2009
This paper documents a stylized fact not well appreciated in the literature. The Third
World has been undergoing an emigration life cycle since the 1960s, and, except for
Africa, emigration rates have been level or even declining since a peak in the late 1980s
the early 1990s. The current economic crisis will serve only to accelerate those trends.
The paper estimates the economic and demographic fundamentals driving these Third
World emigration life cycles to the United States since 1970—the income gap between
the US and the sending country, the education gap between the US and the sending
country, the poverty trap, the size of the cohort at risk, and migrant stock dynamics. It
then projects the life cycle up to 2024. The projections imply that pressure on Third
World emigration over the next two decades will not increase. It also suggests that future
US immigrants will be blacker and fewer will speak Spanish.
It is disconcerting to share a hotel room with someone who needs to tell you in
detail how he learned to use a machete to chop the human body up into unrecognizable
chunks of flesh. Vladimiro's military training showed not only in his butchering
prowess, but also in his upright posture, an odd juxtaposition of perfect etiquette and
lethal brutality.
A friend had brought Valdimiro by my hotel in Apartadó, knowing my colleague
and I were interested in interviewing members of Colombia's paramilitary forces.
Although Vladimiro arrived in civilian clothing, the phone call from the hotel receptionist
made clear that he needed no uniform in order to inspire fear. "You are needed down
here," she tersely informed me. When I walked down the stairs into the lobby, the three
hotel employees behind the main desk all made a point of being intensely involved in
their paperwork and sweeping, never looking up as I shook hands with Vladimiro and invited him and my friend Jefferson upstairs. I glanced back over my shoulder—their
tasks continued to be riveting.
This paper studies how increasing migration changes the character of migrant
streams in sending communities. Cumulative causation theory posits that past migration patterns determine future flows, as prior migrants provide resources, influence,
or normative pressures that make individuals more likely to migrate. The theory
implies uniform patterns of exponentially increasing migration flows that are decreas-
ingly selective. Recent research identifies heterogeneity in the cumulative patterns and
selectivity of migration in communities. We propose that this heterogeneity may be explained by the differential accessibility of previously accumulated migration experience.
Multi-level, longitudinal migration data from 22 rural Thai communities allow us to
measure the distribution of past experience as a proxy for its accessibility to community
members. We find that migration becomes a less-selective process as migration experience accumulates, and migrants become increasingly diverse in socio-demographic
characteristics. Yet, selectivity within migrant streams persists if migration experience is not uniformly distributed among, and hence not equally accessible to, all community members. The results confirm that the accumulation and distribution of prior migrants’ experiences distinctly shape future migration flows, and may lead to diverging
cumulative patterns in communities over time.
Previous working paper version dated January 2003.Download PDF We will likely see increasing efforts to minimize leakage of carbon to non-participating countries and to address concerns on behalf of the competitiveness of carbon-intensive industry. Environmentalists on one side and free traders on the other side fear that border measures such as tariffs or permit-requirements against imports of carbon-intensive products will collide with the WTO. There need not necessarily be a conflict, if the measures are designed sensibly. There are precedents—the shrimp-turtle case and the Montreal Protocol—that could justify border measures to avoid undermining the Kyoto Protocol or its successors, if the measures are carefully designed. But if the design is dominated by politics, as is likely, import penalties are likely to run afoul of the WTO, to distort trade, and perhaps even to fail in the goal of preventing leakage. Border measures should follow principles along the following lines:
- They should follow guidelines multilaterally-agreed by countries participating in the emission targets of the Kyoto Protocol and/or its successors, against countries that are not doing so, rather than being applied unilaterally or by non-participants
- Measures to address leakage to non-members can take the form of either tariffs or permit-requirements on carbon-intensive imports; they should not take the form of subsidies to domestic sectors that are considered to have been put at a competitive disadvantage
- Independent panels of experts, not politicians, should be responsible for judgments as to findings of fact—what countries are complying or not, what industries are involved and what is their carbon content, what countries are entitled to respond with border measures, or the nature of the response
- Import penalties should target fossil fuels and a half dozen or so of the most energy-intensive major industries—perhaps aluminum, cement, steel, paper, glass, iron and chemicals—rather than penalizing industries that are further removed from the carbon-intensive activity, such as firms that use inputs produced in an energy-intensive process
Download PDFForthcoming in Climate Change, Trade and Investment: Is a Collision Inevitable? edited by Lael Brainard. Washington, DC: Brookings Institution Press, 2009. This version revised, March 31, 2009.
