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 USA LUX CAN 32000 CHE AUS ITA BEL FRA DEU NLD SWE NOR GBR FIN ISL PRI NZL AUT ESP DNK ISR HKG SGP JPN IRL SAU TTO VEN GRC 16000 MLT OAN CYP SYR MEX ARG OMN SUN JOR BRB KOR Y/L (U.S. dollars, log scale) PRT URY DZA BRA HUN YUG IRN FJI COL CHL MYS CRI MUS SUR ZAF POL PER ECU 8000 REU PAN TUN TUR SYC YEM GTM CSK DOM NAM EGY MAR PRY SWZ GAB SLV LKA THA BOL PAK HND JAM BGD PHL NIC COG 4000 ROM IDN GUY CIV BWA IND PNG CPV CMR SEN SDN ZWE SLE LSO CHN BEN 2000 HTI KEN GHA MRT ZMB SOM NGA GMB RWA GIN MDG TGO GNB MOZ COM MLI CAF AGO ZAR UGA TZA TCD MWI BDI BFA 1000 BUR NER 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 + ˜ ǫ OverID Test Coeff Test Social p -value p -value Specification Infrastructure Test Result Test Result ˆ σ ˜ ǫ 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 as- sociated 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 popu- lation 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 , log H/L , and log A Component = α + β ˜ S + ˜ ǫ —— Dependent Variable —— 1 − α log K/Y α log H/L log A Social 1.052 1.343 2.746 Infrastructure (.164) (.171) (.336) OverID Test ( p ) .784 .034 .151 Test Result Accept Reject Accept ˆ σ ˜ .310 .243 .596 ǫ ˆ σ DepV ar .320 .290 .727 Note: Estimation is carried out as in the main specifi- cation 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
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