argues that culture matters for the success of capitalist institutions, specifically economic freedom. We claim that different cultures may raise or lower the productivity of economic institutions by either constraining or supporting these rules. We analyze this relationship empirically by examining how the interaction between economic freedom and culture affects economic growth. Our results suggest that culture does, indeed, enhance the effectiveness of capitalism and its subsequent impact on growth . . . 
Claudia Williamson and Rachel Mathers

Women's Rights and Development

  |  

Why has the expansion of women's economic and political rights coincided with economic development? This paper investigates this question, focusing on a key economic right for women: property rights. The basic hypothesis is that the process of development (i.e., capital accumulation and declining fertility) exacerbated the tension in men's conflicting interests as husbands versus fathers, ultimately resolving them in favor of the latter. As husbands, men stood to gain from their privileged position in a patriarchal world whereas, as fathers, they were hurt by a system that afforded few rights to their daughters. The model predicts that declining fertility would hasten reform of women's property rights whereas legal systems that were initially more favorable to women would delay them. The theoretical relationship between capital and the relative attractiveness of reform is non-monotonic but growth inevitably leads to reform. I explore the empirical validity of the theoretical predictions by using cross-state variation in the US in the timing of married women obtaining property and earning rights between 1850 and 1920.
Raquel Fernandez, NYU

Pivotal Patronage

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In contrast to traditional approaches to patronage politics, in which politician directly buy electoral support from individuals, we examine how patronage based parties can elicit wide spread electoral support by offering to allocate benefits to the precinct giving it the most support. Provided that the party can observe precinct level voting, this mechanism, which eliminates the need to observe individual votes or to reward a large number of individual voters, incentivizes voters to support a party even when the party enacts policies which are against their interests. When a party allocates rewards contingent upon precinct-level voting results, voters can be pivotal both in terms of affecting who wins the election and in influencing which precinct gets the benefits. The latter (prize pivotalness) dominates the former (outcome pivotalness), particular when a patronage party is anticipated to win. Competition between the precincts for prize pivotalness encourages rational voting even when the odds of outcome pivotalness approach 0.
Alastair Smith, NYU and Bruce Bueno de Mesquita, NYU

Remarks on the Initiation of Costly Conflict

  |  

This paper studies costly conflict in a world of complete information, in which society can commit to divisible transfers among all potentially warring groups. The difficulty in preventing conflict arises from the possibility that there may be several conflictual divisions of society, each based on a different marker, such as class, geography, religion, or ethnicity. It is shown that this diversity of societal markers is particularly conducive to social instability when potential conflict is over private, divisible resources. In contrast, when conflict is over public goods, such diversity promotes social stability.
Debraj Ray, NYU

SigNet: Low Cost Auditable Transactions using SIM cards and Mobile Phones

  |  

The absence of reliable network connectivity in the developing world has resulted in the use of paper receipts remaining the de facto standard for tracking transactions of various types. This includes both cash transactions (microfinance-related disbursements and repayments, purchases, money transfers) and noncash goods (food commodities to/from godowns or warehouses). Such receipts are susceptible to loss, damage and alteration . . .
Michael Paik and Lakshminarayanan Subramanian

Getting Climate-Related Conditionality Right

  |  

Conditionality has gotten a bad name in development finance. But it may be rehabilitated by the emerging climate change regime. Mitigating climate change by reducing emissions of greenhouse gases (GHGs) from developing countries will require substantial amounts of capital. Some of that capital will come from individuals or organizations who insist that their funds be used in ways that tend to promote mitigation. In other words, they will insist on conditionality. This raises a number of policy concerns, including several that are reminiscent of debates about conditionality in other contexts . . . 
Kevin Davis, NYU and Sarah Dadush, NYU

Securing Private Property: Formal versus Informal Institutions

  |  

Property rights is one of the most fundamental and highly robust institutions supporting economic performance. However, the channels through which property rights are achieved are not adequately identified. This paper is a first step towards unbundling the black box of property rights into a formal and informal component. We empirically determine the significance of both informal and formal rules in securing property rights. We find that when both components are included in the analysis, the impact of formal constraints are greatly diminished, while informal constraints are highly significant in explaining the security of property. These results are robust to a variety of model specifications, multiple instrumental variable and a range of control variables.
Claudia Williamson, NYU and Carrie Kerekes, Florida Gulf Coast University

Civil War Exposure and Violence

  |  

In recent years scholars have begun to focus on the consequences of individuals' exposure to civil war, including its severe health and psychological consequences. Our innovation is to move beyond the survey methodology that is widespread in this literature to analyze the actually behavior of individuals with varying degrees of exposure to civil war in a common institutional setting. We exploit the presence of thousands of international soccer (football) players with different exposures to civil conflict in the European professional leagues, and find a strong relationship between the extent of civil conflict in a player's home country and his propensity to behave violently on the soccer field, as measured by yellow and red cards. This link is robust to region fixed effects . . . 
Edward Miguel, University of California Berkeley; Sebastian Saiegh, University of California San Diego; and Shanker Satyanath, NYU

Can Informed Public Deliberation Overcome Clientelism? Experimental Evidence From Benin

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This paper provides experimental evidence on the effect of "informed" town hall meetings on electoral support for programmatic, non-clientelist platforms. The experiment takes place in Benin and involves real candidates running in the fi…rst round of the 2006 presidential elections. The treatment is a campaign strategy based exclusively on town hall meetings during which policy proposals made by candidates are "speci…c" and informed by empirical research. The control is the "standard" strategy based on campaign rallies followed by targeted or clientelist electoral promises . . . 
Leonard Wantchekon

