Colin O'Reilly
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Journal Articles
The champions of capitalism? National leaders and the institutional channel
(with Ryan H. Murphy)
Applied Economics Letters (Forthcoming)
(with Ryan H. Murphy)
Applied Economics Letters (Forthcoming)
Link to: The champions of capitalism? National leaders and the institutional channel
Easterly and Pennings (2018) study whether economic growth is attributable to national leaders. They find only a select few leaders with growth rates during their tenure that can be statistically distinguished from zero. We compare two sets of leaders – those whose growth rates Easterly and Pennings find to be statistically greater than zero and those they find to be statistically less than zero. We find that leaders who performed better presided over a change in economic freedom roughly a half of a point better than those who performed poorly, suggesting the difference in economic performance may in part have been through the institutional channel. The effect is large, with many specifications corresponding to more than a half of a standard deviation across countries today.
Keywords: Autocracy; Economic freedom; Leaders; Ideology; Institutions
JEL Codes: O43; N40
Easterly and Pennings (2018) study whether economic growth is attributable to national leaders. They find only a select few leaders with growth rates during their tenure that can be statistically distinguished from zero. We compare two sets of leaders – those whose growth rates Easterly and Pennings find to be statistically greater than zero and those they find to be statistically less than zero. We find that leaders who performed better presided over a change in economic freedom roughly a half of a point better than those who performed poorly, suggesting the difference in economic performance may in part have been through the institutional channel. The effect is large, with many specifications corresponding to more than a half of a standard deviation across countries today.
Keywords: Autocracy; Economic freedom; Leaders; Ideology; Institutions
JEL Codes: O43; N40
Entry Regulations and Income Inequality at the Regional Level
(with Dustin Chambers)
Journal of Regional Analysis & Policy 49(1): 31-39. 2019
(with Dustin Chambers)
Journal of Regional Analysis & Policy 49(1): 31-39. 2019
Link to: Entry Regulations and Income Inequality at the Regional Level
We combine entry regulation data from the World Bank’s subnational Doing Business Index with regional income inequality from the OECD to test relationship between entry regulation and income inequality at the subnational level. Controlling for other factors known to affect income inequality, we find that a 1 percentage point increase in entry costs (expressed as a percentage of national per capita income) is associated with a 3.4% increase in regional inequality (measured via the 80/20 income percentile ratio). These results suggest that uniform national regulations may have disparate regional effects, as compliance costs may vary by subnational region.
Keywords: income inequality; regulation; entry regulations; Doing Business; regional
JEL Codes: D31, J38, K20
Applying Panel Vector Autoregression to Institutions, Human Capital, and Output [SSRN link]
(with Ryan Murphy)
Empirical Economics 57:1633–1652. 2019.
(with Ryan Murphy)
Empirical Economics 57:1633–1652. 2019.
Link to: Applying Panel Vector Autoregression to Institutions, Human Capital, and Output [SSRN link]
We bridge two literatures by applying Panel Vector Autoregression (PVAR) to human capital, political institutions, economic institutions, and economic output per capita. Institutions and human capital have competed within the scholarly literature as hypotheses explaining the origins of economic growth. Elsewhere, our measure of economic institutions, the Economic Freedom of the World index, has recently been explored extensively as a dependent variable, whereas previously it had been used as an explanatory variable. We wish to measure the interrelationships between political and economic institutions, as well as their interrelationships with economic output and human capital, in contrast to literature which emphasizes the importance of political institutions alone. We explore these interrelationships in a PVAR model, finding that, descriptively at least, higher quality economic institutions are associated with more output. We also find weak evidence that higher quality political institutions are associated with less output and less education. We also find a robust positive effect of education on the quality of economic institutions. In performing this analysis, we contribute to the literature on the institutions and human capital debate, as well as to the literature on the causes of free economic institutions.
Keywords: Economic Growth, Political Institutions, Economic Institutions, Human Capital
JEL Codes: O43; P51
We bridge two literatures by applying Panel Vector Autoregression (PVAR) to human capital, political institutions, economic institutions, and economic output per capita. Institutions and human capital have competed within the scholarly literature as hypotheses explaining the origins of economic growth. Elsewhere, our measure of economic institutions, the Economic Freedom of the World index, has recently been explored extensively as a dependent variable, whereas previously it had been used as an explanatory variable. We wish to measure the interrelationships between political and economic institutions, as well as their interrelationships with economic output and human capital, in contrast to literature which emphasizes the importance of political institutions alone. We explore these interrelationships in a PVAR model, finding that, descriptively at least, higher quality economic institutions are associated with more output. We also find weak evidence that higher quality political institutions are associated with less output and less education. We also find a robust positive effect of education on the quality of economic institutions. In performing this analysis, we contribute to the literature on the institutions and human capital debate, as well as to the literature on the causes of free economic institutions.
