On the Simultaneity Problem in the Aid and Growth Debate

This paper shows that foreign aid has a signicant positive average effect on real per capita GPD growth if, and only if, the quantitatively large negative reverse causal effect of per capita GDP growth on foreign aid is adjusted for in the growth regression. Instrumental variables estimates yield that a 1 percentage point increase in GDP per capita growth decreased foreign aid by over 4 percent. Adjusting for this quantitatively large, negative reverse causal effect of economic growth on foreign aid yields that a 1 percent increase in foreign aid increased real per capita GDP growth by around 0.1 percentage points.aid allocation, aid effectiveness, economic growth, simultaneity

Economic Growth, Size of the Agricultural Sector, and Urbanization

This paper exploits the significant positive response of the share of agricultural value added and GDP per capita growth to variations in the international prices for agricultural commodities and rainfall to construct instrumental variables estimates of the causal effect that changes in the size of the agricultural sector and GDP per capita growth have on the urbanization rate for a panel of 41 African countries during the period 1960-2007. The paper's two main findings are that: (i) decreases in the share of agricultural value added lead to a significant increase in the urbanization rate; (ii) conditional on changes in the share of agricultural value added GDP per capita growth does not significantly affect the urbanization rate. The empirical results confirm the predictions of theoretical models that economic shocks which differentially affect the return across sectors matter for the rural-urban migration decision, and that economic growth mostly affects the urbanization rate through a sector shift out of agriculture.economic growth, sectoral shocks, urbanization

Population Size and Civil Conflict Risk: Is There A Causal Link?

Does an expansion of the population size expose nation states to a higher risk of suffering from civil conflict? Obtaining empirical evidence for a causal relationship is difficult due to reverse effects and omitted variable bias. This paper addresses causality issues by using randomly occurring drought as an instrumental variable to generate exogenous variation in population size for a panel of 37 Sub-Saharan countries over the period 1981- 2004. Instrumental variable estimates yield that a one percentage point increase in population size raises the risk of civil conflict by over 5.2 percentage points.population size, civil conflict, reverse causality

Resource Windfalls and Emerging Market Sovereign Bond Spreads: The Role of Political Institutions

We examine the effect that revenue windfalls from international commodity price booms have on sovereign bond spreads using panel data for 36 emerging market economies during the period 1997-2007. Our main finding is that commodity price booms lead to a significant reduction in the sovereign bond spread in democracies, but to a significant increase in the spread in autocracies. To explain our finding we show that, consistent with the political economy literature on the resource curse, revenue windfalls from international commodity price booms significantly increased real per capita GDP growth in democracies, while in autocracies GDP per capita growth decreased.commodity price shocks; sovereign bond spread; political institutions

Algorithmic and Hardness Results for the Colorful Components Problems

In this paper we investigate the colorful components framework, motivated by applications emerging from comparative genomics. The general goal is to remove a collection of edges from an undirected vertex-colored graph $G$ such that in the resulting graph $G'$ all the connected components are colorful (i.e., any two vertices of the same color belong to different connected components). We want $G'$ to optimize an objective function, the selection of this function being specific to each problem in the framework. We analyze three objective functions, and thus, three different problems, which are believed to be relevant for the biological applications: minimizing the number of singleton vertices, maximizing the number of edges in the transitive closure, and minimizing the number of connected components. Our main result is a polynomial time algorithm for the first problem. This result disproves the conjecture of Zheng et al. that the problem is $NP$-hard (assuming $P \neq NP$). Then, we show that the second problem is $APX$-hard, thus proving and strengthening the conjecture of Zheng et al. that the problem is $NP$-hard. Finally, we show that the third problem does not admit polynomial time approximation within a factor of $|V|^{1/14 - \epsilon}$ for any $\epsilon > 0$, assuming $P \neq NP$ (or within a factor of $|V|^{1/2 - \epsilon}$, assuming $ZPP \neq NP$).Comment: 18 pages, 3 figure

Price Distortions and Economic Growth in Sub-Saharan Africa

To what extent has Sub-Saharan Africa's slow economic growth over the past five decades been due to price and trade policies that have discouraged production of agricultural relative to non-agricultural tradables? This paper uses a new set of estimates of policy distortions to relative prices to address this question econometrically. We first test if these policy distortions respond to economic growth, using rainfall and international commodity price shocks as instrumental variables. We find that on impact there is no significant response of relative price distortions to changes in real GDP per capita. We then test the reverse proposition and find a statistically significant and sizable negative effect of relative price distortions on the growth rate of Sub-Saharan African countries. Our fixed effects estimates suggest that, during 1960-2005, a one standard deviation increase in distortions to relative prices reduced the region's real GDP per capita growth rate by about half a percentage point per annum.Economic growth, Trade restrictions, Agricultural incentives

Food Prices, Conflict, and Democratic Change

We examine the effects that variations in the international food prices have on democracy and intra-state conflict using panel data for over 120 countries during the period 1970-2007. Our main finding is that in Low Income Countries increases in the international food prices lead to a significant deterioration of democratic institutions and a significant increase in the incidence of anti-government demonstrations, riots, and civil conflict. In the High Income Countries variations in the international food prices have no significant effects on democratic institutions and measures of intra-state conflict. Our empirical results point to a significant externality of variations in international food prices on Low Income Countries' social and political stability.food prices, conflict, political institutions

Commodity Windfalls, Polarization, and Net Foreign Assets: Panel Data Evidence on the Voracity Effect

This paper examines the effect that windfalls from international commodity price booms have on net foreign assets in a panel of 145 countries during the period 1970-2007. The main finding is that windfalls from international commodity price booms lead to a significant increase in net foreign assets, but only in countries that are ethnically homogeneous. In ethnically polarized countries, net foreign assets significantly decreased. To explain this asymmetry, the paper shows that in ethnically polarized countries commodity windfalls lead to large increases in government spending, political corruption, and the risk of expropriation, with no overall effect on GDP per capita growth. The paper's findings are consistent with theoretical models of the current account that have a built-in voracity effect.commodity windfalls; net foreign assets, polarization, political economy