Political Survival and Endogenous Institutional Change

  |  

Incumbent political leaders risk deposition by challengers within the existing political rules and by revolutionary threats. Building on Bueno de Mesquita, Smith, Siverson, and Morrow’s selectorate theory, the model here examines the policy responses of office-seeking leaders to revolutionary threats. Whether leaders suppress public goods such as freedom of assembly and freedom of information to hinder the organizational ability of potential revolutionaries or appease potential revolutionaries by increasing the provision of public goods depends, in part, on the sources of government revenues. Empirical tests show that governments with access to revenue sources that require few labor inputs by the citizens, such as natural resource rents or foreign aid, reduce the provision of public goods and increase the odds of increased authoritarianism in the face of revolutionary pressures. In contrast without these sources of unearned revenues, governments respond to revolutionary pressures by increasing the provision of public goods and democratizing.
Bruce Bueno de Mesquita, NYU and Alastair Smith, NYU

Economic Freedom, Culture and Growth

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How does economic freedom and culture impact economic growth? This paper argues that culture and economic institutions, specifically economic freedom, both play a role in economic development independently, but the strength of their impact can only be better understood when both are included in the growth regression. We find that, when both are included in the growth regression, the impact of culture is greatly diminished, while economic freedom continues to have a significant impact on economic growth. Our results suggest that economic freedom is more important than culture for growth outcomes, though the mechanisms through which culture affects growth warrant further investigation. We posit that culture may be more important for initial growth, diminishing in significance once the institutions of economic freedom have been established.
Claudia Williamson, NYU and Rachel Mathers, West Virginia University

The Phelps-Koopmans Theorem and Potential Optimality

  |  

Can discounted optimal paths spend an “infinite amount of time above” the golden rule?
This paper seeks to answer that question. I show in Proposition 1 that if an optimal path converges, its limit must lie weakly below the minimal golden rule, the lowest capital stock that globally maximizes net consumption. This result is independent of any curvature assumptions, either on the production function or on the utility function. Thus far, then, the intuition of the convex model carries over: convergent programs that are potentially optimal with respect to some utility function cannot stay above and bounded away from the golden rule . . . 
Debraj Ray, NYU

Leader Survival, Revolutions and the Nature of Government Finance

  |  

Leaders face multiple threats to their political survival. In additional to surviving the threats to tenure from within the existing political systems, which is modeled using Bueno de Mesquita et al’s (2003) selectorate theory, leaders risk being deposed through revolutions and coups. To ameliorate the threat of revolution, leaders can either increase public goods provisions to buy off potential revolutionaries or contract the provision of those public goods, such as freedom of assembly, transparency and free press, which enable revolutionaries to coordinate. Which response a leader chooses depends upon existing institutions and the structure of government finances . . . 
Alastair Smith, NYU and Bruce Bueno de Mesquita, NYU

Randomized Evaluation of Institutions: Theory with Applications to Voting and Deliberation Experiments

  |  

We study causal inference in randomized experiments where the treatment is a decision making process or an institution such as voting, deliberation or decentralized governance. We provide a statistical framework for the estimation of the intrinsic effect of the institution. The proposed framework builds on a standard set-up for estimating causal effects in randomized experiments with noncompliance . . . 
Yves Atchade and Leonard Wantchekon

Exploring the Failure of Foreign Aid: The Role of Incentives and Information

  |  

The stated purpose of foreign aid is to promote economic and human development. Recently, the ability of foreign aid to achieve its goals is called into question. Widespread conceptual and empirical literature suggests that foreign aid is ineffective. This paper explores the failure of foreign aid relying on the role of both incentives and information. The success of aid depends on incentives faced by all parties in donor and recipient countries. In addition, both donors and recipients must obtain the necessary information to actually target and achieve desired goals. This analysis provides a double-edged sword to explain why foreign aid fails to achieve development goals.
Claudia R. Williamson

Empirics of Strategic Interdependence: the Case of the Racial Tipping Point

  |  

The Schelling model of a “tipping point” in racial segregation, in which whites flee a neighborhood once a threshold of nonwhites is reached, is a canonical model of strategic interdependence. The idea of “tipping” explaining segregation is widely accepted in the academic literature and popular media. I use census tract data for metropolitan areas of the US from 1970 to 2000 to test the predictions of the Schelling model and find that this particular model of strategic interaction largely fails the tests. There is more “white flight” out of neighborhoods with a high initial share of whites than out of more racially mixed neighborhoods.
William Easterly

A Remark on Color-Blind Affirmative Action

  |  

Elite colleges and universities in the United States have recently faced a number of legal challenges that restrict their use of explicitly race-contingent admissions policies. Since these institutions continue to seek broad representation from different social groups (and to view campus diversity as an essential ingredient in the provision of a first-rate education), they have strong incentives to adjust their admissions criteria in order to attain diversity goals through less direct means. There is considerable evidence that this process is well underway, and a literature dealing with the efficiency implications of color-blind affirmative action policies has emerged . . . 

Tanzania's Economic and Political Performance: A District-Level Test of Selectorate Theory

  |  

Hypotheses derived from the selectorate theory of political survival are tested against Tanzanian district-level data. We assess the extent to which resource allocations within Tanzania depend on the size of the district-level presidential winning coalition and the presidential support coalition. Using indicators that precisely measure coalition size given Tanzania’s electoral rules, we find that smaller winning coalition districts emphasize private goods allocations such as maize vouchers and road construction. Larger coalition districts emphasize public goods provision such as better health care access, residential electrification, greater income equality, and a lower infant mortality rate. These findings hold with controls for poverty, productivity, and population. Support coalition size – that is, total vote share for the winning party – generally has an insignificant effect on public and private goods allocations. Likewise, the control variables generally have little effect . . . 
Alastair Smith, NYU and Bruce Bueno de Mesquita, NYU

Underground Insurgency and Democratic Revolution

  |  

We propose a model of the transition from an autocratic regime to either a liberal democracy or a new autocratic regime (e.g. a communist government). An underground organization votes on whether or not to hold a mass protest. If a protest is held, the organization members decide whether to put effort into the uprising. Higher effort makes regime change more likely, but it is individually risky. This creates the possibility, in principle, of high and low effort equilibria. But we show, using weak dominance arguments, that only the high effort equilibrium is “credible.” Thus, internal party democracy is shown to enhance the efficiency of political transitions . . . 

Credit Constraints, Job Mobility and Entrepreneurship: Evidence from a Property Reform in China

  |  

This paper provides new evidence on the impact of private property rights on entrepreneurship. I explore this issue in the context of a housing reform in urban China that allowed state employees renting state-owned housing the opportunity to buy their homes at subsidized prices. Using the reform as an exogenous change in the capital constraints and mobility costs that influence individuals' entry into entrepreneurship, my estimates suggest that the property reform increased self-employment. I develop a model of job choice to test two mechanisms that might explain how the reform increased entrepreneurship. I find that the reform increased the ability of individuals to finance entrepreneurial ventures by allowing them to capitalize on the value of the real estate. The unbundling of housing benefits from state employment also contributed to the increase in entrepreneurship by facilitating labor mobility out of the state sector.
Shing-Yi Wang, NYU

Is the Brain Drain Good for Africa?

  |  

We build upon recent literature to do several exercises to assess benefits and costs of the brain drain to Africa. Contrary to a lot of the worries expressed in the media and in aid agencies, the brain drain is probably a net benefit to the source countries. We make several arguments: (1) the African brain drain is not large enough to have much effect on Africa’s skill gap relative to the rest of the world. Since other regions had a larger brain drain, the skill gap between Africa and the rest would actually be larger in a counterfactual world of NO brain drain with the same amount of skill creation. (2) The gains to the migrants themselves and their families who receive indirect utility and remittances more than offset the losses of the brain drain . . . 
William Easterly, NYU and Yaw Nyarko, NYU

The Slave Trade and the Origins of Mistrust in Africa

  |  

We investigate the historical origins of mistrust within Africa. Combining contemporary household survey data with historic data on slave shipments by ethnic group, we show that individuals whose ancestors were heavily threatened by the slave trade today exhibit less trust in neighbors, family co-ethnics, and their local government. We confirm that the relationship is causal by instrumenting the historic intensity of the slave trade by the historic distance from the coast of the respondent’s ancestors, controlling for the respondent’s current distance from the coast . . . 
Nathan Nunn and Leonard Wantchekon

Clientelism and Vote Buying: Lessons from Field Experiments in West Africa

  |  

Electoral clientelism and vote buying are widely perceived as major obstacles to economic development. This is because they may limit the provision of public goods. In this paper, we review the literature on clientelism and vote buying and propose the use of field experiments to empirically evaluate the consequences of these phenomena. We summarize the results from two field experiments conducted by the authors in West African countries. Clientelism and vote buying seem to be effective and to enjoy widespread electoral support . . . 
Leonard antchekon and Pedro Vicente

Artificial States

  |  

We define "artificial states" as those in which political borders do not coincide with a division of nationalities desired by the people on the ground. We propose and compute for most countries in the world two measures of the degree to which borders may be artificial. One measures how borders split ethnic groups into two separate adjacent countries. The other measures the straightness of land borders, under the assumption the straight land borders are more likely to be artificial. We then show that these two measures are correlated with several measures of political and economic success.
Alberto Alesina, William Easterly, and Janina Matuszeski

Inequality Does Cause Underdevelopment: Insights from a New Instrument

  |  

Consistent with the provocative hypothesis of Engerman and Sokoloff (1997, 2000), this paper confirms with cross-country data that agricultural endowments predict inequality and inequality predicts development. The use of agricultural endowments –specifically the abundance of land suitable for growing wheat relative to that suitable for growing sugarcane -- as an instrument for inequality is this paper’s approach to problems of measurement and endogeneity of inequality. The paper finds inequality also affects other development outcomes . . . 
William Easterly

The Unbanked: Evidence from Indonesia

  |  

To analyze the prospects for expanding financial access to the poor, bank professionals assessed 1,438 households in six provinces in Indonesia to judge their creditworthiness. About 40 percent of poor households were judged creditworthy according to the criteria of Indonesia’s largest microfinance bank, but fewer than 10 percent had recently borrowed from a microbank or formal lender . . . 

Financing Development as a Field of Practice, Study and Innovation

  |  

Access to financial capital is an important determinant of the prospects for development of poor countries. This short essay makes the case for treating the legal aspects of financing development as an important field of study. It begins by describing the kinds of transactions that might be of interest and highlights the role that law and lawyers play in shaping the terms that govern them . . . 
Kevin Davis

Can the West Save Africa?

  |  

In the new millennium, the Western aid effort towards Africa has surged due to writings by well-known economists, a celebrity mass advocacy campaign, and decisions by Western leaders to make Africa a major foreign policy priority. This survey contrasts the predominant "transformational" approach (West saves Africa) to occasional swings to a "marginal" approach (West takes one small step at a time to help individual Africans). Evaluation of "one step at a time" initiatives is generally easier than that of transformational ones either through controlled experiments (although these have been much oversold) or simple case studies where it is easier to attribute outcomes to actions. We see two themes emerge from the literature survey: (1) escalation. As each successive Western transformational effort has yielded disappointing results, the response has been to try an even more ambitious effort. (2) the cycle of ideas. Rather than a progressive testing and discarding of failed ideas, we see a cycle in aid ideas in many areas in Africa . . . 
William Easterly

Does Ethnic Solidarity Facilitate Electoral Support for Nation-Building Policies?: Evidence from a Political Experiment

  |  

Would voters support or reject a co-ethnic candidate if she were to adopt a platform that appeals equally to all ethnic groups? We address this counterfactual question using experimental data collected in the context of the 2001 elections in Benin. A hierarchical probit model with a structural equation is used to analyze the data. We adopt a Bayesian approach together with Markov Chain Monte Carlo to handle the computations. We ad that ethnic ties strengthen electoral support for national public goods platforms. The effect is stronger among those who are culturally less distant from most other voters . . . 

