LRD Revision

Question 1

Does natural geography exert a direct influence on contemporary development?

Answer 1

Many factors through which…
Cannot single it down to a single factor…
Many mechanisms proposed, most agree geography exerts some effect of varying strengths on growth

1. Olsson YES WITH SPECIFIC MECHANISM. Timing and locations of transitions from hunter-gatherer to large-sized agriculture is affected by the biogeographic endowments of regions. Mechanism: biogeographic productive potentials → transition to sedentary agriculture → makes the possible formation of a non-food producing class, whose activities fuel endogenous technological progress → Malthusian forces mean output per capita remain at subsistence level until industrial stage is reached.
2. Gallup MOSTLY, BUT POLICIES TOO. Both geography and policy matter. You need more than good policy - the tropics are not conducive to growth, seemingly related to the presence of malaria. Coastal regions are good for growth, as transport costs are lowered, and creates agglomeration economies. High population density conducive to economic growth on coast, but harmful on hinterland.
3. Fenske NOT DIRECTLY BUT YES. Bad institutions are one of the central causes of (African) poverty. But there are geographical factors that predict the historical prevalence of land rights and slavery.
   - It is worth mentioning that this uses the Murdock Atlas from the 60s - lack of quality as seen from a coloniser perspective. Also uses the Afrobarometer, in which people are asked to self-describe their ethnicity.
4. Easterly INDIRECTLY BUT MULTICOLLINEARITY. Tropics, germs and crops explain economic development through their effect on institutions. IV! Causes align with economic theory: lower settler mortality, crops variables. However lots of multicollinearity in this analysis.
5. Mehlum NO. Countries rich with natural resources constitute both growth losers and winners. The quality of institutions determines whether countries avoid the resource curse or not. Grabber friendly institutions and resource abundance leads to low growth. Producer friendly institutions help countries to take full advantage of their natural resources.
6. Alexeev GENERAL CONSENSUS WRONG. Little evidence to suggest large endowments of oil/minerals slow growth. They focuses on GDP/capita instead, literature suggests the negative effect of resources is characterised by using initial GDP values. This biases the results towards negative effects.

Question 2

To what extent can culture, religion and ethnicity operate independently from institutions as a determinant of economic growth?

Answer 2

Difficult to differentiate… what is culture?…
How do you differentiate between cultures of different countries?…

1. Becker YES, RELIGION. As a side effect of Protestantism, people acquired literacy skills that functioned as human capital. (mention how the measure of LITERACY sometimes difficult!) It led to much higher literacy rates, which accounts for an edge against Catholic regions. It is an extension of Weber’s famous thesis, who was right with correlation but wrong with the mechanism.
2. Eifurt LARGE EFFECT ETHNICAL. Exposure to political competition drives how people identify themselves ethnically. It can be said this has a conflict-inducing downside… i.e. Collier mentions the negative effects of civil war on economic activity through a decrease in productivity and destruction of capital stocks, affected even after the declaration of peace.
3. Gorodnichenko LARGE EFFECT INDIVIDUALISM. An indivualistic culture has a strong causal effect on economic development, compared with collectionalism. It is associated with a higher rate of success at innovation.
4. Gorodnichenko CAN’T DIFFERENTIATE. Interdependent relationship between culture and institutions on long-run growth.
5. Acemoglu and Robinson argue a causal effect of institutions on long-run growth too. However, Guiso argues that despite A&R claiming shocks to institutions can affect outcomes, they cannot distinguish between whether this is the direct impact of institutional persistence or the indirect produced by institutional shocks on people’s psyche. Can you disentangle them?

Question 3

Were “good” European institutions decisive in spurring the economic development of that continent?

Answer 3

Difficult to distinguish between institutions and culture. Guiso … A&R …

1. DeLong YES INSECURE THRONES. Only a 22% chance the English throne would pass peacefully to the legitimate grandson of monarch. The presence absolutist governments associated with low economic growth, due to the poor use of taxes. However, they use URBANISATION as a measure of growth, but in feudal system in England, quality of life in the countryside was much better.
2. North and Weingast YES CROWN POWER STAR CHAMBER. Institutions permitted growth in early modern England, after institutions were forced upon the Crown e.g. abolition of Star Chamber. It also limited the Crown’s power after the fact to alter rules (especially taxes). The emergence of political liberties is associated with economic freedom.
3. Cantoni YES GERMAN UNIVERSITIES. One factor includes medieval universities playing a causal role in increased economic activity, caused by the papal schism, Germany had established many universities. Mechanism: number of German law students increased, developed new legal institutions, which reduced uncertainty in trade. This promoted economic intitutions
4. Bosker PARTLY. Comparing Europe and the Islamic world between 800-1800:
   - Transportation. Camels in Islamic were efficient, but not as efficient as water-based transportation in Europe. Also gains in production technology from shipbuilding.
   - Institutional. Capital cities dominated the urban landscape in Islamic world. This was not the case in Europe which encouraged participatory government due to smaller states.
5. Olsson… you should know this one…

Mokyr, McCloskey… European Enlightenment as a key factor… represents a cultural shift. McCloskey highlights the bourgeoisie especially with egalitarian liberalism.. the liberty to have a go.

Question 4

How important have histories of colonisation been in affecting the modern income distribution within and between countries?