Andy Rose (2000), followed by many others, has used the gravity model of bilateral trade on a large data set to estimate the trade effects of monetary unions among small countries. The finding has been large estimates: Trade among members seems to double or triple, that is, to increase by 100-200%. After the advent of EMU in 1999, Micco, Ordoñez and Stein and others used the gravity model on a much smaller data set to estimate the effects of the euro on trade among its members. The estimates tend to be statistically significant, but far smaller in magnitude: on the order of 10-20% during the first four years. What explains the discrepancy? This paper seeks to address two questions. First, do the effects on intra-euroland trade that were estimated in the euro’s first four years hold up in the second four years? The answer is yes. Second, and more complicated, what is the reason for the big discrepancy vis-à-vis other currency unions? We investigate three prominent possible explanations for the gap between 15% and 200%. First, lags. The euro is still very young. Second, size. The European countries are much bigger on average than most of those who had formed currency unions in the past. Third, endogeneity of the decision to adopt an institutional currency link. Perhaps the high correlations estimated in earlier studies were spurious, an artifact of reverse causality. We test the hypotheses regarding lags and size directly; and we address the endogeneity problem by means of a natural experiment involving trade between the CFA countries of Africa and the euro countries of Europe. Contrary to expectations, we find little evidence that any of these factors explains a substantial share of the gap, let alone all of it.
Presented at NBER conference "Europe and the Euro," October 17-18, 2008.
Policy makers rely on a mix of government spending and tax cuts to address the imbalances in the economy during an economic crisis, by promoting price stability and renewed economic growth. However, little discussion appears to focus explicitly on the costs of economic crises in terms of human lives, especially the lives of the most vulnerable members of society, infants. This paper quantifies the effect that economic crises, periods of prolonged economic recession, have on infant mortality. Moreover, we investigate whether different levels of public spending on health across advanced industrialized democracies can mitigate the impact of crises on infant mortality. We find that economic crises are extremely costly and lead to a more than proportional increase in infant mortality in the short-run. Substantial public spending on health is required in order to limit their impact.
Fostering cooperation is one of the main tasks of state building in the aftermath of civil wars, yet little is known about the effects of institutions of integration in increasing interethnic cooperation and facilitating peace. We conducted N-person public goods experiments with costly sanctions in the ethnically-divided city of Mostar in Bosnia- Herzegovina to examine whether and how the introduction of institutions of integration affects cooperation both within and across ethnic groups—in our case Catholic Bosnian Croats and Muslim Bosniacs. Our results indicate that even a limited policy intervention such as the creation of an integrated high school can offset the negative effects of ethnic heterogeneity, driving up peoples' willingness to contribute to public goods. We find that the introduction of institutions of integration is distinct from, and may be necessary for, the effectiveness of sanctions in driving up contributions. The results of this experiment suggest that the presence of integrative institutions can bring about cooperation even when increased heterogeneity diminishes it, thus introducing new ways of thinking about the role of institutions in post-conflict divided societies.
Does development lead to the establishment of more democratic institutions? The key to the puzzle, we argue, is the previously unrecognized fact that based on quantitative regime scores, countries over the past 50 years have clustered into two separate, very distinct, yet equally‐common stages of political development—authoritarian states with low levels of freedom on one side and democracies with liberal institutions on the other side of a bimodal distribution of political regimes. We develop a new empirical strategy—exploiting exogenous world economic factors and introducing new panel data estimators—that allows for the first time to estimate the effects of development as well as unobserved country effects in driving democracy at these different stages of political development. We find that income and education have the least effect on democracy when authoritarian regimes are consolidated and that only country effects, possibly accounting for institutional legacies, can lead to political development. Ironically, it is in highly democratic and wealthiest of nations that income and education start to play a role; however greater wealth and better educated citizenry can both help and hurt democracy depending again on what the country’s institutional legacies are. Far from accepting the notion that much of the developing world is cursed by unchanging and poor long‐run institutions, policy‐makers should take note that with democratization we also see country‐specific factors that in turn condition the difference income and education make for democracy.
