On the looting of nations
TL;DR: The authors developed a dynamic discrete choice model of an unchecked ruler making decisions regarding the development of a resource rich country, and showed that unstructured lending from international credit markets can create incentives to loot the country; and an enhanced likelihood of looting causes greater political instability, and diminishes growth.
Abstract: We develop a dynamic discrete choice model of an unchecked ruler making decisions regarding the development of a resource rich country. Resources serve as collateral and facilitate the acquisition of loans. The ruler chooses either to stay in power while facing the risk of being ousted, or loot the country’s riches by liquefying the resources through lending. We show that unstructured lending from international credit markets can create incentives to loot the country; and an enhanced likelihood of looting causes greater political instability, and diminishes growth. Using a treatment effects model, we find evidence that supports our predictions.
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TL;DR: The role of globalization in the Great Divergence, the tariff-trade-growth debate, and the globalization of capital markets in the 19th century is discussed in this article, with a focus on the role of trade in economic growth.
Abstract: What is the connection between different forms of globalization, economic growth, and welfare? International trade, cross-border capital flows, and labor movements are three areas in which economic historians have focused their research. I critically summarize various measures of international integration in each of these spheres. I then move on to discuss and evaluate the ongoing and active debate about whether globalization is significantly associated with growth in the past. I pay particular attention to the role of globalization in the Great Divergence, the tariff-trade-growth debate, and the globalization of capital markets in the 19th century.
83 citations
TL;DR: In this paper, the authors investigate the effectiveness of the Extractive Industries Transparency Initiative (EITI) as a scrutiny mechanism for corruption control and find that EITI membership has not resulted in reduced corruption scores.
67 citations
TL;DR: The book American Pragmatism as discussed by the authors explores the social, political, and class-based character of science and technology in the United States, focusing on what he sees as Americans' suspicion of the purely scientific, as opposed to the technological, a suspicion he correctly surmises may have roots in social class distinctions.
Abstract: This book has a catchy title and nice cover art, adding to the reader’s anticipation that it will be an absorbing—and entertaining— read. The price is reasonable, making it potentially attractive as a text. And the book is, in fact, generally quite well written. America’s romance with technology is complicated, contradictory, and confusing, and it certainly deserves more scholarly attention. However, much has already been written on this subject, not enough of which finds its way into the pages of this book. The introduction suggests that its author, fiction writer and English professor Glen Scott Allen, imagines an audience largely unfamiliar with social and cultural studies of science and technology, and tends to leave the impression that he is unfamiliar with much of this work himself. Allen concentrates on what he sees as Americans’ suspicion of the purely scientific, as opposed to the technological, a suspicion that he correctly surmises may have roots in social class distinctions. He reports that in researching this book, he ‘‘began to wonder to what extent . . . American culture [has] shaped American scientific practice’’ (p. 5), as though this were an entirely original question. In Chapter One, he marvels that in 1848 the American Association for the Advancement of Science adopted promotion of the ‘‘purer’’ sciences as its goal (p. 17), and in general implies surprise at his discovery of the social, political, and class-based character of science (although it is not exactly clear how the AAAS vision is an argument that Americans distrust science, instead of an argument that at least some of us approve of it). He discusses the ‘‘selling’’ of American science in Chapter Three without any apparent reference either to the work of sociologist Dorothy Nelkin or to that of media historian Marcel Lafollette, two scholars especially well-known for their careful documentation of how media representations of science and technology have historically served this purpose. Then, in Chapter Four, Allen presents American Pragmatism without reference to John Dewey, who makes only a cameo appearance a few pages later. Surely Dewey’s contribution to Pragmatism would have been an excellent pillar on which to build any argument about American perspectives on practical knowledge. Finally, as a postscript about two pages from the end of the entire work, Allen confesses that two issues ‘‘not specifically addressed in this book are race and gender’’ (p. 260). Struggling to express my reaction to this latter statement in particularly appropriate scholarly language, the phrase that seems to sum it up best is : ‘‘Well, duh!’’ While some of Allen’s insights into American culture are intriguing—for example, our preference for the practical and our obsession with efficiency certainly ring true—they are not ideally persuasive as presented because of the book’s tendency to ignore too many important issues and scholars. Allen may have read more broadly in the sociology and history of science – as well as in media studies and philosophy—than this presentation of his subject matter implies; if so, he ought to have reflected this reading in what he has written here. A dose of empiricism may be helpful in this context. While it seems to be true (on the basis of most relevant opinion polls) that today’s Americans prefer science that has economic or social benefits (for example, science that creates jobs, health, and wealth), it is also true that Americans continue to like and trust science as well as technology (even while some segments are doubtful about specific points, such as evolution and climate change). If, as Allen apparently takes as his premise, suspicion of all things purely scientific is a peculiarly American cultural
40 citations
TL;DR: In this article, a meta-analysis is performed on 69 empirical studies on the resource curse, totaling 1,419 estimates, and it is shown that only developing countries suffer from the curse although it is soft.