Credit Constraints, Job Mobility and Entrepreneurship: Evidence from a Property Reform in China.

  |  

This paper provides new evidence on the impact of private property rights on entrepreneurship. I explore this issue in the context of a housing reform in urban China that allowed state employees renting state-owned housing the opportunity to buy their homes at subsidized prices. Using the reform as an exogenous change in the capital constraints and mobility costs that influence individuals’ entry into entrepreneurship, my estimates suggest that the property reform increased self-employment . . . 
Shing-yi Wang

The Relationship Between Law and Development: Optimists versus Skeptics

  |  

Over the past two decades there has been a resurgence of interest, on the part of both academics and practitioners, in using law to promote development in Latin America, sub-Saharan Africa, Central and Eastern Europe, and Asia. The level of academic interest in the topic is reflected in the publication of three recent books on law and development by prominent American scholars . . . 
Kevin Davis and Michael Trebilcock

Microfinance Meets the Market

  |  

Microfinance institutions have proved the possibility of providing reliable banking services to poor customers. Their second aim is to do so in a commercially-viable way. This paper analyzes the tensions and opportunities of micro nance as it embraces the market, drawing on a data set that includes 346 of the world’s leading micro nance institutions and covers nearly 18 million active borrowers. The data show remarkable successes in maintaining high rates of loan repayment, but the data also suggest that pro t-maximizing investors would have limited interest in most of the institutions that are focusing on the poorest customers and women . . . 
Jonathan Morduch, Robert Cull, and Asli Demirgüç-Kun

Do Remittances Promote Democratization?

  |  

This paper presents evidence for international migration to have played a significant role in the Mexican democratization process. It argues that the non-taxability of remittances reduces an incumbent government's ability to maintain political patronage systems and, as a result, elections will become more competitive. The empirical results, using data from municipal elections in Mexico, support this theory. Estimating an instrumental variable probit model, I find that remittances significantly increase the probability of a party in opposition to the former state party PRI to win in a municipal election. Moving from the first to the third quartile of the remittances measure increases that probability in previously state party ruled towns by more than 15% when party preferences are controlled for.
Tobias Pfutze, New York University

Where Does the Money Go? Best and Worst Practices in Foreign Aid

  |  

Foreign aid from official sources to developing countries (excluding private aid) amounted to $103.6 billion in 2006 and has amounted to over $2.3 trillion (measured in 2006 dollars) over the past 50 years. There have been fierce debates over how effective this aid has been or could be in the future (for example, Sachs, 2005; Easterly, 2006). However, this paper does not address the already ubiquitous issue of aid effectiveness—that is, the extent to which foreign aid dollars actually achieve their goals of reducing poverty, malnutrition, disease, and death. Instead, this paper focuses on “best practices” in the way in which official aid is given, which is an important component of the wider debate . . . 
William Easterly and Tobias Pfutze

How the Millennium Development Goals are Unfair to Africa

  |  

Those involved in the millennium development goal (MDG) campaign routinely state ‘‘Africa will miss all the MDGs.” This paper argues that a series of arbitrary choices made in defining ‘‘success” or ‘‘failure” as achieving numerical targets for the MDGs made attainment of the MDGs less likely in Africa than in other regions even when its progress was in line with or above historical or contemporary experience of other regions. The statement that ‘‘Africa will miss all the MDGs” thus has the unfortunate effect of making African successes look like failures.
William Easterly

Walking up the down escalator: Public investment and fiscal stability

  |  

When growth-promoting spending is cut so much that the present value of future gov- ernment revenues falls by more than the immediate improvement in the cash deficit, fiscal adjustment becomes like walking up the down escalator. Although short-term cash flows matter, too tight a focus on them encourages governments to invest too little. Cash-flow targets also encourage governments to shift investment spending off budget by seeking private investment in public projects, irrespective of its real fiscal or economic benefits . . . 
William Easterly, Luis Serven, and Timothy Irwin

The Political Economy of Normal Macroeconomic Pathologies.

  |  

Recognizing that inflation and the macroeconomic policies that affect it can emanate from distributional conflicts in society, we examine the deep determinants of several nominal pathologies and related policy variables from a distributional perspective. We develop new instruments and use well- established existing instruments for these deep determinants and find that two deep determinants—societal divisions and democratic institutions—have a powerful and robust causal impact on nominal macroeconomic outcomes . . . 
Shanker atyanath and Arvind Subramanian

Financial Performance and Outreach: A Global Analysis of Leading Microbanks

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Microfinance promises to reduce poverty by employing profit-making banking practices in low-income communities. Many microfinance institutions have secured high loan repayment rates, but, so far, relatively few earn profits. We examine why this promise remains unmet. We explore patterns of profitability, loan repayment, and cost reduction with unusually high-quality data on 124 institutions in 49 countries. The evidence shows the possibility of earning profits while serving the poor, but a trade-off emerges between profitability and serving the poorest. Raising fees to very high levels does not ensure greater profitability, and the benefits of cost-cutting diminish when serving better-off customers.
Jonathan Morduch, Robert Cull, and Asli Demirgüç-Kunt.

Capital Controls, Political Institutions, and Economic Growth

  |  

The case study literature suggests that liberal international capital flows can have extremely different growth consequences depending on the political environment. Despite this, little systematic attention has been paid to how politics affects the relationship between capital controls and long term growth in a large-n context. Focusing on the conflict alleviating properties of democracy we demonstrate that authoritarian countries with a large number of societal divisions are negatively affected by capital controls, while neither democratic nor homogeneous countries suffer adverse growth effects from capital controls . . . 

