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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 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?

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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

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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

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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

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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

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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

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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

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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?

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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

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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.

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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

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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

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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?

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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

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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

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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

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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