Keywords: Economic Growth, Political Institutions, Economic Institutions, Human Capital
JEL Codes: O43; P51
Banking regulation, regulatory capture and inequality
(with G.P. Manish)
Public Choice 180(1) 145-164. 2019
(with G.P. Manish)
Public Choice 180(1) 145-164. 2019
Link to: Banking regulation, regulatory capture and inequality
Regulation of the banking and finance industry may lead to a more equal distribution of income if regulators pursue goals in the public interest. Alternatively, the economic theory of regulation predicts that regulatory and supervisory processes may be captured by the banking industry, leading to policies that promote the industry’s interests. The liberalization of the banking and finance sector since the 1980s has produced more intense banking supervision and prudential regulation. In this study we find that banking supervision regulation is associated with greater income inequality. These findings are consistent with the economic theory of regulation. We interpret these results as evidence that regulatory capture in the banking and finance industry can have pernicious effects on the distribution of income.
Keywords: Regulation, Inequality, Regressive Effects, Regulatory Capture, Liberalization, Banking Supervision
JEL Codes: D31; D63; D72; D73; L51; F65
And the IMF Said, Let There Be Data, and There Was Data: Private Capital Stocks in the Eastern Bloc
(with Ryan H. Murphy)
Econ Journal Watch, 15(3) 290-300. 2018
(with Ryan H. Murphy)
Econ Journal Watch, 15(3) 290-300. 2018
Link to: And the IMF Said, Let There Be Data, and There Was Data: Private Capital Stocks in the Eastern Bloc
The International Monetary Fund has recently published a dataset on public and private capital stocks for 170 countries from 1960-2015 using the perpetual inventory methodology. Following a reckless assumption, opaquely imposed, the dataset likely overstates levels of private investment as a percentage of total investment in former Eastern bloc countries, and thereby likely overstates their private capital stocks. This comment explores the nature and implications of the assumption, and suggests that, in light of the problem, the scope of the IMF project be significantly diminished to address the issue.
Keywords: National Accounts; Investment and Capital Stock Dataset; Public Capital Stock; Public Investment; International Monetary Fund
JEL Codes: H54; P33; N10
The International Monetary Fund has recently published a dataset on public and private capital stocks for 170 countries from 1960-2015 using the perpetual inventory methodology. Following a reckless assumption, opaquely imposed, the dataset likely overstates levels of private investment as a percentage of total investment in former Eastern bloc countries, and thereby likely overstates their private capital stocks. This comment explores the nature and implications of the assumption, and suggests that, in light of the problem, the scope of the IMF project be significantly diminished to address the issue.
Keywords: National Accounts; Investment and Capital Stock Dataset; Public Capital Stock; Public Investment; International Monetary Fund
JEL Codes: H54; P33; N10
Post-Genocide Justice: The Gacaca Courts
(with Yi Zhang)
Development Policy Review, 36(5) 561-576. 2018
(with Yi Zhang)
Development Policy Review, 36(5) 561-576. 2018
Link to Post-Genocide Justice: The Gacaca Courts
Legal institutions are an important determinant of economic performance, particularly in the post-conflict context. In the aftermath of the Rwandan genocide the crippled judicial system failed to administer justice in a timely manner. A modified version of the traditional Gacaca courts were introduced to hear cases from the backlog of over 100,000 genocide suspects. We find that the Gacaca courts performed well as a justice system given the constraints faced. The Gacaca courts generated valuable information about the genocide suspects and increased access to the justice system. The introduction of the Gacaca courts improved the performance of the formal justice system and facilitated post-conflict economic performance.
Keywords: Law and Economics, Dispute Resolution, Rwanda, Comparative Institutions
JEL Codes: K40, K41, O43
Legal institutions are an important determinant of economic performance, particularly in the post-conflict context. In the aftermath of the Rwandan genocide the crippled judicial system failed to administer justice in a timely manner. A modified version of the traditional Gacaca courts were introduced to hear cases from the backlog of over 100,000 genocide suspects. We find that the Gacaca courts performed well as a justice system given the constraints faced. The Gacaca courts generated valuable information about the genocide suspects and increased access to the justice system. The introduction of the Gacaca courts improved the performance of the formal justice system and facilitated post-conflict economic performance.
