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December 14, 2007

Blattman on Violence and Voting in Uganda

Abstract: How do war and violence impact long-run political development? The bulk of existing theory and evidence concerns macro-level actors and processes. This paper presents evidence for a micro-level link between war and individual political engagement. I demonstrate that conscription by a Ugandan rebel group generates quasi-experimental variation in who became a combatant, and use original survey data to show that conscription leads to significantly greater political participation later in life, and that the principal channel appears to be war violence received (rather than perpetrated). Conscription and violence do not appear to affect nonpolitical forms of community participation, however. I show that these patterns are not easily explained by models of participation based on simple rational preferences, social preferences, mobilization by elites, or information availability. Only expressive theories of participation appear consistent with the patterns observed, whereby exposure to violence augments the value a person places on the act of political expression itself.

Christopher Blattman (2007), “From violence to voting: War and political participation in Uganda,” unpublished paper. Available here.

December 13, 2007

Meade and Stasavage on the downsides of open decision making at the Fed

Abstract: Transparency in committee decision making may have clear benefi…ts by making committee members more accountable to outside observers, whether these observers are shareholders, voters, or market participants. While recent literature generally focuses on the advantages of transparency, in this paper we consider one potential cost: the possibility that publishing detailed records of deliberations will make members of a committee more reluctant to other dissenting opinions. Drawing on the literature on expert advisors with “career concerns”, we construct a model that compares incentives for members of a committee to voice dissent when deliberations occur in public, and when they occur in private. We then test the implications of the model using an original dataset based
on deliberations of the Federal Reserve’s Federal Open Market Committee, asking whether the FOMC’s decision in 1993 to begin releasing full transcripts of its meetings has altered incentives for participants to voice dissenting opinions. We …find evidence that transcript publication has stifl‡ed the FOMC’’s debate over short-term interest rates. Our fi…ndings have implications both for monetary policy institutions, as well as for more general debates about the effect of transparency in agency relationships.

Ellen Meade and David Stasavage (2008), “Publicity of Debate and the Incentive to Dissent: Evidence from the US Federal Reserve,” The Economic Journal, forthcoming. Available here.

December 08, 2007

Nunn on the economic consequences of the slave trade

Abstract: Can part of Africa’s current underdevelopment be explained by its slave trades? To explore this question, I use data from shipping records and historical documents reporting slave ethnicities to construct estimates of the number of slaves exported from each country during Africa’s slave trades. I find a robust negative relationship between the number of slaves exported from a country and current economic performance. To better understand if the relationship is causal, I examine the historical evidence on selection into the slave trades, and use instrumental variables. Together the evidence suggests that the slave trades have had an adverse effect on economic development.

Nathan Nunn, “The Long-Term Effects of Africa’s Slave Trades,” forthcoming, Quarterly Journal of Economics. Available here.

Heutel on crowding out, crowding in and charity

Abstract: A large literature examines the interaction of private and public funding of public goods and charities, much of it focusing on how public funding crowds out private funding: when governments increase funding of public goods, such as grants to charities, individuals may decrease voluntary contributions. This paper tests two new hypotheses. First, the crowding out effect could also occur in the opposite direction: in response to a change in the level of voluntary private contributions to a charity, the government may alter its level of funding. I show in a static model how crowding out can manifest in both directions, and that the order of movement between the individuals and the government affects the equilibrium level of private and government contributions. Second, with
asymmetric information about the quality of a public good, government funding may act as a signal about that quality. In this case, crowding in of private donations may be observed. I test for both of these phenomena using a large panel data set gathered from nonprofit organizations’ tax returns. I find evidence for both observations: government
grants respond to the level of private donations, and government grants crowd in private donations.

Garth Heutel, “Crowding Out and Crowding In of Private Donations and Government Grants,” unpublished paper. Available here.

Murtin on education and economic growth in the US

This paper proposes a model of long term economic development and assesses it on the United States 1840-2000. Because of a low cost of education, parents invest into children’s education and simultaneously diminish the number of their offspring. This trade-off generates a virtuous circle in which individual productivity, labor market participation and the share of the labor force in total population are rising, ultimately transforming a physical capital-based economy into a human capital-based economy. Overall, the model accounts for major traits of American economic development at the micro-economic level over the period, which are: the rapid spread of education, the continuous decrease in fertility and the associated rise in women participation to the labor market, the reduction in differential fertility across income groups, the growth in life expectancy, the Great Compression of income inequality in the course of the twentieth century, and intergenerational correlation of income. Macro-economic trends such as capital deepening in the nineteenth century, the ageing structure of the population, the rise in labor productivity and fast technological change, are also well captured. Counterfactuals show that the expansion of education has a comparable effect on the growth rates of labor and physical capital, and that inequality has a detrimental impact on output growth because it slows down the accumulation of human capital across generations.

