81 research outputs found
Root Causes of African Underdevelopment
What is the root cause of Africa’s current state of under-development? Is it the long history of slave trade, or the legacy of extractive colonial institutions, or the fallout of malaria? A precise answer still eludes us. This paper investigates the relative contribution of these historical factors using an instrumental variable approach. The results show that malaria matters the most and all other factors are statistically insignificant. The mechanism through which malaria impacts economic performance is demonstrated by a strong negative relationship between malaria and national savings and a two period overlapping generation model. The model shows that high malaria incidence adversely affects growth by increasing both mortality and morbidity. Increased mortality from malaria induces households to increase current consumption and save less for the future. Increased morbidity on the other hand adversely affects labour productivity. The combined impact of these two effects is a slowdown of capital accumulation and economic growth.Malaria; Colonial Institutions; Slave Trade; Economic Development
Do Natural Resource Revenues Hinder Financial Development? The Role of Political Institutions
We theoretically and empirically examine the relationship between natural resource revenues and financial development. In the theoretical part, we present a politico-economic model in which contract enforcement is low and decreasing in resource revenues when political institutions are poor, but high otherwise. As poor contract enforcement leads to low financial development, the model predicts that resource revenues hinder financial development in countries with poor political institutions, but not in countries with comparatively better political institutions. We test our theoretical predictions systematically using panel data covering the period 1970 to 2005 and 133 countries. Our estimates confirm our theoretical predictions. Our main results hold when we control country fixed effects, time varying common shocks, income and various additional covariates. They are also robust to alternative estimation techniques, various alternative measures of financial development and political institutions, as well as across different samples and data frequencies. We present further evidence using panel data covering the period 1870 to 1940 and 31 countries.Natural resources; political institutions; financial development
Natural Resources, Democracy and Corruption
We study how natural resources can feed corruption and how this effect depends on the quality of the democratic institutions. Our game-theoretic model predicts that natural resources lead to an increase in corruption if the quality of the democratic institutions is relatively poor, but not otherwise. We use panel data covering the period 1980 to 2004 and 99 countries to test this theoretical prediction. Our estimates confirm that the relationship between resource abundance and corruption depends on the quality of the democratic institutions. In particular, resource abundance is positively associated with corruption only in countries that have endured a nondemocratic regime for more than 60 percent of the years since 1956. Our main results hold when we control for the effects of income, time varying common shocks, regional fixed effects and various additional covariates. They are also robust to various alternative measures of natural resources, corruption and the quality of the democratic institutions. These findings imply that democratization can be a powerful tool to reduce corruption in resource-rich countries.Natural resources; democracy; political institutions; corruption
Do Natural Resource Revenues Hinder Financial Development? The Role of Political Institutions
We theoretically and empirically examine the relationship between natural resource revenues and financial development. In the theoretical part, we present a politico-economic model in which contract enforcement is low and decreasing in resource revenues when political institutions are poor, but high otherwise. As poor contract enforcement leads to low financial development, the model predicts that resource revenues hinder financial development in countries with poor political institutions, but not in countries with comparatively better political institutions. We test our theoretical predictions systematically using panel data covering the period 1970 to 2005 and 133 countries. Our estimates confirm our theoretical predictions. Our main results hold when we control country fixed effects, time varying common shocks, income and various additional covariates. They are also robust to alternative estimation techniques, various alternative measures of financial development and political institutions, as well as across different samples and data frequencies. We present further evidence using panel data covering the period 1870 to 1940 and 31 countries. --Natural resources,political institutions,financial development
Distributional impact of commodity price shocks: Australia over a century
This paper explores the distributional impact of commodity price shocks over the both the short and very long run. Using a GARCH model, we find that Australia experienced more volatility than many commodity exporting poor countries between 1865 and 2007. A single equation error correction model suggests that commodity price shocks increase the income share of the top 1, 0.05, and 0.01 percent in the short run. The very top end of the income distribution benefits from commodity booms disproportionately more than the rest of society. The short run effect is mainly driven by wool and mining and not agricultural commodities. A sustained increase in the price of renewables (wool) reduces inequality whereas the same for non-renewable resources (minerals) increases inequality. We expect that the initial distribution of land and mineral resources explains the asymmetric result
Institutions and Trade: Competitors or Complements in Economic Development?
A recent paper by Dowrick and Golley (2004) finds that the impact of trade on growth varies with income. In particular, during the period 1980-2000, trade is observed to yield larger benefits for the more advanced economies. This result is backed up by Dejong and Ripoll (2005) who show that the richer countries benefit more from tariff reduction than the poorer countries. These findings raise the question, what is it about high levels of per capita income that enable richer economies to take better advantage of trade? It appears that the reason behind the success of the high income economies is the high quality institutions. These institutions not only boost growth directly but they impact economic performance indirectly by improving trade. We capture the complementarity between institutions and trade by estimating an empirical growth model which includes an interactive term involving these two variables. Better quality institutions are indicative of lower transaction costs which facilitates trade. It also ensures better distribution of the gains from trade paving the way for further trade and growth.
Does climate aid affect emissions? Evidence from a global dataset
Donor countries have been using international aid in the field of energy for at least three decades now. The stated objective of this policy is to reduce emissions and promote sustainable development in the global south. In spite of the widespread use of this policy tool, very little is known about its effect on emissions. In this paper we perform an empirical audit of the effectiveness of climate aid in tackling CO2 and SO2 emissions. Using a global panel dataset covering up to 131 countries over the period 1961 to 2011 and estimating a parsimonious model using the Anderson and Hsiao estimator we do not find any evidence of a systematic effect of energy related aid on emissions. We also find that the non-effect is not conditional on institutional quality or level of income. Countries located in Europe and Central Asia does better than others in utilising climate aid to reduce CO2 emissions. Our results are robust after controlling for the Environmental Kuznets Curve, country fixed effects, country specific trends, and time varying common shocks
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Unbundled debt and economic growth in developed and developing economies: an empirical analysis
We unbundle the effect of debt on economic growth using a new panel dataset sourced from Vague (2014) for 48 countries over the period 1961 to 2015. We distinguish between public, private, household, and non-financial corporation debt. We use the PVAR approach, Granger Causality Tests, and Impulse Response to establish causality. We also test the heterogeneity in the debt growth relationship across developed and developing countries. In our full sample of countries all types of debt appear to be harmful for economic growth. The negative effect of public debt appears to be uniform across developed and developing countries, although the impact is much stronger on developed countries. Household debt appears to be expansionary in developing countries whereas contractionary in developed countries. Non-financial corporation debt appears to have no impact on developing countries but negative impact on developed countries. Finally, total debt (i.e. the sum of public, household and non-financial corporation debt) has a negative impact on growth in developed countries but no impact is detected in the case of developing countries
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