2008
During elections in many countries, political parties distribute particularistic benefits to
individuals. The existing literature reveals that parties choose from at least five distinct
strategies when distributing benefits, but fails to explain how parties allocate resources
across these strategies. Our formal model provides insight into this key question. Most
studies focus exclusively on "vote buying," a strategy by which parties reward voters for
switching their votes. Our model first shows how parties trade off between "vote buying"
and "turnout buying," a strategy by which parties reward supporters for showing up at the
polls (Nichter 2008). We then show how parties combine these and other commonly
observed strategies.
The concept of honor has an extensive and
distinguished
lineage in the study of international relations, although contemporary
theory
has lost sight of its importance. This study begins to remedy that
situation.
It does so by first setting out the place of honor in relation to a
number of
other related concepts, like prestige and status. It then outlines a
theory of “negative
honor,” and situates this in relation to existing theoretical and
empirical
accounts of honor-related variables. This theory draws on extant work
in social
psychology, anthropology, economics, political science, and other
fields, to set
out hypotheses on why, how, and when political leaders of states might
respond
to certain kinds of challenges in a way that constitutes honor-seeking
behavior. The second part of the paper tentatively sets out one way to
empirically evaluate these hypotheses. While unsuccessful, this
provides a
blueprint for further research and a number of soon-to-be-implemented
refinements.
Paper presented at Princeton Graduate Conference on Psychology and Policymaking, October 2008.
Download PDFW. Arthur Lewis argued that a new international economic order emerged between 1870 and 1913,
and that global terms of trade forces produced rising primary product specialization and de-industrialization
in the poor periphery. More recently, modern economists argue that volatility reduces growth in the
poor periphery. This paper assess these de-industrialization and volatility forces between 1782 and
1913 during the Great Divergence. First, it argues that the new economic order had been firmly established
by 1870, and that the transition took place in the century before, not after. Second, based on econometric
evidence from 1870-1939, we know that while a terms of trade improvement raised long run growth
in the rich core, it did not do so in the poor periphery. Given that the secular terms of trade boom in
the poor periphery was much bigger over the century before 1870 than after, it seems plausible to infer
that it might help explain the great 19th century divergence between core and periphery. Third, the
boom and its de-industrialization impact was only part of the story; growth-reducing terms of trade
volatility was the other. Between 1820 and 1870, terms of trade volatility was much greater in the
poor periphery than the core. It was still very big after 1870, certainly far bigger than in the core. Based
on econometric evidence from 1870-2000, we know that terms of trade volatility lowers long run growth
in the poor periphery, and that the negative impact is big. Given that terms of trade volatility in the
poor periphery was even bigger during the century before 1870, it seems plausible to infer that it also
helps explain the great 19th century divergence between core and periphery.
Development economics has long been split between macro-development economists—who focus on economic growth, international trade, and fiscal/macro policies—and microdevelopment economists—who study microfinance, education, health, and other social programs. Even though the central question that animates both sets of economists ostensibly is
how to achieve sustainable improvements in living standards in poor countries, the concerns and
methods of these two camps have at times diverged so much that they seem at opposite extremes
of the economics discipline.
I shall argue in this paper that there are some good reasons to be optimistic about the reunification
of the field, as these sharp distinctions are eroding in some key respects. But there
are also some reasons for pessimism, related to divergence in empirical methods. This paper
covers both the good and the bad news.