White Man's Burden

  |  

The White Man’s Burden: Why the West’s Efforts to Aid the Rest Have Done So Much Ill and So Little Good. From one of the world’s best-known development economists—an excoriating attack on the tragic hubris of the West’s efforts to improve the lot of the so-called developing world . . . 
William Easterly, NYU

Taking the Measure of Law: The Case of the Doing Business Project

  |  

This article analyzes a number of yearly reports from the World Bank’s Doing Business project, an ambitious international effort to measure various aspects of law and development, analyze their interrelationship, develop benchmarks for assessment of legal systems, and suggest legal reforms. After describing the methodology used, we analyze the strengths and limitations of the project, both as a scholarly enterprise and as a set of proposals for legal reform. Our analysis highlights the challenges associated with measuring legal variables in the face of legal complexity and uncertainty . . . 
Kevin Davis and Michael Kruse

Was the Wealth of Nations Determined in 1000 B.C.?

  |  

We assemble a dataset on technology adoption in 1000 BC, 0 AD, and 1500 AD for the predecessors to today's nation states. We find that this very old history of technology adoption is surprisingly significant for today's national development outcomes. Although our strongest results are for 1500 AD, we find that even technology as old as 1000BC matters in some plausible specifications.
Diego Comin, New York University; William Easterly, New York University; Erick Gong, UC Berkeley

Was Development Assistance a Mistake?

  |  

Development assistance is the combination of money, advice, and conditions provided by rich nations and international financial institutions, such as the World Bank and International Monetary Fund (IMF), which is designed to achieve economic development in poor nations. This article argues that development assistance was based on three assumptions that, with the benefit of hindsight (although a wise few also had foresight), turned out to have been mistaken . . . 
William Easterly

Reliving the 50s: the Big Push, Poverty Traps, and Takeoffs in Economic Development

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he classic narrative of economic development -- poor countries are caught in poverty traps, out of which they need a Big Push involving increased investment, leading to a takeoff in per capita income -- has been very influential in foreign aid debates since the 1950s. This was the original justification for foreign aid. The narrative lost credibility for a while but has made a big comeback in the new millennium. Once again it is invoked as a rationale for large foreign aid programs. This paper applies very simple tests to the various elements of the narrative. Evidence to support the narrative is scarce . . .

Are Aid Agencies Improving?

  |  

The record of the aid agencies over time seems to indicate weak evidence of progress over time in response to learning from experience, new knowledge, or changes in political
climate. The few positive results are an increased sensitivity to per capita income of the recipient (although it happened long ago) a decline in the share of food aid, and a decline in aid tying. Most of the other evidence -- increasing donor fragmentation, unchanged emphasis on technical assistance, little or no sign of increased selectivity with respect to policies and institutions, the adjustment lending-debt relief imbroglio -- suggests an unchanged status quo, lack of response to new knowledge, and repetition of past mistakes.
William Easterly

U.S. Environmental Regulation and FDI: Evidence from a Panel of U.S. Based Multinational Firms

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This paper measures the response of U.S. based multinational firm to the Clean Air Act Amendments (CAAA), which dramatically strengthened U.S. environmental regulation. Using a panel of firm-level data over the period 1966-1999, I estimate the effect of regulation on a multinational’s foreign production decisions. The CAAA induced substantial variation in the degree of regulation faced by firm, allowing for the estimation of econometric models that control for firm-specific characteristics and industrial trends. I find that the CAAA caused regulated multinational firm to increase their foreign assets by 5.3% and their foreign output by 9% . . . 

Planners vs. Searchers in Foreign Aid

  |  

Only for the recipients of foreign aid is something akin to central planning seen as a way to achieve prosperity. The end of poverty is achieved with free markets and democracy—where decentralized “searchers” look for ways to meet individual needs—not Poverty Reduction Strategy Papers (PRSPs) to achieve Millennium Development Goals (MDGs). The PRSPs and MDGs create lots of bureaucracy but hold no one specific agency in foreign aid accountable for any one specific task. Planners in foreign aid use the old failed models of the past . . .
William Easterly

Reliving the 50s: the Big Push, Poverty Traps, and Takeoffs in Economic Development

  |  

The classic narrative of economic development -- poor countries are caught in poverty traps, out of which they need a Big Push involving increased aid and investment, leading to a takeoff in per capita income -- has been very influential in development economics since the 1950s. This was the original justification for foreign aid. The narrative lost credibility for a while but has made a big comeback in the new millennium. Once again it is invoked as a rationale for large foreign aid programs. This paper applies very simple tests to the various elements of the narrative. Evidence to support the narrative is scarce . . .
William Easterly, NYU

Social Cohesion, Institutions, and Growth

  |  

Policy and institutional quality are to a large extent endogenous. While the truth of this statement is familiar to most development scholars, the implications of it have drawn relatively little empirical attention. Understanding more about this relationship matters, because ‘‘poor institutional quality’’ and ‘‘failure to implement better policies’’ are so frequently identified as the causes of growth collapses, endemic poverty, and civil conflict.
William Easterly, Jo Ritzen, and Michael Woolcock

Does Corruption Produce Unsafe Drivers?

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We follow 822 applicants through the process of obtaining a driver’s license in New Delhi, India. To understand how the bureaucracy responds to individual and social needs, participants were randomly assigned to three groups: “bonus,” “lesson” and comparison groups. In the bonus group, participants were offered a financial reward if they could obtain their license fast; in the lesson group, participants were offered free driving lessons. To gauge driving skills, we performed a surprise driving test after participants had obtained their licenses. Several findings about corruption emerge. First, the bureaucracy is responsive to individual needs. Those who want their license faster (e.g. the bonus group), get it 40% faster and at a 20% higher rate. However, the bureaucracy is insensitive to social needs . . . 
Marianne Bertrand, University of Chicago Graduate School of Business, NBER, CEPR and IZA; Simeon Djankov, International Finance Corporation and CEPR; Rema Hanna, Graduate School of Public Service, New York University; Sendhil Mullainathan, Harvard University and NBER

Development, Democracy, and Mass Killings

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Using a newly assembled dataset spanning from 1820 to 1998, we study the relationship between the occurrence and cruelty of episodes of mass killing and the levels of development and democracy across countries and over time. We find that massacres are more likely at intermediate levels of income and less likely at very high levels of democracy, but we do not find evidence of a linear relationship between democracy and probability of mass killings. In the XXth century, discrete improvements in democracy are systematically associated with less cruel massacre episodes. Episodes at the highest levels of democracy and income involve relatively fewer victims . . . 

