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3 - Development > Institititions, Geography and growth - institutions > Flashcards

Institititions, Geography and growth - institutions Flashcards

1
Q

what are the proximate causes of growth

A

high levels of factors such as physical capital, human capital, and technology, which result in a high level of GDP per capita

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2
Q

what are fundamental causes of growth

A

factors that are at the root of the differences in the proximate causes of prosperity

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3
Q

what are the 2 predictions from the solow model

A
  1. countries will reach a steady state (0 growth) level when capital depreciation = capital accumulation
  2. poorer countries will catch up with leaders in the LR - because can benefit from initially higher returns to capital and by importing technology
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4
Q

looking at world performances how has the solow predictions tested

both failed, how and why

A
  1. unconditional convergence
    - not true that all lagged countries in 1950 have caught up
  2. steady state
    - not true that all people doing well in 1950s are now in steady state - 0 growth
  • spatial inequality in GDPpc
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5
Q

how can solow model be improved

A

by making technology A endogenous

  • featuring an R&D sector

but still fails to explain why different countries have different levels in R&D

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6
Q

what are fundamental causes of growth
5

A
  1. institutions
  2. geography
  3. culture
  4. openness to trade
  5. luck
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7
Q

what are instititions

economic
political

A

institutions = rules of the game

political - parliament
economic - markets

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8
Q

why do inclusive and extractive states form

A

inclusive
- willing cooperation of people - they gain from having a state

extractive
- coerce people and extract a surplus
- have incentives to not be growth friendly

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9
Q

what are examples of economic institutions

A
  • enforcement of property rights and contracts
  • markets
  • slavery
  • monopolies
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10
Q

what do economic institutions do

A

allow agents to reliably extract payoff and rents
- give incentive to invest

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11
Q

what is the main problem behind question
do good institutions cause growth

A

reverse causality and endogeneity
between development and institutions

  • economic growth may lead to better institutions
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12
Q

what is the equilibrium that emerged after Glorious Revolution that made it possible for industrial revolution to happen
- better institutions

A
  • protection of property rights
  • parliamentry checks - not abusing power
  • reduced use of crown monopolies
  • better financial markets
  • easier access to credit
  • larger government budgets
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13
Q

North 1989

A

histroy of Glorious revolution led to growth friendly institutions

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14
Q

quasi natural experiment
Koreas
what does this show about institutions

A
  • before the split - had same geography, culture, economies
  • south korea = democracy with growth friendly economic institutions
  • north korea = autocracy
  • looking at light luminosity - as a proxy for economic growth
  • SK way brighter = more developed - 10 times the GDP
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15
Q

Acemoglu (2001)
- property rights and development

A
  • at the inception of the colonial period
  • Europeans chose to settle in areas that had low settler mortality rates of higher
  • in areas they settled = set up inclusive institutions - good political and economic
  • in areas they didnt settle = extractive institutions
  • today where they chose to settle = high GDP per capita
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16
Q

what is the reversal of fortunes hypothesis
- shows that institutions > geography

  • Acemoglu
A
  • europeans set up extractive institutions in richer colonies
  • countries that were richer before are now poorer
  • geography hasnt changed
  • so must be due to the institutions set up
  • institutions have a more central role in determining LR growth and development
17
Q

Rodrik (2004)

which fundamental factors are most important drivers of economic growth

A
  • geography = distance from equator
  • institutions = settler mortality - quality of institutions
  • openness = bilateral trade flows
  • find that all the fundamentals correlate with growth
  • coefficients show that institutions has biggest effect + significant
18
Q

what are the critiques against Acemoglu 2001

A
  1. measurement are imprecise
  2. compression of histroy
  3. HC brought over
  4. inclusive institution doesnt mean inclusive economic institution - or growth friendly
19
Q

why is historical evidence and cross country - on development and institutions not good

  • why use micro level
A
  • cross country = limited variation
  • measurements of instititions and development are imprecise
  • with country evidence
  • exploits discontinuties in boundaries - exposure to difference institutions
20
Q

Dell (2010)
Mita

what do they do

A

long term effect of extractive economic institution in Peru
- defined boundary where communities had to provide forced labour to silver mine

  • use geographical regression discontinuity design
  • exploits the boundary discontinutity for causal inference
21
Q

Dell (2010)
Mita

what do they find
- comparing within and outside boundary

A

within the boundary
* observe less consumption and more stunting in 2001
* causal effect of institutions - only difference between the areas

  • more extraction = less education and HC in the boundary
22
Q

Banerjee (2005)
Britian and India

A

show that areas of non-landlords are more productive post colonial period
- more capital investment
- more modern technology
- attracted more public spending

  • occupied early = britain took control of taxation of agricultural output
  • occupied later = putsourced taxation to landlords - over extracted from farmers
  • abolished taxation after
23
Q

what are informal institutions
with examples

A
  • informal cooperation across people and groups
  • chiefs, ethnic groups
24
Q

what are tasks carried out by informal institutions

A

enforcement of contracts
market entry regulation
providing public goods
supporting economic development

25
Q

Maghribi traders
example of informal institutions

A
  • stepped in to manage trading problems between agents
  • needed to police and enforce contracts across countries
  • coalition = allowed long distance trading
  • made cheating costly, kicked out people
26
Q

the mafia
informal institution

A
  • provided private protection and contract enforcement
  • originally protected landlords against rioters

now they are bad
- but further weakened the state, protection of criminal activity

27
Q

Acemoglu (2020)
what effect did mafia have on LR development

A
  • presence of mafia had a negative effect on development
  • had negative effect on HC
  • negative effect on public good provision and democratic competition
28
Q

Chiefs
informal institutions
- important political and economic role

A

acts as a dual system of government

  • carry out governmental tasks
  • conflict resolution
  • public goods allocation
  • land distribution
29
Q

Acemoglu (2014)
sierra leone chiefs

A
  • British colony chose number of families that could be elected per district
  • more political competition = better development today
  • more secure property rights
  • higher level of education
30
Q

what is state capacity

A
  • the capacity of governments to carry out policies = beyond quality of institutions
  • is a positive force for development
  • when state capacity is weak - informal institutions step in = associated with low income countries
31
Q

what are the 2 components of state capacity

A
  1. legal
    - capacity to uphold the law
  2. fiscal
    - capacity to levy taxes - fund
32
Q

what do political institutions do when they have state capacity

A
  1. correct externalities
  2. regulate public goods
  3. provide public goods
33
Q

Dell (2018)
viet state

A

the effect of state capacity in vietnam

inside boundary
* higher consumption
* better local administrative infrastructure
* better access to public goods

3 - Development (16 decks)

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