Transcript Economic growth Part 2: Applications - HEC

ECONOMIC GROWTH
2nd part : Applications
Baptiste Massenot
[email protected]
Why are some countries richer than
others?
• Part 1: capital accumulation and
innovation benefit economic growth
• Next question: Why do some countries
accumulate more and innovate more?
A few answers
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Geography: latitude, climate, etc.
Institutions: political, legal, etc.
Culture: trust, values, etc.
United growth theory
Finance
Textbook
• Aghion and Howitt, « The economics of
growth », 2009
Organization of the course
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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?
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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),
57-116.
• 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)
Geography
Some facts
1. Effort
• The Spirit of the Laws, Montesquieu
(1748):
"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
agriculture:
– 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
Caveats
• All these theories are plausible
• Major problem with this literature:
– Correlations, not causality
– Difficult to have natural experiments with
geography
Institutions
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
countries
• 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)
Culture
What is culture?
• Religion
• Values
– Preference for Redistribution (Alesina & coauthors)
– Corruption and Civic Attitudes (Fisman & Miguel
2007)
– 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
(70)
– Sample size: between 1000 and 1400 individuals by
country/wave
– 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.”
Caveat
• Again, correlation, not causality
• Solutions:
– Inherited trust (Algan Cahuc 09)
– Use theory to predict (not prove) causality
(Doepke Zilibotti 08)