Artificial States

  |  

Artificial states are those in which political borders do not coincide with a division of nationalities desired by the people on the ground. We propose and compute for all countries in the world two new measures of the degree to which states are artificial. One is based on measuring how borders split ethnic groups into two separate adjacent countries. The other measures how straight land borders are, under the assumption the straight land borders are more likely to be artificial. We then show that these two measures seem to be highly correlated with several measures of political and economic success.
Alberto Alesina, Harvard University; William Easterly, NYU; Janina Matuszeski, Harvard University

The Big Push Déjà vu: A Review of Jeffrey Sachs’s The End of Poverty: Economic Possibilities for Our Time.

  |  

Jeffrey Sachs is the economics profession’s leading advocate of mega-reform. Whether it is stabilization of hyperinflation in Bolivia, shock therapy to leap from Communism to capitalism in Poland and Russia, or a “Big Push” to end world poverty , Sachs’ recommendation throughout his career has been to do it fast, do it big, do it comprehensively, and do it with lots of Western money . . .
William Easterly

How to assess the needs for aid? The answer: Don't ask

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The aid community is awash in plans, strategies, and frameworks to meet the very real needs of the world’s poor, complete with cost estimates of “the need for aid.” This paper contends these exercises only make sense in a central planning mentality in which the answer to the tragedies of poverty is a large bureaucratic apparatus to dictate quantities of different development goods and services by administrative fiat. The planning mindset is in turn linked to previously discredited theories, such as that poverty is due to a “poverty trap,” which can only be alleviated by a large inflow of aid to fill a “financing gap” for poor countries. The aid inflow is of course administered by this same planning apparatus . . . 
William Easterly, New York University

The Political Economy of Nominal Macroeconomic Pathologies

  |  

Recognizing that inflation and the macroeconomic policies that affect it can emanate from distributional conflicts in society, we examine the deep determinants of several nominal pathologies and related policy variables from a distributional perspective. We develop new instruments and use well-established existing instruments for these deep determinants and find that two deep determinants-- societal divisions and democratic institutions --have a powerful and robust causal impact on nominal macroeconomic outcomes. Surprisingly, given the widespread attention accorded to the effects of populist democracy on inflation, democracy robustly serves to reduce inflation over the long term . . . 
Shanker Satyanath, New York University; Arvind Subramanian, IMF

Social Cohesion, Institutions and Growth

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We present evidence that measures of ‘social cohesion’, such as income inequality and ethnic fractionalization, endogenously determine institutional quality, which in turn causally determines growth . . . 
William Easterly, New York University; Jozef Ritzen, Office of the President, Maastricht University; Michael Woolcock, Development Research Group, The World Bank, and Kennedy School of Government, Harvard University

Noncompliance Bias Correction Based on Covariates in Randomized Experiments

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We propose some practical solutions for causal effects estimation when compliance to assignments is only partial and some of the standard assumptions do not hold. We follow the potential outcome approach but in contrast to Imbens and Rubin (1997), we require no prior classification of the compliance behavior. When noncompliance is not ignorable, it is known that adjusting for arbitrary covariates can actually increase the estimation bias. We propose an approach where a covariate is adjusted for only when the estimate of the selection bias of the experiment as provided by that covariate is consistent with the data and prior information on the study. Next, we investigate cases when the overlap assumption does not hold and, on the basis of their covariates, some units are excluded from the experiment or equivalently, never comply with their assignments. In that context, we show that a consistent estimation of the causal effect of the treatment is possible based on a regression model estimation of the conditional expectation of the outcome given the covariates. We illustrate the methodology with several examples such as the access to influenza vaccine experiment (McDonald et al (1992) and the PROGRESA experiment (Shultz (2004)).
Yves Atchade and Leonard Wantchekon

Political Institutions and Economic Performance: The Effects of Accountability and Obstacles to Policy Change

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Numerous analyses have been conducted on how political institutions affect economic performance. In recent years the emphasis has been on a causal logic that emphasizes institutional obstacles to policy change, such as those presented by multiple veto points. This has especially been the case when it comes to the important question of how political institutions influence governments’ responses to exogenous economic shocks. We make the case for a substantial broadening of focus and show that when it comes to a major type of exogenous shock, a forced exchange-rate devaluation, variations in the breadth of accountability of the chief executive are more robustly associated with the post-shock growth recovery than variations in obstacles to policy change . . . 
Shanker Satyanath, Allen Hicken, and Ernest Sergenti

On the Informational Content of Advice: A Theoretical and Experimental Study

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This paper examines the market for advice and the underlying perception that advice is useful and informative. We do this by first providing a theoretical examination of the informational content of advice and then by setting up a series of experimental markets where this advice is sold. In these markets we provide bidders with a demographic profile of the “experts” offering advice . . . 

Monitoring Works: Getting Teachers to Come to School

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In the rural areas of developing countries, teacher absence is a widespread problem. This paper tests whether a simple incentive program based on teacher presence can reduce teacher absence, and whether it has the potential to lead to more teaching activities and better learning. In 60 informal one-teacher schools in rural India, randomly chosen out of 120 (the treatment schools), a financial incentive program was initiated to reduce absenteeism . . . 
Rema Hanna, Wagner School of Public Service, New York University; Esther Duflo, Department of Economics, MIT

An Identity Crisis? Examining IMF Financial Programming

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The IMF uses its well-known “financial programming” model to derive monetary and fiscal programs to achieve desired macroeconomic targets in countries undergoing crises or receiving debt relief. This paper considers under what conditions financial programming would work best, and then tests those conditions in the data. The key restrictions of financial programming are assumptions about exogeneity of some components of identities with respect to others, and the assumption of stable and “reasonable” parameters for some very simple behavioral relationships. In at least the literal applications of the framework, financial programming does not do well in forecasting the target variables, even when some components of the identity are known with certainty.

The Last Instance: Are Institutions the Primary Cause of Economic Development?