As Fischer had prophesied, there has been an explosion in empirical studies on the
consequences of financial globalization. But far from clinching the case for capitalaccount
liberalization, these studies paint quite a mixed and paradoxical picture.3 Kose, Prasad, Rogoff, and Wei (2006, hereafter KPRW), who provide perhaps the most detailed
and careful review of the literature, conclude that the cross-country evidence on the
growth benefits of capital-account openness is inconclusive and lacks robustness. They
argue that one should look for the gains not in enhanced access to finance for domestic
investment, but in indirect benefits that are hard to detect with macroeconomic data and
techniques (an argument which we will evaluate below). In another paper, Kose, Prasad
and Terrones (2003) find that consumption volatility actually rose (relative to output
volatility) in emerging market economies during the current era of financial
globalization—a finding that flatly contradicts theoretical expectations. Perhaps most
paradoxical of all are the findings of Prasad, Rajan, and Subramanian (2007, hereafter
PRS) and Gourinchas and Jeanne (2007), which throw cold water on the presumed
complementarity between foreign capital and economic growth: it appears that countries
that grow more rapidly are those that rely less and not more on foreign capital; and in
turn foreign capital tends to go to countries that experience not high, but low productivity
growth.
Brazil, Mexico and a few other Latin American republics enjoyed faster industrialization after 1870
than did the rest of Latin America and even faster than the rest of the poor periphery (except East Asia).
How much of this economic performance was due to more accommodating institutions and greater
political stability, changes that would have facilitated greater technology transfer and accumulation?
That is, how much to changing fundamentals? How much instead to a cessation in the secular rise
in the net barter terms of trade which reversed de-industrialization forces, thus favoring manufacturing?
How much instead to cheaper foodstuffs coming from more open commercial policies ('grain invasions'),
and from railroad-induced integration of domestic grain markets, serving to keep urban grain prices
and thus nominal wages in industry low, helping to maintain competitiveness? How much instead
to more pro-industrial real exchange rate and tariff policy? Which of these forces contributed most
to industrialization among the Latin American leaders, long before their mid 20th century adoption
of ISI policies? Changing fundamentals, changing market conditions, or changing policies?
The goals and concerns surrounding the debate over government policies related to the greater use and production of biofuels were addressed in an executive session convened by the John F. Kennedy School of Government at Harvard University and the Venice International University on May 19-20, 2008. The session attracted more than 25 of the world's leading experts from the fields of policy, science, and business to San servolo Island for an intensive two day session (see Appendix A for a list of the participants). The discussions were off-the-record, with each participant present in his or her own capacity, rather than representing an organization. The session was one in a series on Grand Challenges of the Sustainability Transition organized by the Sustainability Science Program at Harvard University with the generous support of the Italian Ministry for Environment, Land, and Sea. This particular session was held as part of the Ministry's ongoing work with the Global Bioenergy Program established at the G8 Gleneagles Summit in 2005. This summary report of the session is our synthesis of the main points and arguments that emerged from the discussions. It does not represent a consensus document, since no effort was made at the Session to arrive at a a single consensus view. Rather, we report here on what we heard to be the major themes discussed at the session. Any errors or misrepresentations remain solely our responsibility.
Also CID Working Paper No. 174 and BCSIA Working Paper, July 2008.
Download PDFThe theoretical case for industrial policy is a strong one. The market failures that industrial policies target—in markets for credit, labor, products, and knowledge—have long been at the core of what development economists study. The conventional case against industrial policy rests on practical difficulties with its implementation. Even though the issues could in principle be settled by empirical evidence, the evidence to date remains uninformative. Moreover, the conceptual difficulties involved in statistical inference in this area are so great that it is hard to see how statistical evidence could ever yield a convincing verdict. A review of industrial policy in three nonAsian settings—El Salvador, Uruguay, and South Africa—highlights the extensive amount of industrial policy that is already being carried out and frames the need for industrial policy in the specific circumstances of individual countries. The traditional informational and bureaucratic constraints on the exercise of industrial policy are not givens; they can be molded and rendered less binding through appropriate institutional design. Three key design attributes that industrial policy must possess are embeddedness, carrots-and-sticks, and accountability.