Fabrice Murtin, “American Economic Development or the Virtues of Education,” unpublished paper. Available here.

November 26, 2007

Alesina and Giuliano on the economic consequences of family values

We study the importance of culture, as measured by the strenght of family ties, on economic behavior and attitudes. We define our measure of family ties using individual responses from the World Value Survey regarding the role of the family and the love and respect that children need to have for their parents for over 70 countries. We show that strong family ties imply more reliance on the family as an economic unit which provides goods and services and less on the market and on the government for social insurance. With strong family ties home production is higher, labor force participation of women and youngsters, and geographical mobility, lower. Families are larger (higher fertility and higher family size) with strong family ties, which is consistent with the idea of the family as an important economic unit. We present evidence on cross country regressions. To assess causality we look at the behavior of second generation immigrants in the US and we employ a variable based on the grammatical rule of pronoun drop as an instrument for family ties. Our results overall indicate a significant influence of the strength of family ties on economic outcomes.

Alberto Alesina and Paola Giuliano, “The Power of the Family,” unpublished paper. Available here.

November 07, 2007

Jones and Olken on the political consequences of assassination

Abstract: Assassinations are a persistent feature of the political landscape. Using a new data set of assassination attempts on all world leaders from 1875 to 2004, we exploit inherent randomness in the success or failure of assassination attempts to identify assassination’s effects. We find that, on average, successful assassinations of autocrats produce sustained moves toward democracy. We also find that assassinations affect the intensity of small-scale conflicts. The results document a contemporary source of institutional change, inform theories of conflict, and show that small sources of randomness can have a pronounced effect on history.

Benjamin Jones and Benjamin Olken (2007), “Hit or Miss? The Effect of Assassinations on Institutions and War,” unpublished paper. Available here.

Petrova on Inequality and Media Capture

Abstract: Popular support of redistributive policies depends on information they have about the tax system and efficiency of public projects. Mass media provides a convenient means for manipulating public opinion, even when voters understand that the media can be biased. I develop a theory of media capture in which the rich can influence information published in a media outlet at a cost. The model shows that higher inequality is associated with lower media freedom; this effect is stronger in democratic regimes. I find empirical support for the model in both panel data and cross-country analysis.

Maria Petrova (2007), “Inequality and Media Capture,” unpublished paper. Available here.

November 06, 2007

Blattmann and Annan on the Consequences of Child Soldiering

Abstract: Civil conflicts have afflicted a third of all nations and two thirds of Africa since 1991. In many cases, up to a third of male youth (including children) are drawn into armed groups, making soldiering one of the world’s most common occupations for the young. Little is known, however, about the impacts of military service on human capital and labor market outcomes due to an absence of data as well as sample selection: recruits are usually self-selected and screened, and may also selectively survive. We assess the impacts of participation in civil war using an original survey from Uganda, where a rebel group’s recruitment method provides arguably exogenous variation in conscription. Contrary to the prevailing view that participation in war leads to broad-based ‘traumatization’, we find that military service primarily hinders long-term economic performance because it is a poor substitute for civilian education and work experience. The most significant impact is upon a recruit’s skills and productivity: schooling falls by nearly a year, skilled employment halves, and earnings drop by a third. These impacts are highly robust to relaxation of the assumption of exogenous conscription. Effects are greatest for child soldiers, who lose the most education. There is no observed impact on social capital, and adverse impacts on mental health, while evident, are present in a relative minority.

Christopher Blattmann and Jeannie Annan (2007), “The Consequences of Child Soldiering” (unpublished paper). Available here.

September 20, 2007

Senior Nello on who wins and loses from agricultural liberalization

Abstract: This paper aims at showing the role of agriculture in determining many of the controversies and problems of the current phase of globalisation. This first entails presenting key statistics indicating the main developments in world agricultural trade, illustrating how there has been a relative deterioration of the export performance of developing countries. The Doha Development Agenda of the World Trade Organisation (WTO) is then analysed, indicating the positions of the main actors involved as this illustrates the perceived vulnerabilities and opportunities arising from agricultural trade liberalisation. The final part of the article provides a survey of the main estimates of the impact of agricultural trade liberalisation, and tackles the issue of those countries, sectors and households that might be adversely affected by the process. In particular, the paper will attempt to illustrate how the possible negative consequences of the failure of the Doha Round could be overcome.

Susan Senior Nello (2007), “Winners and Losers from World Agricultural Trade Liberalisation,” EUI Robert Schuman Center Working Paper. Available here.