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Following North, neo-institutionalists claim that institutions are the ”primary” cause of economic development, ”deeper” than the supply of factors and methods for their use, what Marxists would call “forces of production.” Yet while the conclusion is different, the historical narratives differ little across these perspectives. How, then, are such conclusions derived? Can anything be said to be ”primary”? I conclude that “causal primacy” is an answer to an incorrectly posed question. Institutions and development are mutually endogenous and the most we can hope for is to identify their reciprocal impacts . . . 

Politically Generated Uncertainty and Currency Crises: Theory, Tests, and Forecasts

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While it is widely acknowledged that political factors contribute to currency crises there have been few efforts at using political variables to improve crisis forecasts. We discuss ways in which political factors can be incorporated into theoretical models of crises, and develop testable hypotheses relating variations in political variables to variations in the probability of a currency crisis. We show that the incorporation of political variables into diverse crisis models substantially improves their out-of-sample predictive performance . . . 
By David Leblang, University of Colorado; Shanker Satyanath, New York University

Information, Social Networks and the Demand for Public Goods: Experimental Evidence from Benin

  |  

This paper empirically investigates the effects of memberships in information and social networks on the demand for public goods. The data originate from a unique …field experiment that took place during the …first round of the 2001 presidential elections in Benin. Randomly selected villages were exposed to "purely" redistributive or "purely" national public goods electoral platforms, while the remaining villages were exposed to standard mixed platforms. We …find that individuals who are exposed to media or who are members of local associations have higher demand for public goods, while voters who are more involved in political discussions demand less. Ceteris paribus, demand for public goods is higher among voters who have ethnic ties with a candidate, are more educated or female, but we fi…nd no modifying effect of religion or socio-economic status.
Leonard Wantchekon and Christel Vermeersch

What Can the Rule of Law Variable Tell Us About Rule of Law Reforms?

  |  

The recent resurgence of optimism regarding the role of legal reforms in promoting development seems to be based in part upon cross country statistical analyses that purport to show causal relationships between variables measuring characteristics of legal institutions and variables measuring levels of various kinds of development. However, the persuasiveness of these analyses is limited by the quality of the legal data upon which they rely. As it turns out, many of the variables that are commonly used to measure respect for the rule of law, enforcement of property rights and contracts do not capture information capable of shedding light upon the potential impact of purely legal reforms . . . 
Kevin Davis, School of Law, NYU

What did structural adjustment adjust? The association of policies and growth with repeated IMF and World Bank adjustment loans.

  |  

Analysis of adjustment loans often overlooks their repetition to the same country. Repetition 10 changes the nature of the selection problem. None of the top 20 recipients of repeated adjustment 11 lending over 1980–99 were able to achieve reasonable growth and contain all policy distortions. 12 About half of the adjustment loan recipients show severe macroeconomic distortions regardless of 13 cumulative adjustment loans. Probit regressions for an extreme macroeconomic imbalance indicator 14 and its components fail to show robust effects of adjustment lending or time spent under IMF 15 programs. An instrumental variables regression for estimating the causal effect of repeated 16 adjustment lending on policies fails to show any positive effect on policies or growth . . . 

Micro-insurance: the next revolution?

  |  

The most recent reminder of nature’s vast power came in 1998 when Hurricane Mitch sat over Nicaragua for ten days. Three thousand people are reported to have died, and twenty percent of the population suffered directly. Even today, four years later, the hurricane is cited to explain disrepair and dislocation. While Mitch was particularly devastating, hurricanes course through the Caribbean with regularity. Nevertheless, most citizens and businesses cannot buy insurance against weather-related risks; as in much of the developing world, insurance markets are thin and public responses are limited. Health insurance, life insurance, property insurance – all are unobtainable for average citizens in most of the world, and this is doubly so for the poorest. Below, I describe why this is so, and how new ideas can change things . . . 
Jonathan Morduch, Public Policy and Economics, NYU

The Paradox of "Warlord" Democracy: A Theoretical Investigation

  |  

Political theorists from Machiavelli to Huntington have denied the possibility of popular government arising out of the chaos of civil war, instead prescribing an intermediate stage of one- man rule by a Prince, Leviathan or a military dictator. Based on recent empirical evidence of post civil war democratization in El Salvador, Mozambique and elsewhere, I show that democracy can arise directly from anarchy. Predatory warring factions choose the citizenry and democratic procedures over a Leviathan when (1) their economic interests depend on productive investment by the citizens; (2) citizens' political preferences ensure that power allocation will be less biased under democracy than under a Leviathan; and (3) there is an external agency (e.g. the United Nations) that mediates and supervises joint disarmament and state-building. Ultimately, I discuss the implications of this argument for the basic intuitions of classical political theory and contemporary social theory regarding democratization and authoritarianism . . . 
Leonard antchekon

Economic Shocks and Civil Conflict: An Instrumental Variables Approach

  |  

Estimating the impact of economic conditions on the likelihood of civil conflict is difficult because of endogeneity and omitted variable bias. We use rainfall variation as an instrumental variable for economic growth in 41 African countries during 1981–99. Growth is strongly negatively related to civil conflict: a negative growth shock of five percentage points increases the likelihood of conflict by one-half the following year. We attempt to rule out other channels through which rainfall may affect conflict. Surprisingly, the impact of growth shocks on conflict is not significantly different in richer, more democratic, or more ethnically diverse countries . . . 

