Geography, History and Institutions January 2011 () Institutions January 2011 1 / 9
Economic Institutions The rules of the game in society (North, 2003),! the humanly devised constraints that structure incentives in economic transactions They consist of (1) formal rules (statute law, common law, regulations), (2) informal constraints (conventions, norms of behavior), (3) the enforcement characteristics of both Determined by domestic/global, politics, religion, nature, etc. Change only gradually in response to economic/politicial pressures. () Institutions January 2011 2 / 9
Why do Some Countries Produce So Much More Output per Worker than Others? Hall and Jones (1999) Social infrastructure, institutions, geography + Investment (in physical/human capial), employment, technology adoption + Output per worker () Institutions January 2011 3 / 9
Determinants of Economic Performance Output per worker and inputs strongly correlated with:,! social infrastructure government anti-diversion policy (GADP) Index,! openness to trade Sachs Warner index Direction of causation?,! instrumental variables () Institutions January 2011 4 / 9
Figure 2: Social Infrastructure and Output Per Worker Y/L (U.S. dollars, log scale) 32000 16000 8000 4000 2000 1000 ISR SAU TTO VEN ARG MEX SYR SUN PRI NZL DZA URY BRA YUG IRN HUN COL FJI SUR CHL ZAF CRI POL REU PER SYC PAN TUNTUR DOM GTMCSK EGY NAM MAR PRY GAB SLV LKA SWZ BOL BGD PAK COG PHL HNDNIC JAM ROM GUY IDN CIV BWA IND CPV PNG CMR SEN SDNSLE ZWE LSO HTI BEN CHN KEN SOMMRT ZMB NGA RWA TGO MDG GNB MOZ GHA GMB GIN ZAR COM CAF MLI AGO UGA TZA TCD BUR BFA MWI NER BDI MLT OMNJOR KOR PRT LUX USA CAN ITA AUS BEL CHE FRA DEU NLD NOR SWE GBR AUT FIN ISL ESP DNK JPN HKGSGP IRL GRC OAN CYP BRB MYS MUS ECU YEM THA 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1 Observed Index of Social Infrastructure
Hall and Jones use the following instruments:,! distance from equator,! language indices,! predicted trade share ) results suggest that social infrastructure and openness are signi cant factors BUT (1) aside form distance to the equator other instruments are not clearly exogenous (2) why does distance to the equator matter? () Institutions January 2011 5 / 9
Table 2: Basic Results for Output per Worker log Y/L = α + β S + ɛ OverID Test Coeff Test Social p-value p-value Specification Infrastructure Test Result Test Result ˆσ ɛ 1. Main Specification 5.142.256.812.840 (.508) Accept Accept Alternative Specifications to Check Robustness 2. Instruments: 4.998.208.155.821 Distance, Frankel-Romer (.567) Accept Accept 3. No Imputed Data 5.323.243.905.889 79 Countries (.607) Accept Accept 4. OLS 3.289.002.700 (.212) Reject The coefficient on Social Infrastructure reflects the change in log output per worker associated with a one unit increase in measured social infrastructure. For example, the coefficient of 5.14 means than a difference of.01 in our measure of social infrastructure is associated with a 5.14 percent difference in output per worker. Standard errors are computed using a bootstrap method, as described in the text. The Main Specification uses distance from the equator, the Frankel-Romer instrument, the fraction of the population speaking English at birth, and the fraction of the population speaking a Western European language at birth as instruments. The OverID Test column reports the result of testing the overidentifying restrictions and the Coeff Test reports the result of testing for the equality of the coefficients on the GADP policy index variable and the openness variable. The standard deviation of log Y/L is 1.078.
Table 4: Results for log K/Y,logH/L, andloga Component = α + β S + ɛ Dependent Variable log K/Y log H/L log A α 1 α Social 1.052 1.343 2.746 Infrastructure (.164) (.171) (.336) OverID Test (p).784.034.151 Test Result Accept Reject Accept ˆσ ɛ.310.243.596 ˆσ DepV ar.320.290.727 Note: Estimation is carried out as in the main specification in Table 2. Standard errors are computed using a bootstrap method, as described in the text.
The Colonial Origins of Comparative Development: An Empirical Investigation Acemoglu, Johnson and Robinson (2001). Basic Idea: To capture the true impact of institutional di erences on economic performance, we need an exogenous source of variation in institutions Early determinant of current institutions in many countries was the nature of early colonization after 1500 Two broad kinds: (1) extractive (e.g. the Belgian Congo) (2) neo Europes (e.g. Australia) () Institutions January 2011 6 / 9
BUT what determined nature of colonization?,! settler mortality rates? Sierra Leone (1793), Niger expedition (1805) Pilgrim fathers: US vs. Guyana convicts: Australia vs. Gambia () Institutions January 2011 7 / 9
The Theory (potential) settler mortality (1500) + nature of settlement (1600 1800s) + early institutions (1900) + current institutions (1995) + current performance (1995) () Institutions January 2011 8 / 9
Main Results of statistical analysis: Impact of settler mortality rates in 1500 can account for as much as 75% of the variation in per capita incomes in ex colonies today. Geographic factors (e.g. distance from the equator) are less important conditional on institutions,!... the reason why African countries are poorer is not due to cultural or geographic factors, but mostly accounted for by the existence of worse institutions in Africa. () Institutions January 2011 9 / 9