Borders and Growth

This paper presents a framework to understand and measure the effects of political borders on economic growth and per capita income levels. We present a model providing a theoretical foundation to estimate empirically the effects of political borders on growth. In our model, political integration between two countries results in a positive country size effect and a negative effect through reduced openness vis-…-vis the rest of the world. We estimate the growth effects that would have resulted from the hypothetical removal of national borders between pairs of adjacent countries. We also identify country pairs where political integration would have been mutually beneficial.

Long-term barriers to economic development

What obstacles prevent the most productive technologies from spreading to less developed economies from the world’s technological frontier? In this paper, we seek to shed light on this question by quantifying the geographic and human barriers to the transmission of technologies. We argue that the intergenerational transmission of human traits, particularly culturally trans- mitted traits, has led to divergence between populations over the course of history. In turn, this divergence has introduced barriers to the diffusion of technologies across societies. We provide measures of historical and genealogical distances between populations, and document how such distances, relative to the world’s technological frontier, act as barriers to the diffusion of devel- opment and of specific innovations. We provide an interpretation of these results in the context of an emerging literature seeking to understand variation in economic development as the result of factors rooted deep in history

War and Relatedness

We develop a theory of interstate conflict in which the degree of genealogical relatedness between populations has a positive effect on their conflict propensities because more closely related populations, on average, tend to interact more and develop more disputes over sets of common issues. We examine the empirical relationship between the occurrence of interstate conflicts and the degree of relatedness between countries, showing that populations that are genetically closer are more than prone to go to war with each other, even after controlling for a wide set of measures of geographic distance and other factors that affect conflict, including measure of trade and democracy.

War and relatedness

We examine the empirical relationship between the occurrence of inter-state conflicts and the degree of relatedness between countries, measured by genetic distance. We find that populations that are genetically closer are more prone to go to war with each other, even after controlling for numerous measures of geographic distance and other factors that affect conflict, including measures of trade and democracy. These findings are consistent with a framework in which conflict over rival and excludable goods (such as territory and resources) is more likely among populations that share more similar preferences, and inherit such preferences with variation from their ancestors

War and Relatedness

We develop a theory of interstate conflict in which the degree of genealogical relatedness between populations has a positive effect on their conflict propensities because more closely related populations, on average, tend to interact more and develop more disputes over sets of common issues. We examine the empirical relationship between the occurrence of interstate conflicts and the degree of relatedness between countries, showing that populations that are genetically closer are more prone to go to war with each other, even after controlling for a wide set of measures of geographic distance and other factors that affect conflict, including measures of trade and democracy.conflict, genetic distance, common issues, rival issues

The Diffusion of Development

This paper studies the barriers to the diffusion of development across countries over the very long-run. We find that genetic distance, a measure associated with the amount of time elapsed since two populations%u2019 last common ancestors, bears a statistically and economically significant correlation with pairwise income differences, even when controlling for various measures of geographical isolation, and other cultural, climatic and historical difference measures. These results hold not only for contemporary income differences, but also for income differences measured since 1500 and for income differences within Europe. We uncover similar patterns of coefficients for the proximate determinants of income differences, particularly for differences in human capital and institutions. The paper discusses the economic mechanisms that are consistent with these facts. We present a framework in which differences in human characteristics transmitted across generations - including culturally transmitted characteristics - can affect income differences by creating barriers to the diffusion of innovations, even when they have no direct effect on productivity. The empirical evidence over time and space is consistent with this "barriers" interpretation.

The Diffusion of Development

This paper studies the barriers to the diffusion of development across countries from a longterm perspective. We find that genetic distance, a measure associated with the amount of time elapsed since two populations’ last common ancestors, bears a statistically and economically significant relationship with pairwise income differences, even when controlling for various other measures of geographical, climatic, cultural and historical differences. We provide an economic interpretation of these findings, within a framework in which (a) genetic distance captures divergence in characteristics, including cultural traits, that are transmitted vertically across generations within populations over the long term, and (b) such differences in verticallytransmitted characteristics act as barriers to the horizontal diffusion of innovations from the world technological frontier. The empirical evidence over time and space is consistent with this barriers interpretation.

Trade Liberalization and Growth: New Evidence

This paper revisits the empirical evidence on the relationship between economic integration and economic growth. First, we present an updated dataset of openness indicators and trade liberalization dates for a wide cross-section of countries in the 1990s. Second, we extend the Sachs and Warner (1995) study of the relationship between trade openness and economic growth to the 1990s, discussing recent criticisms of their measurement and estimation framework. Our results suggest that the cross-sectional findings of Sachs and Warner are sensitive to the period under consideration. In particular, an updated version of their dichotomous trade policy openness indicator does not enter significantly in growth regressions for the 1990s. Third, and most importantly, we present new evidence on the time paths of economic growth, physical capital investment and openness around episodes of trade policy liberalization. In sharp contrast to our cross-sectional results, we find that liberalization has, on average, robust positive effects on growth, openness and investment rates within countries. We illustrate these large sample findings with detailed case studies in a subsample of representative countries.

A Monte Carlo Study of Growth Regressions

Using Monte Carlo simulations, this paper evaluates the bias properties of common estimators used in growth regressions derived from the Solow model. We explicitly allow for measurement error in the right-hand side variables, as well as country-specific effects that are correlated with the regressors. Our results suggest that using an OLS estimator applied to a single cross-section of variables averaged over time (the between estimator) performs best in terms of the extent of bias on each of the estimated coefficients. The fixed-effects estimator and the Arellano-Bond estimator greatly overstate the speed of convergence under a wide variety of assumptions concerning the type and extent of measurement error, while between understates it somewhat. Finally, fixed effects and Arellano-Bond bias towards zero the slope estimates on the human and physical capital accumulation variables.

Measuring the dynamic gains from trade

The author investigates the links between trade policy and economic growth using data from a panel of 57 countries from 1970-89. This is the first attempt to empirically evaluate, in a cross-country context, the respective roles of various theories of dynamic gains from trade in explaining the observed positive impact of trade openness on economic growth. The author uses a new measure of trade openness, based on the effective policy component of trade shares, in a simultaneous equations system aimed at identifying the effect of trade policy on several determinants of growth. The results suggest that a policy of trade openness has a strong positive impact on economic growth. The accelerated accumulation of physical capital accounts for more than half this effect. Enhanced technological transmissions and improvements in the quality of macroeconomic policy each account for about 20 percent of the impact of trade openness on growth. This decomposition is robust to alternative specifications and time periods. The author also successfully tests whether the empirical methodology captures all or most of the effects of trade policy on growth. The lack of statistically significant results concerning several other channels may be due to measurement problems. The black market premium may be a weak proxy for the efficiency of the price system. Moreover, international technological transmissions are very hard to measure, so there may be a downward bias in the estimates based on the manufactured exports channel, and a corresponding overstatement of other channels.Rules of Origin,Environmental Economics&Policies,Payment Systems&Infrastructure,Economic Theory&Research,Trade Policy,Economic Theory&Research,Environmental Economics&Policies,Achieving Shared Growth,Trade Policy,TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT