Economic growth Part 2: Applications - HEC

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Transcript Economic growth Part 2: Applications - HEC

2nd part : Applications
Baptiste Massenot
[email protected]
Why are some countries richer than
• Part 1: capital accumulation and
innovation benefit economic growth
• Next question: Why do some countries
accumulate more and innovate more?
A few answers
Geography: latitude, climate, etc.
Institutions: political, legal, etc.
Culture: trust, values, etc.
United growth theory
• Aghion and Howitt, « The economics of
growth », 2009
Organization of the course
Part 2 counts for half of the grade
No exam
3 papers to review
Send the reviews to
[email protected]
• Deadline: 1st June 2011 23:59
What is a review?
• 1. Question of the paper
• 2. Summary of the paper
• 3. Main contribution of the paper and
relationship to the literature (attending the
class helps)
• 4. Critique of the paper:
– Limits
– Extensions
What is a GOOD review?
2-3 pages long
Clear and concise
Shows you understood the paper
Shows you understand the contribution
and limits of the paper
• Shows you worked on the material
presented in class
The first paper
• James Feyrer & Bruce Sacerdote, 2009.
"Colonialism and Modern Income: Islands
as Natural Experiments," The Review of
Economics and Statistics, MIT Press, vol.
91(2), pages 245-262, November.
• Can be found on the webpage of James
Feyrer (Darmouth College)
The second paper
• F. Allen, J. Qian and M. Qian, "Law,
Finance and Economic Growth in China,”
Journal of Financial Economics, 77 (2005),
• Can be found on the PERSONAL
webpage of Franklin Allen (Wharton
School, University of Pennsylvania)
The third paper
• Davide Cantoni, « The Economic Effects
of the Protestant Reformation: Testing the
Weber Hypothesis in the German
Lands » , Working paper, December 2010
• Can be found on the webpage of Davide
Cantoni (University Pompeu Fabra)
Some facts
1. Effort
• The Spirit of the Laws, Montesquieu
"The heat of the climate can be so
excessive that the body there will be
absolutely without strength. So, prostration
will pass even to the spirit; no curiosity, no
noble enterprise, no generous sentiment;
inclinations will all be passive there;
laziness there will be happiness"
2. Agriculture
• Tropical climates are less appropriate for
– Too hot
– Too dry
– Diseases
3. Diseases
• Tropical climates are more prone to
diseases, like malaria
• Higher mortality/lower life expectancy
– Lower saving and investment
– Lower human capital
• All these theories are plausible
• Major problem with this literature:
– Correlations, not causality
– Difficult to have natural experiments with
What are institutions?
• Institutions = rules of the game
– Market (barriers to entry)
– Property rights
– Constitutions
– Courts
Institutions vs geography
• Institutions and geography are both
correlated with GDP
• BUT, do they cause GDP?
• We need natural experiments to answer
that question
The Korean experiment
The Korean experiment
• After 1948, Korea was divided in two
• North Korea was socialist
– No property rights
• South Korea was democratic
– Property rights
• Geography was held constant
• BUT, need for more evidence
The colonial experiment
• Starting from the 15th century, Europeans
colonized many countries
• They installed different institutions
• Geography was held constant
The Colonial experiment
• Two papers by Acemoglu, Johnson, and Robinson
exploited this experiment:
– “The Colonial Origins of Comparative Development: An Empirical
Investigation”, (2001) (Part I)
– “Reversal of Fortune: Geography and Institutions in the Making
of the Modern World Income Distribution”, (2002) (Part II)
• The literature on legal origins also exploits it (Part III)
– Colonized countries adopted the legal origins of their colonizer
– Common law: anglo saxon world
– Civil law: French (South America+french speaking Africa+latin
Europe), Scandinavian, German (german speaking +
Japan+Korea+Eastern Europe)
What is culture?
• Religion
• Values
– Preference for Redistribution (Alesina & coauthors)
– Corruption and Civic Attitudes (Fisman & Miguel
– Female Labor Force Participation (Raquel Fernandez
& coauthors)
• Beliefs
– Pro-Market Attitudes (DiTella et al, QJE 07; Landier,
Thesmar and Thoenig, Economic Policy, 2008)
– Trust
• Etc.
How do you measure culture?
• You ask people what their culture is
• Biggest database: World Values Survey
– -267'870 individual observations from 82 countries spread over
4 waves 1981-84 (21), 1989-93 (43), 1994-99 (54) & 2000-04
– Sample size: between 1000 and 1400 individuals by
– 817 questions in total + individual characteristics!
– available for free on the Internet
• Example: Trust
– “Generally speaking, would you say that most people trusted or
that you can't be too careful in dealing with people?”
Brief history
• Max Weber (1905): The Protestant Ethic
and the Spirit of Capitalism
– Protestants are more motivated by economic
gains than catholics
• Otherwise, culture and economics is a
NEW field
Economic consequences of culture
• Arrow (1972): “Virtually every commercial
transaction has within itself an element of trust.”
• Gambetta (1988) on trust: “When we say we
trust someone or that someone is trustworthy,
we implicitly mean that the probability that he will
perform an action that is beneficial … is high
enough for us to consider in engaging in some
form of cooperation with him.”
• Again, correlation, not causality
• Solutions:
– Inherited trust (Algan Cahuc 09)
– Use theory to predict (not prove) causality
(Doepke Zilibotti 08)