37 citations
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TL;DR: In this article, a meta-analysis is performed on 69 empirical studies on the resource curse, totaling 1,419 estimates, and it is shown that only developing countries suffer from the curse although it is soft.
Abstract: Since Sachs and Warner's seminal article in 1995, numerous studies have addressed the link between natural resources and economic growth. Although the "resource curse" effect was commonly accepted at first, many articles have challenged its existence, and the results found in the literature are ambiguous. In this paper, we aim to quantitatively review this literature in order to (i) identify the sources of heterogeneity and (ii) assess the impact of natural resources on economic growth. A meta-analysis is performed on 69 empirical studies on the resource curse, totaling 1,419 estimates. Our findings show that (i) only developing countries suffer from the resource curse although it is soft; (ii) the way natural resources are taken into account is crucial to understand the heterogeneity found in the literature; (iii) the negative impact of the volatility of the terms-of-trade on growth should be qualified. An additional MRA performed on indirect effects size also indicate that when institutions are at their best level, the resource curse disappears and may be turned into a blessing.
24 citations
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TL;DR: In this paper, a model is developed to provide the first theoretical justification for true credit rationing in a loan market, where the amount of the loan and amount of collateral demanded affect the behavior and distribution of borrowers, and interest rates serve as screening devices for evaluating risk.
Abstract: According to basic economics, if demand exceeds supply, prices will rise, thus decreasing demand or increasing supply until demand and supply are in equilibrium; thus if prices do their job, rationing will not exist. However, credit rationing does exist. This paper demonstrates that even in equilibrium, credit rationing will exist in a loan market. Credit rationing is defined as occurring either (a) among loan applicants who appear identical, and some do and do not receive loans, even though the rejected applicants would pay higher interest rates; or (b) there are groups who, with a given credit supply, cannot obtain loans at any rate, even though with larger credit supply they would. A model is developed to provide the first theoretical justification for true credit rationing. The amount of the loan and the amount of collateral demanded affect the behavior and distribution of borrowers. Consequently, faced with increased credit demand, it may not be profitable to raise interest rates or collateral; instead banks deny loans to borrowers who are observationally indistinguishable from those receiving loans. It is not argued that credit rationing always occurs, but that it occurs under plausible assumptions about lender and borrower behavior. In the model, interest rates serve as screening devices for evaluating risk. Interest rates change the behavior (serve as incentive mechanism) for the borrower, increasing the relative attractiveness of riskier projects; banks ration credit, rather than increase rates when there is excess demand. Banks are shown not to increase collateral as a means of allocating credit; although collateral may have incentivizing effects, it may have adverse selection effects. Equity, nonlinear payment schedules, and contingency contracts may be introduced and yet there still may be rationing. The law of supply and demand is thus a result generated by specific assumptions and is model specific; credit rationing does exist. (TNM)
13,126 citations
"On the looting of nations" refers background in this paper
...Banks recognise that adverse selection can result from price-based lending and so limit lending levels instead (Stiglitz and Weiss 1981)....
[...]
TL;DR: This paper showed that differences in physical capital and educational attainment can only partially explain the variation in output per worker, and that a large amount of variation in the level of the Solow residual across countries is driven by differences in institutions and government policies.
Abstract: Output per worker varies enormously across countries. Why? On an accounting basis, our analysis shows that differences in physical capital and educational attainment can only partially explain the variation in output per worker--we find a large amount of variation in the level of the Solow residual across countries. At a deeper level, we document that the differences in capital accumulation, productivity, and therefore output per worker are driven by differences in institutions and government policies, which we call social infrastructure. We treat social infrastructure as endogenous, determined historically by location and other factors captured in part by language.
7,208 citations
TL;DR: Acemoglu, Johnson, and Robinson as discussed by the authors used estimates of potential European settler mortality as an instrument for institutional variation in former European colonies today, and they followed the lead of Curtin who compiled data on the death rates faced by European soldiers in various overseas postings.