August 27, 2007

Woodford on globalization and monetary control

Abstract: It has recently become popular to argue that globalization has had or will soon have dramatic consequences for the nature of the monetary transmission mechanism, and it is sometimes suggested that this could threaten the ability of national central banks to control inflation within their borders, at least in the absence of coordination of policy with other central banks. In this paper, I consider three possible mechanisms through which it might be feared that globalization can undermine the ability of monetary policy to control inflation: by making liquidity premia a function of “global liquidity” rather than the supply of liquidity by a national central bank alone; by making real interest rates dependent on the global balance between saving and investment rather than the balance in one country alone; or by making inflationary pressure a function of “global slack” rather than a domestic output gap alone. These three fears relate to potential changes in the form of the three structural equations of a basic model of the monetary transmission mechanism: the LM equation, the IS equation, and the AS equation respectively. I review the consequences of global integration of financial markets, final goods markets, and factor markets for the form of each of these parts of the monetary transmission mechanism, and find that globalization, even of a much more thorough sort than has yet occurred, is unlikely to weaken the ability of national central banks to control the dynamics of inflation.

Michael Woodford (2007), “Globalization and Monetary Control,” unpublished paper. Available here ($5 or NBER access required).

August 21, 2007

Acemoglu et al. on the spurious correlation between wealth and democracy

Abstract:
This paper revisits and critically re-evaluates the widely-accepted modernization hypothesis which claims that per capita income causes the creation and the consolidation of democracy. We argue that existing studies find support for this hypothesis because they fail to control for the presence of omitted variables. There are many underlying historical factors that affect both the level of income per capita and the likelihood of democracy in a country, and failing to control for these factors may introduce a spurious relationship between income and democracy. We show that controlling for these historical factors by including fixed country effects removes the correlation between income and democracy, as well as the correlation between income and the likelihood of transitions to and from democratic regimes. We argue that this evidence is consistent with another well-established approach in political science, which emphasizes how events during critical historical junctures can lead to divergent political-economic development paths, some leading to prosperity and democracy, others to relative poverty and non-democracy. We present evidence in favor of this interpretation by documenting that the fixed effects we estimate in the post-war sample are strongly associated with historical variables that have previously been used to explain diverging development paths within the former colonial world.

Daron Acemoglu, Simon Johnson, James A Robinson and Pierre Yared (2007), “Reevaluating the Modernization Hypothesis,” unpublished paper, available here. Via Dani Rodrik.

July 30, 2007

Baccaro and Rei on Institutions and Unemployment

Abstract: The view that unemployment is caused by labor market rigidities and should be addressed through systematic institutional deregulation has gained broad currency and has been embraced by national and international policymaking agencies alike. It is unclear, however, whether there really is robust empirical support for such conclusions. This article engages in an econometric analysis comparing several estimators and specifications. It does not find much robust evidence either of labor market institutions direct effects on unemployment rate, or of a more indirect impact through the magnitude of adverse shocks. At the same time, we find little support for the opposite, proregulatory position as well: the estimates show a robust positive relationship between union density and unemployment rates; also, there is no robust evidence that the within-country variation of bargaining coordination is associated with lower unemployment (as frequently argued), nor is it clear that bargaining coordination moderates the impact of other institutions. All in all, restrictive monetary policies enacted from an independent central bank and other determinants of real interest rates appear to play a more important role in explaining unemployment than institutional factors.

Lucio Baccaro and Diego Rei (2007), “Institutional Determinants of Unemployment in OECD Countries: Does the Deregulatory View Hold Water?” International Organization 61:527-569. Available here (sub required).

July 23, 2007

Lane Kenworthy on Jobs and Equality

This book does not speak to the question of inequality’s impact on economic growth. I assume that if countries with low inequality were (on average) able to grow just as rapidly as their high-inequality counterparts in the 1980s and 1990s, they may be able to do so over the next few decades as well. The question that motivates the book is: How can affluent countries maintain or move toward low inequality? .. Low income inequality is an increasingly difficult goal. Inequality in the market distribution of income - that is before taxes and government transfers are taken into account - has been rising during the past two decades in many of these countries. … One reason for this is that employment shifts from manufacturing to services, union fragmentation, decentralization of wage setting, globalization, technological change, and other developments have contributed to wage stagnation at the low end of teh distribution … Several other developments have reinforced and accentuated the impact of heightened earnings inequality … An increasingly common view, which I share, is that a key to limiting the growth of inequality in the face of these various pressures and constraints is to increase the employment rate.

Lane Kenworthy (2007), Jobs with Equality. Draft book manuscript. Available here.