Also published as a Commission on Growth and Development Working Paper No. 3, Washington, DC, 2008.
Download PDFWe estimate the impact on pilgrims of performing the Hajj pilgrimage to Mecca. Our
method compares successful and unsuccessful applicants in a lottery used by
Pakistan to allocate Hajj visas. Pilgrim accounts stress that the Hajj leads to a feeling
of unity with fellow Muslims, but outsiders have sometimes feared that this could be
accompanied by antipathy toward non-Muslims. We find that participation in the
Hajj increases observance of global Islamic practices such as prayer and fasting while
decreasing participation in localized practices and beliefs such as the use of amulets
and dowry. It increases belief in equality and harmony among ethnic groups and
Islamic sects and leads to more favorable attitudes toward women, including greater
acceptance of female education and employment. Increased unity within the Islamic
world is not accompanied by antipathy toward non-Muslims. Instead, Hajjis show
increased belief in peace, and in equality and harmony among adherents of different
religions. The evidence suggests that these changes are more a result of exposure to
and interaction with Hajjis from around the world, rather than religious instruction
or a changed social role of pilgrims upon return.
The outsourcing of military functions is always accompanied by a loss of control over the use of force. Whereas the variances in handling consequences by weak versus strong states have already been addressed in other studies, we know little about the causes of differences among strong states. I will argue that strong states are very well aware of the risk of losing control by outsourcing. In order to mitigate the risk, they develop outsourcing strategies. The strategies of the two states considered here—the United States and Germany—are similar. Despite the resemblance, the U.S. Army faces much greater losses of control than does the German Bundeswehr. This is the result of differences in the compliance with their respective strategies. Whereas the Bundeswehr almost always sticks to its strategy, the U.S. Army instead violates it in numerous cases. This difference can be explained by the different scopes of the two forces’ demand-capability gap, a factor that directly affects compliance-behavior with the strategy. The larger the gap, the less compliance is shown and the greater the loss of control. Since the U.S. Army experiences a larger gap than the Bundeswehr, the former suffers a greater loss of control.
W. Arthur Lewis argued that a new international economic order emerged between 1870
and 1913, and that global terms of trade forces produced rising primary product
specialization and de-industrialization in the poor periphery. More recently, modern
economists argue that volatility reduces growth in the poor periphery. This paper assess
these de-industrialization and volatility forces between 1782 and 1913 during the Great
Divergence. First, it argues that the new economic order had been firmly established by
1870, and that the transition took place in the century before, not after. Second, based on
econometric evidence from 1870-1939, we know that while a terms of trade improvement
raised long run growth in the rich core, it did not do so in the poor periphery. Given that
the secular terms of trade boom in the poor periphery was much bigger over the century
before 1870 than after, it seems plausible to infer that it might help explain the great 19th
century divergence between core and periphery. Third, the boom and its deindustrialization
impact was only part of the story; growth-reducing terms of trade
volatility was the other. Between 1820 and 1870, terms of trade volatility was much
greater in the poor periphery than the core. It was still very big after 1870, certainly far
bigger than in the core. Based on econometric evidence from 1870-2000, we know that
terms of trade volatility lowers long run growth in the poor periphery, and that the
negative impact is big. Given that terms of trade volatility in the poor periphery was even
bigger during the century before 1870, it seems plausible to infer that it also helps explain
the great 19th century divergence between core and periphery.
This paper studies the dynamic relationship between exchange rate fluctuations and world commodity price movements. Taking into account parameter instability, we demonstrate
surprisingly robust evidence that exchange rates predict world commodity price movements, both in-sample and out-of-sample. Our results are consistent with a present value relationship in which the exchange rate depends on a present value of fundamentals including, for a core group of commodity exporters, the world price of their commodity exports. Because global commodity prices are essentially exogenous to these countries, we are able to avoid the endogeneity pitfalls that plague most of the related exchange rate literature. More directly, the analysis suggests that where commodity price forward markets are thin or non-existent, exchange rate-based forecasts may be a viable alternative for predicting future price movements.