Abstract: In Acemoglu, Johnson, and Robinson, henceforth AJR, (2001), we advanced the hypothesis that the mortality rates faced by Europeans in different parts of the world after 1500 affected their willingness to establish settlements and choice of colonization strategy. Places that were relatively healthy (for Europeans) were—when they fell under European control—more likely to receive better economic and political institutions. In contrast, places where European settlers were less likely to go were more likely to have “extractive” institutions imposed. We also posited that this early pattern of institutions has persisted over time and influences the extent and nature of institutions in the modern world. On this basis, we proposed using estimates of potential European settler mortality as an instrument for institutional variation in former European colonies today. Data on settlers themselves are unfortunately patchy—particularly because not many went to places they believed, with good reason, to be most unhealthy. We therefore followed the lead of Curtin (1989 and 1998) who compiled data on the death rates faced by European soldiers in various overseas postings. 1 Curtin’s data were based on pathbreaking data collection and statistical work initiated by the British military in the mid-nineteenth century. These data became part of the foundation of both contemporary thinking about public health (for soldiers and for civilians) and the life insurance industry (as actuaries and executives considered the
6,495 citations
TL;DR: This article showed that the differences in capital accumulation, productivity, and therefore output per worker are driven by differences in institutions and government policies, which are referred to as social infrastructure and called social infrastructure as endogenous, determined historically by location and other factors captured by language.
Abstract: Output per worker varies enormously across countries. Why? On an accounting basis our analysis shows that differences in physical capital and educational attainment can only partially explain the variation in output per worker—we find a large amount of variation in the level of the Solow residual across countries. At a deeper level, we document that the differences in capital accumulation, productivity, and therefore output per worker are driven by differences in institutions and government policies, which we call social infrastructure. We treat social infrastructure as endogenous, determined historically by location and other factors captured in part by language. In 1988 output per worker in the United States was more than 35 times higher than output per worker in Niger. In just over ten days the average worker in the United States produced as much as an average worker in Niger produced in an entire year. Explaining such vast differences in economic performance is one of the fundamental challenges of economics. Analysis based on an aggregate production function provides some insight into these differences, an approach taken by Mankiw, Romer, and Weil [1992] and Dougherty and Jorgenson [1996], among others. Differences among countries can be attributed to differences in human capital, physical capital, and productivity. Building on their analysis, our results suggest that differences in each element of the production function are important. In particular, however, our results emphasize the key role played by productivity. For example, consider the 35-fold difference in output per worker between the United States and Niger. Different capital intensities in the two countries contributed a factor of 1.5 to the income differences, while different levels of educational attainment contributed a factor of 3.1. The remaining difference—a factor of 7.7—remains as the productivity residual. * A previous version of this paper was circulated under the title ‘‘The Productivity of Nations.’’ This research was supported by the Center for Economic Policy Research at Stanford and by the National Science Foundation under grants SBR-9410039 (Hall) and SBR-9510916 (Jones) and is part of the National Bureau of Economic Research’s program on Economic Fluctuations and Growth. We thank Bobby Sinclair for excellent research assistance and colleagues too numerous to list for an outpouring of helpful commentary. Data used in the paper are available online from http://www.stanford.edu/,chadj.
6,454 citations
TL;DR: This article showed that the current prevalence of internal war is mainly the result of a steady accumulation of protracted conflicts since the 1950s and 1960s rather than a sudden change associated with a new, post-Cold War international system.
Abstract: An influential conventional wisdom holds that civil wars proliferated rapidly with the end of the Cold War and that the root cause of many or most of these has been ethnic and religious antagonisms. We show that the current prevalence of internal war is mainly the result of a steady accumulation of protracted conflicts since the 1950s and 1960s rather than a sudden change associated with a new, post-Cold War international system. We also find that after controlling for per capita income, more ethnically or religiously diverse countries have been no more likely to experience significant civil violence in this period. We argue for understanding civil war in this period in terms of insurgency or rural guerrilla warfare, a particular form of military practice that can be harnessed to diverse political agendas. The factors that explain which countries have been at risk for civil war are not their ethnic or religious characteristics but rather the conditions that favor insurgency. These include poverty—which marks financially and bureaucratically weak states and also favors rebel recruitment—political instability, rough terrain, and large populations.We wish to thank the many people who provided comments on earlier versions of this paper in a series of seminar presentations. The authors also gratefully acknowledge the support of the National Science Foundation (Grants SES-9876477 and SES-9876530); support from the Center for Advanced Study in the Behavioral Sciences with funds from the William and Flora Hewlett Foundation; valuable research assistance from Ebru Erdem, Nikolay Marinov, Quinn Mecham, David Patel, and TQ Shang; sharing of data by Paul Collier.
5,994 citations