July 16, 2007

Romer and Romer on the contractionary effects of taxes

Abstract: This paper investigates the impact of changes in the level of taxation on economic activity. We use the narrative record — presidential speeches, executive-branch documents, and Congressional reports — to identify the size, timing, and principal motivation for all major postwar tax policy actions. This narrative analysis allows us to separate revenue changes resulting from legislation from changes occurring for other reasons. It also allows us to further separate legislated changes into those taken for reasons related to prospective economic conditions, such as countercyclical actions and tax changes tied to changes in government spending, and those taken for more exogenous reasons, such as to reduce an inherited budget deficit or to promote long-run growth. We then examine the behavior of output following these more exogenous legislated changes. The resulting estimates indicate that tax increases are highly contractionary. The effects are strongly significant, highly robust, and much larger than those obtained using broader measures of tax changes. The large effect stems in considerable part from a powerful negative effect of tax increases on investment. We also find that legislated tax increases designed to reduce a persistent budget deficit appear to have much smaller output costs than other tax increases.

Christina D. Romer, and David H. Romer (2007), “The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks,” NBER Working Paper No. 13264. Available here (via Marginal Revolution).

July 12, 2007

Berger on whether globalization may come to a crashing halt

In August 1914 the first great wave of globalization crashed to an abrupt and totally unexpected end, as the outbreak of war suspended trading in all major markets. … The general lesson of this tragedy is one that shakes credence in any kind of irreversibility of globalization or triumph of interests over politics. But within the confines of the globalization story as it played out before the war, there are lessons to be gained from observing the processes of economic and political strain and adjustment. A return to the earlier period suggests, too, that there are lessons to be learned from the debates of economists and from considering whether, at the end of the day, their analyses and quarrels turned out to have identified the most important dangers to the openness and stability of the international economy or not. Today’s debates over the international flows of capital, goods, and services center around the puzzle of privilege—the possibility for some countries to enjoy “an excess return on assets relative to liabilities allowing them to sustain larger trade deficits in equilibrium”—- as Christopher Meissner and Alan Taylor define it in their contribution to this conference (p.5). Why do foreigners, at apparently such low rates of return, continue to invest so heavily in the United States? Why do American investments abroad apparently earn higher returns
than others derive operating in the same countries? How sustainable is a state of affairs in which the US current account deficit is about 7 percent of GDP with a resulting debt that over time will place a large share of the country’s capital stock in foreign hands? Absent any agreement on the basic mechanisms and relationships underlying this situation, and even any agreement on the existence or not of a serious problem for public policy, scenarios of readjustment diverge widely.

Suzanne Berger, “Historic Imbalances and Great Debates: Do the Economists See It Coming?,” MIT Working Paper. Available here.

July 02, 2007

Acemoglu, Bautista, Querubin and Robinson on Political and Economic Inequality and Growth

Abstract: Is inequality harmful for economic growth? Is the underdevelopment of Latin America related to its unequal distribution of wealth? A recently emerging consensus claims not only that economic inequality has detrimental effects on economic growth in general, but also that differences in economic inequality across the American continent during the 19th century are responsible for the radically different economic performances of the north and south of the continent. In this paper we investigate this hypothesis using unique 19th century micro data on land ownership and political office holding in the state of Cundinamarca, Colombia. Our results shed considerable doubt on this consensus. Even though Cundinamarca is indeed more unequal than the Northern United States at the time, within Cundinamarca municipalities that were more unequal in the 19th century (as measured by the land gini) are more developed today. Instead, we argue that political rather than economic inequality might be more important in understanding long-run development paths and document that municipalities with greater political inequality, as measured by political concentration, are less developed today. We also show that during this critical period the politically powerful were able to amass greater wealth, which is consistent with one of the channels through which political inequality might affect economic allocations. Overall our findings shed doubt on the conventional wisdom and suggest that research on long-run comparative development should investigate the implications of political inequality as well as those of economic inequality.

Discussion [Crossposted at Crooked Timber]

Tyler Cowen points to a very interesting new paper by Daron Acemoglu and his colleagues (PDF - it was here this morning, but this link isn’t working for me any more; see here for a slightly earlier version) on the relationship between political and economic inequality. Tyler’s gloss is that this provides general insights into the “meme” of whether economic inequality is bad for growth, and concludes that “at least from that data set, the real problem seems to be rent-seeking behavior through the political process.” Thus, unless I misunderstand him (which is possible; he may just be blogging in shorthand), he is saying that this paper provides significant evidence suggesting that economic inequality isn’t the cause of slower economic growth; instead, political inequality and rent-seeking are at fault.

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