Resource Wealth and Political Regimes in Africa

  |  

Political economists point to the levels of economic development, poverty, and income inequality as the most important determinants of political regimes. The authors present empirical evidence suggesting a robust and negative correlation between the presence of a sizable natural resource sector and the level of democracy in Africa. They argue that resource abundance not only is an important determinant of democratic transition but also partially determines the success of democratic consolidation in Africa. The results illuminate the fact that post–Cold War democratic reforms have been successful only in resource-poor countries such as Benin, Mali, and Madagascar. The authors argue that resource-rich countries such as Nigeria and Gabon can become democratic only if they introduce strong mechanisms of vertical and horizontal accountability within the state.
Leonard antchekon and Nathan Jensen

What Can the Rule of Law Variable Tell us About Rule of Law Reforms?

  |  

In 2001 per capita income in Haiti was $480, the infant mortality rate was seventy-nine per 1000 live births and the illiteracy rate (age fifteen and over) hovered around fifty percent. By comparison, in the United States, less than two hours flying time away, the per capita in- come was $34,280, the infant mortality rate was seven per 1000 live births, and the illiteracy rate was negligible. Understanding the reasons why these sorts of disparities in important measures of development arise and persist is one of the greatest challenges in all of the social sciences . . . 
Kevin Davis

The Product Cycle and Inequality

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This paper models the product cycle and explains how it relates to world inequality. In the model, both phenomena arise because skilled people have a comparative advantage in making high-tech products. The model can explain up to a 10:1 income differential between people and up to a 7:1 differential between countries. Tariff policies and intellectual-property protection have a much larger effect here than in some other models . . . 
Boyan Jovanovic, NYU

New data, new doubts: A Comment on Burnside and Dollar’s 'Aid, Policies, and Growth'

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The Burnside and Dollar (2000) finding that aid raises growth in a good policy environment has had an important influence on policy and academic debates. We conduct a data gathering exercise that updates their data from 1970–93 to 1970– 97, as well as filling in missing data for the original period 1970–93. We find that the BD finding is not robust to the use of this additional data . . . 

Fractionalization

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We provide new measures of ethnic, linguistic and religious fractionalization for about 190 countries. These measures are more comprehensive than those previously used in the economics literature and we compare our new variables with those previously used. We also revisit the question of the effects of ethnic, linguistic and religious fractionalization on quality of institutions and growth. We partly confirm and partly modify previous results. The patterns of cross-correlations between potential explanatory variables and their different degree of endogeneity makes it hard to make unqualified statements about competing explanations for economic growth and the quality of government . . . 

Can Foreign Aid Buy Growth?

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The widely publicized finding that “aid promotes growth in a good policy environment” is not robust to the inclusion of new data or alternative definitions of “aid”, “policy” or “growth”. The idea that “aid buys growth” is on shaky ground theoretically and empirically. It doesn’t help that aid agencies face poor incentives to deliver results and underinvest in enforcing aid conditions and performing scientific evaluations. Aid should set more modest goals, like helping some of the people some of the time, rather than trying to be the catalyst for society-wide transformation . . . 
William Easterly

Tropics, Germs, and Crops: The Role of Endowments in Economic Development

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Does economic development depend on geographic endowments like temperate instead of tropical location, the ecological conditions shaping diseases, or an environment good for grains or certain cash crops? Or do these endowments of tropics, germs, and crops affect economic development only through institutions or policies? We test the endowment, institution, and policy views against each other using cross country evidence. We find evidence that tropics, germs, and crops affect development through institutions. We find no evidence that endowments affect country incomes directly other than through institutions, nor do we find any effect of policies on development once we control for institutions . . . 

The Cartel of Good Intentions: The Problem Bureaucracy in Foreign Aid

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A group of well-meaning national and international bureaucracies dispensed foreign aid under conditions in which bureaucracy does not work well. The environment that created aid bureaucracies led those organizations to (a) define their output as money disbursed rather than service delivered, (b) produce many low-return observable outputs like glossy reports and “frameworks” and few high-return less observable activities like ex-post evaluation, (c) engage in obfuscation, spin control, and amnesia (like always describing aid efforts as “new and improved”) so that there is little learning from the past, (d) put enormous demands on scarce administrative skills in poor countries. To change this unhappy equilibrium, policymakers in rich and poor countries should experiment with decentralized markets to match those who want to help the poor with the poor themselves freely expressing their needs and aspirations . . . 
William Easterly, Alberto Alesina, Arnaud Devleeschauwer, Sergio Kurlat, and Romain Wacziarg.

Clientelism and Voting Behavior: Evidence from a Field Experiment in Benin

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omparative politics scholars have long considered electoral politics in Africa to be systematically and inherently clintelist. African rulers, whether self-appointed or democratically elected, rely on the distribution of personal favors to selected members of the electorate in exchange for ongoing political support.1 This observation relies on the implicit assumption that African voters invariably have a much stronger preference for private transfers than for public goods or projects of national interest. This article reports on the use of experimental methods to test several hypotheses pertaining to electoral clientelism in Benin in order to investigate the determinants of the voters’ demand for public goods . . . 
Leonard antchekon

Low Investment is not the Constraint on African Development

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While many analysts decry the lack of sufficient investment in Africa, we find no evidence that private and public investment are productive, either in Africa as a whole (unless Botswana is included in the sample), or in the manufacturing sector in Tanzania. In this restricted sense, inadequate investment is not the major obstacle to African economic development . . . 

NAFTA and Convergence in North America: High Expectations, Big Events, Little Time

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The North American Free Trade Agreement (NAFTA) was formally implemented on 1 January 1994 by the United States, Canada, and Mexico. This treaty instantly gained global notoriety following the initiation of formal negotiations in 1991, not only because the initiative represented one of the most comprehensive trade agreements in history, but also because it seemed to be a breakthrough in establishing free trade in goods and services among developed and developing countries . . . 

The Elusive Quest for Growth: Economists’ Adventures and Misadventures in the Tropics

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Since the end of World War II, economists have tried to figure out how poor countries in the tropics could attain standards of living approaching those of countries in Europe and North America. A myriad of remedies has not delivered the solutions promised. The problem is not the failure of economics, William Easterly argues, but the failure to apply economic principle to practical policy work. In this book, Easterly shows how these solutions all violate the basic principles of economics, that people-private individuals and businesses, government officials, even aid donors – respond to incentives. Written in an accessible, at times irreverent, style, Easterly’s book combines modern growth theory with anecdotes from his fieldwork for the World Bank.