Capital Controls, Political Institutions, and Economic Growth: A Panel and Cross Country Analysis

Statistical studies on the effects of capital controls on growth have generally yielded insignificant results. In this paper, we show that capital controls negatively affect growth in authoritarian countries, while growth in democratic countries is insignificantly affected. We also show that the adverse effects of capital controls likely pass through the efficiency of investment. Our findings suggest that policy makers should take careful account of the political context when considering the decision to impose capital controls

The Political Economy of Nominal Macroeconomic Pathologies

Recognizing that inflation and the macroeconomic policies that affect it can emanate from distributional conflicts in society, we examine the deep determinants of several nominal pathologies and related policy variables from a distributional perspective. We develop new instruments and use wellestablished existing instruments for these deep determinants and find that two deep determinantssocietal divisions and democratic institutionshave a powerful and robust causal impact on nominal macroeconomic outcomes. Surprisingly, given the widespread attention accorded to the effects of populist democracy on inflation, democracy robustly serves to reduce inflation over the long term. A one standard deviation increase in democracy reduces inflation nearly fourfold. A similar increase in societal divisions increases inflation more than twofold. Our results are robust to alternative measures of democracy,samples, covariates, and definitions of societal division. It is particularly noteworthy that a variety of nominal pathologies and their proximate policy causes discussed in the recent macroeconomic literature, such as procyclical policy, absence of central bank independence, original sin, and debt intolerance, have common origins in societal divisions and undemocratic political institutions.Democracy, Income inequality, Nominal macroeconomic outcomes

Understanding Transitory Rainfall Shocks, Economic Growth and Civil Conflict

Miguel, Satyanath and Sergenti (2004) use rainfall variation as an instrument to show that economic growth is negatively related to civil conflict in sub-Saharan Africa. In the reduced form regression they find that higher rainfall is associated with less conflict. Ciccone (2010) claims that this conclusion is ‘erroneous’ and argues that higher rainfall levels are actually linked to more conflict. In this paper we show that the results in Ciccone’s paper are based on incorrect STATA code, outdated conflict data, a weak first stage regression and a questionable application of the GMM estimator. Leaving aside these data and econometric issues, Ciccone’s surprising results do not survive obvious robustness checks. We therefore conclude that Ciccone’s main claims are largely incorrect and reconfirm the original result by Miguel, Satyanath and Sergenti (2004), finding that adverse economic growth shocks, driven by falling rainfall, increases the likelihood of civil conflict in sub-Saharan Africa.

Superpower Interventions and their Consequences for Democracy: An Empirical Inquiry

Do superpower interventions to install and prop up political leaders in other countries subsequently result in more or less democracy, and does this effect vary depending on whether the intervening superpower is democratic or authoritarian? While democracy may be expected to decline contemporaneously with superpower interference, the effect on democracy after a few years is far from obvious. The absence of reliable information on covert interventions has hitherto served as an obstacle to seriously addressing these questions. The recent declassification of Cold War CIA and KGB documents now makes it possible to systematically address these questions in the Cold War context. We thus develop a new panel dataset of superpower interventions during the Cold War. We find that superpower interventions are followed by significant declines in democracy, and that the substantive effects are large. Perhaps surprisingly, once endogeneity is addressed, US and Soviet interventions have equally detrimental effects on the subsequent level of democracy; both decrease democracy by about 33%. Our findings thus suggest that one should not expect significant differences in the adverse institutional consequences of superpower interventions based on whether the intervening superpower is a democracy or a dictatorship

Bowling for Fascism: Social Capital and the Rise of the Nazi Party

Social capital is often associated with desirable political and economic outcomes. This paper contributes to a growing literature on its "dark side". We examine the role of social capital in the downfall of democracy in interwar Germany. We analyze Nazi Party entry in a cross-section of cities, and show that dense networks of civic associations such as bowling clubs, choirs, and animal breeders went hand-in-hand with a rapid rise of the Nazi Party. Towns with one standard deviation higher association density saw at least one-third faster entry. All types of associations - veteran associations and non-military clubs, "bridging" and "bonding" associations - positively predict NS Party entry. Party membership, in turn, predicts electoral success. These results suggest that social capital aided the rise of the Nazi movement that ultimately destroyed Germany's first democracy. We also show that the effects of social capital were more important in the starting phase of the Nazi movement, and in towns less sympathetic to its message