Answer 4

Colonial institutions have profound and long-lasting effects (Acemoglu). Depends heavily on type of institution etc…

1. Acemoglu EXTRACTIVE OR SETTLERS. European colonisers implemented many different institutions, dependent on feasibility of settlement. If settled (AU,NZ,US): enforcement of law and encouragement of investment. If not settle (CONGO): extractive states. Mechanism: settler mortality → settlements → early institutions → current institutions → current performance. Persistence as if there is a small number of elite, larger proportion of gains shared by elite, so very powerful in administration. HOWEVER uses mortality rates of soldiers, bishops and sailors???
2. Lee EAST AND WEST CAMEROON. West Cameroon (British colonial rule) performed better than East Cameroon (French colonial rule) due to better institutions. You can draw LIMITED CONCLUSIONS from this though:
   - West Cameroon does enjoy better functioning political and social institutions as they are more responsive to the wishes of ordinary people. The British were marginally more respectful of traditional political arrangements.
3. Iyer DIRECT VS INDIRECT RULE INDIA. Annexation to British rule of an area when ruler died with no heir, controls for selectivity bias. Directly ruled areas lag behind in the availability of public goods (schools). This is bevause of the incentives of the administrators. The kings in each area were liable to being deposed for poor governance, which you didn’t have under direct British rule
4. Lowes. COLONIAL MEDICINE. The medical campaign by the French military in Cameroon for sleeping sickness. Millions were exposed to the campaign. The medication had significant negative side effects resulting in resistance to the campaign. It increased blood test refusals. It also affected trust in medicine. It affected specific ethnic groups, which had higher rates of HIV and anemia.
5. Bruhn DEPENDS. Bad colonial activities (mining and plantations) have 27.6% lower GDP/capita today than areas with no colonial activities in the same country. Areas with bad colonial activities have 27.7% lower GDP/capita than areas that had good colonial activities (activities without economies of scale, such as growing staple crops and textile productions). The type of colonial institution matters:
   - Inequality
   - Human capital
   - Political representation

Question 5

Why did modern economic growth start in Britain?

Answer 5

1. Crafts. Important to note that industrialisation is NOT necessarily economic growth, but strongly associated…
2. Mokyr (+McCloskey): Culture of growth and new ideas brought forward by the European Englightenment
3. Allen and Clark. Argues with the combination of cheap energy (coal) and expensive labour (wages) that this incentivises the production of labour saving technologies.
4. Meisenzahl adds: it was the skills of British mechanics to fulfill great ideas, due to the Englightenment
5. Pleijt adds: The process of technological change with the mechanism of Unified Growth Theory will improve working skills - human capital.
6. O’Brien: Why Britain not France? Calls a “gift of nature” because of fodder crops. Britain was better for root and fodder crops… Olsson…
7. Pomeranz: Why Britain not China? Yangze delta… China limited capacity to substitue labour and capital for land

Question 6

Why did the industrial revolution spread so unevenly to countries outside of Britain?

Answer 6

Best to compare nations of the with similar economic conditions. Britain compare to France, Germany (Prussia)
1. Juhasz. POLICY MATTERS. The differences between Britain and France before were small before the IR. After the example of industry protection during the Napoleonic Blockade, French industry did extremely well.

2. Cinnirella. SERFDOM. Shows the effect of serfdom (proxied by the concentration of large land ownership) on the spread of education. The abolition of serfdom and freedom of educational choice leads to a rise in demand of education. Causes a significant rise in the accumulation of human capital. Links to…
3. Becker EDUCATION. Highlights the role of education in adoption. Regions with a higher rate of education phased in industrialisation better, although problems of path dependence.
4. Hornung. Shows the effect of railroads and growth in Prussia. Railroads had a significant causal effect on urban population growth. Endogeneity problem.
5. Lehmann. Germany introduced the Berlin Stock Exchange Market designed to raise money for industrialisation, where London grew organically. It was an efficient market for new technology. However, Germany’s banking sector was very well developed too.

Question 7

To what extent did world-wide economic integration aid global economic development before World War 1?

Answer 7

1. Jacks PRICE VOLATILITY. Three centuries of history show economic isolation is associated with greater price volatility. Integreation associated with peace is associated with less volatility.
2. Bernhofen JAPAN. Esimated the gains from one of the most dramatic tarde liberalisations in history - Japan in C18th, after 200 years of self-imposed isolation. The gains in the economy were due to comparative advantage likely 8-9% of GDP, but dynamic aspects likely to have much larger impact on national income.
3. Droller AOMM ARGENTINA. Immigrants arrived with higher literacy rates than the natives, and never held lower paid jobs. Links to…
4. Putterman. People who moved from one region to another brought with them human capabilities with them. Ancestry matters for development. Mechanism unclear… cultures, languages, institutions? Links to…
5. Rocha. Sustained over time because they demanded higher quality institutions (specifically educational), which shifts economic activity to skill-intensive sectors

People migrate to nicer areas though!

6. O’Rourke. For the three centuries after Columbus, there was a huge trade boom. Conventional wisdom suggests this is due to globalisation because of declining trade barriers and falling costs. However there is no convergence in commodity prices over continents. It is actually due to European income growth, and more Asian supply. Trade also wasn’t really free.