Institititions, Geography and growth - institutions Flashcards
what are the proximate causes of growth
high levels of factors such as physical capital, human capital, and technology, which result in a high level of GDP per capita
what are fundamental causes of growth
factors that are at the root of the differences in the proximate causes of prosperity
what are the 2 predictions from the solow model
- countries will reach a steady state (0 growth) level when capital depreciation = capital accumulation
- poorer countries will catch up with leaders in the LR - because can benefit from initially higher returns to capital and by importing technology
looking at world performances how has the solow predictions tested
both failed, how and why
- unconditional convergence
- not true that all lagged countries in 1950 have caught up - steady state
- not true that all people doing well in 1950s are now in steady state - 0 growth
- spatial inequality in GDPpc
how can solow model be improved
by making technology A endogenous
- featuring an R&D sector
but still fails to explain why different countries have different levels in R&D
what are fundamental causes of growth
5
- institutions
- geography
- culture
- openness to trade
- luck
what are instititions
economic
political
institutions = rules of the game
political - parliament
economic - markets
why do inclusive and extractive states form
inclusive
- willing cooperation of people - they gain from having a state
extractive
- coerce people and extract a surplus
- have incentives to not be growth friendly
what are examples of economic institutions
- enforcement of property rights and contracts
- markets
- slavery
- monopolies
what do economic institutions do
allow agents to reliably extract payoff and rents
- give incentive to invest
what is the main problem behind question
do good institutions cause growth
reverse causality and endogeneity
between development and institutions
- economic growth may lead to better institutions
what is the equilibrium that emerged after Glorious Revolution that made it possible for industrial revolution to happen
- better institutions
- protection of property rights
- parliamentry checks - not abusing power
- reduced use of crown monopolies
- better financial markets
- easier access to credit
- larger government budgets
North 1989
histroy of Glorious revolution led to growth friendly institutions
quasi natural experiment
Koreas
what does this show about institutions
- before the split - had same geography, culture, economies
- south korea = democracy with growth friendly economic institutions
- north korea = autocracy
- looking at light luminosity - as a proxy for economic growth
- SK way brighter = more developed - 10 times the GDP
Acemoglu (2001)
- property rights and development
- at the inception of the colonial period
- Europeans chose to settle in areas that had low settler mortality rates of higher
- in areas they settled = set up inclusive institutions - good political and economic
- in areas they didnt settle = extractive institutions
- today where they chose to settle = high GDP per capita
what is the reversal of fortunes hypothesis
- shows that institutions > geography
- Acemoglu
- europeans set up extractive institutions in richer colonies
- countries that were richer before are now poorer
- geography hasnt changed
- so must be due to the institutions set up
- institutions have a more central role in determining LR growth and development
Rodrik (2004)
which fundamental factors are most important drivers of economic growth
- geography = distance from equator
- institutions = settler mortality - quality of institutions
- openness = bilateral trade flows
- find that all the fundamentals correlate with growth
- coefficients show that institutions has biggest effect + significant
what are the critiques against Acemoglu 2001
- measurement are imprecise
- compression of histroy
- HC brought over
- inclusive institution doesnt mean inclusive economic institution - or growth friendly
why is historical evidence and cross country - on development and institutions not good
- why use micro level
- cross country = limited variation
- measurements of instititions and development are imprecise
- with country evidence
- exploits discontinuties in boundaries - exposure to difference institutions
Dell (2010)
Mita
what do they do
long term effect of extractive economic institution in Peru
- defined boundary where communities had to provide forced labour to silver mine
- use geographical regression discontinuity design
- exploits the boundary discontinutity for causal inference
Dell (2010)
Mita
what do they find
- comparing within and outside boundary
within the boundary
* observe less consumption and more stunting in 2001
* causal effect of institutions - only difference between the areas
- more extraction = less education and HC in the boundary
Banerjee (2005)
Britian and India
show that areas of non-landlords are more productive post colonial period
- more capital investment
- more modern technology
- attracted more public spending
- occupied early = britain took control of taxation of agricultural output
- occupied later = putsourced taxation to landlords - over extracted from farmers
- abolished taxation after
what are informal institutions
with examples
- informal cooperation across people and groups
- chiefs, ethnic groups
what are tasks carried out by informal institutions
enforcement of contracts
market entry regulation
providing public goods
supporting economic development
Maghribi traders
example of informal institutions
- stepped in to manage trading problems between agents
- needed to police and enforce contracts across countries
- coalition = allowed long distance trading
- made cheating costly, kicked out people
the mafia
informal institution
- provided private protection and contract enforcement
- originally protected landlords against rioters
now they are bad
- but further weakened the state, protection of criminal activity
Acemoglu (2020)
what effect did mafia have on LR development
- presence of mafia had a negative effect on development
- had negative effect on HC
- negative effect on public good provision and democratic competition
Chiefs
informal institutions
- important political and economic role
acts as a dual system of government
- carry out governmental tasks
- conflict resolution
- public goods allocation
- land distribution
Acemoglu (2014)
sierra leone chiefs
- British colony chose number of families that could be elected per district
- more political competition = better development today
- more secure property rights
- higher level of education
what is state capacity
- the capacity of governments to carry out policies = beyond quality of institutions
- is a positive force for development
- when state capacity is weak - informal institutions step in = associated with low income countries
what are the 2 components of state capacity
- legal
- capacity to uphold the law - fiscal
- capacity to levy taxes - fund
what do political institutions do when they have state capacity
- correct externalities
- regulate public goods
- provide public goods
Dell (2018)
viet state
the effect of state capacity in vietnam
inside boundary
* higher consumption
* better local administrative infrastructure
* better access to public goods