Superpower Interventions and their Consequences for Democracy: An Empirical Inquiry

Do superpower interventions to install and prop up political leaders in other countries subsequently result in more or less democracy, and does this effect vary depending on whether the intervening superpower is democratic or authoritarian? While democracy may be expected to decline contemporaneously with superpower interference, the effect on democracy after a few years is far from obvious. The absence of reliable information on covert interventions has hitherto served as an obstacle to seriously addressing these questions. The recent declassification of Cold War CIA and KGB documents now makes it possible to systematically address these questions in the Cold War context. We thus develop a new panel dataset of superpower interventions during the Cold War. We find that superpower interventions are followed by significant declines in democracy, and that the substantive effects are large. Perhaps surprisingly, once endogeneity is addressed, US and Soviet interventions have equally detrimental effects on the subsequent level of democracy; both decrease democracy by about 33%. Our findings thus suggest that one should not expect significant differences in the adverse institutional consequences of superpower interventions based on whether the intervening superpower is a democracy or a dictatorship.

National Cultures and Soccer Violence

Can some acts of violence be explained by a society's "culture"? Scholars have found it hard to empirically disentangle the effects of culture, legal institutions, and poverty in driving violence. We address this problem by exploiting a natural experiment offered by the presence of thousands of international soccer (football) players in the European professional leagues. We find a strong relationship between the history of civil conflict in a player's home country and his propensity to behave violently on the soccer field, as measured by yellow and red cards. This link is robust to region fixed effects, country characteristics (e.g., rule of law, per capita income), player characteristics (e.g., age, field position, quality), outliers, and team fixed effects. Reinforcing our claim that we isolate cultures of violence rather than simple rule-breaking or something else entirely, there is no meaningful correlation between a player's home country civil war history and soccer performance measures not closely related to violent conduct.

Commercial Imperialism? Political Influence and Trade During the Cold War

We exploit the recent declassification of CIA documents and examine whether there is evidence of US power being used to influence countries' decisions regarding international trade. We measure US influence using a newly constructed annual panel of CIA interventions aimed at installing and supporting leaders during the Cold War. Our presumption is that the US had greater influence over foreign leaders that were installed and backed by the CIA. We show that following CIA interventions there was an increase in foreign-country imports from the US, but there was no similar increase in foreign-country exports to the US. Further, the increase in US exports was concentrated in industries in which the US had a comparative disadvantage in producing, not a comparative advantage. This is consistent with US influence being used to create a larger foreign market for American products. Our analysis is able to rule out decreased bilateral trade costs, changing political ideology, and an increased supply of US loans and grants as explanations for the increase in US exports to the intervened country. We provide evidence that the increase in US exports arose through direct purchases of US products by foreign governments.

Incorporating Climate Uncertainty into Estimates of Climate Change Impacts, with Applications to U.S. and African Agriculture

A growing body of economics research projects the effects of global climate change on economic outcomes. Climate scientists often criticize these articles because nearly all ignore the well-established uncertainty in future temperature and rainfall changes, and therefore appear likely to have downward biased standard errors and potentially misleading point estimates. This paper incorporates climate uncertainty into estimates of climate change impacts on U.S. agriculture. Accounting for climate uncertainty leads to a much wider range of projected impacts on agricultural profits, with the 95% confidence interval featuring drops of between 17% to 88%. An application to African agriculture yields similar results.

Climate and Civil War: Is the Relationship Robust?

A recent paper by Burke et al. (henceforth “we”) finds a strong historical relationship between warmer- than-average temperatures and the incidence of civil war in Africa (Burke et al. 2009). These findings have recently been challenged by Buhaug (2010) who finds fault with how we controlled for other potential explanatory variables, how we coded civil wars, and with our choice of historical time period and climate dataset. We demonstrate that Buhaug’s proposed method of controlling for confounding variables has serious econometric shortcomings and show that our original findings are robust to the use of different climate data and to alternate codings of major war. Using Buhaug’s preferred climate data under sound econometric assumptions yields results that suggest an even stronger relationship between temperature and conflict for the 1981-2002 period than we originally reported. We do find that our historical relationship between temperature and conflict weakens over the last decade, a period of unprecedented African economic growth and very few large wars.