Keywords: Law and Economics, Dispute Resolution, Rwanda, Comparative Institutions
JEL Codes: K40, K41, O43
Do Institutions Mitigate the Risk of Natural Resource Conflicts? [SSRN link]
(with Ryan Murphy)
Contemporary Economic Policy, 35(3) 532-541. 2017
(with Ryan Murphy)
Contemporary Economic Policy, 35(3) 532-541. 2017
Link to: Do Institutions Mitigate the Risk of Natural Resource Conflicts? [SSRN link]
The resource curse as manifested by an increased likelihood of conflict over rents can be mitigated by institutions. Lei and Michaels (2014) find that exogenous discoveries of “giant” oil fields increase the likelihood of violent conflict, but they find no evidence that democratic institutions mitigate this risk. We estimate the degree to which institutions mitigate the resource curse by reducing the risk of natural resource conflicts by interacting oil discoveries with measures of economic and political institutions. For conflicts in general we find no evidence that democratic institutions mitigate the risk of natural resource conflicts. However, we find that high quality economic institutions reduce the likelihood of territorial (separatist) conflicts following a natural resource rent windfall. Highly autocratic and highly democratic institutions also reduce the likelihood of territorial conflict after a natural resource rent windfall.
Keywords: Conflict, Civil War, Separatist Conflict, Oil, Resource Curse, Institutions, Rent Seeking, Conflict Resolution
JEL Codes: Q34, O13, P48, D74
The resource curse as manifested by an increased likelihood of conflict over rents can be mitigated by institutions. Lei and Michaels (2014) find that exogenous discoveries of “giant” oil fields increase the likelihood of violent conflict, but they find no evidence that democratic institutions mitigate this risk. We estimate the degree to which institutions mitigate the resource curse by reducing the risk of natural resource conflicts by interacting oil discoveries with measures of economic and political institutions. For conflicts in general we find no evidence that democratic institutions mitigate the risk of natural resource conflicts. However, we find that high quality economic institutions reduce the likelihood of territorial (separatist) conflicts following a natural resource rent windfall. Highly autocratic and highly democratic institutions also reduce the likelihood of territorial conflict after a natural resource rent windfall.
Keywords: Conflict, Civil War, Separatist Conflict, Oil, Resource Curse, Institutions, Rent Seeking, Conflict Resolution
JEL Codes: Q34, O13, P48, D74
Exogenous Resource Shocks and Economic Freedom
(with Ryan Murphy)
Comparative Economic Studies, 59(3): 243-260. 2017
(with Ryan Murphy)
Comparative Economic Studies, 59(3): 243-260. 2017
Link to: Exogenous Resource Shocks and Economic Freedom
There is an extensive literature on the presence of valuable natural resources creating a competition for control of central states and resource rents. This mechanism has been argued to be an important underlying factor preventing certain countries from acquiring good institutions and achieving long run economic growth. In this paper, we use a recent data set on the discovery of large, exogenous oil field discoveries as a means of testing whether the presence of large resource rents maligns the freedom of a country’s economic institutions. We find there to be some evidence of contemporaneous effects of these discoveries on the size of government spending, especially transfer payments and subsidies, but this does not show up in our overall measure of economic institutions. These effects also dissipate with time to statistical and economic insignificance, suggesting the discoveries have short run effects on policy but do not impact the underlying institutions at all. At least for this set of exogenous resource discoveries, there is no resource curse for economic institutions.
Keywords: Resource Curse, Economic Freedom, Economic Institutions
JEL Codes: D72, O13, P10
There is an extensive literature on the presence of valuable natural resources creating a competition for control of central states and resource rents. This mechanism has been argued to be an important underlying factor preventing certain countries from acquiring good institutions and achieving long run economic growth. In this paper, we use a recent data set on the discovery of large, exogenous oil field discoveries as a means of testing whether the presence of large resource rents maligns the freedom of a country’s economic institutions. We find there to be some evidence of contemporaneous effects of these discoveries on the size of government spending, especially transfer payments and subsidies, but this does not show up in our overall measure of economic institutions. These effects also dissipate with time to statistical and economic insignificance, suggesting the discoveries have short run effects on policy but do not impact the underlying institutions at all. At least for this set of exogenous resource discoveries, there is no resource curse for economic institutions.
Keywords: Resource Curse, Economic Freedom, Economic Institutions
JEL Codes: D72, O13, P10
Conflict and Economic Growth: The Case for a Closer Look at Forms of Mobilization
(with Arnab Biswas, James T Bang, Aniruddha Mitra)
Applied Economics Letters Vol. 23(15): 1057-1061. 2016.
(with Arnab Biswas, James T Bang, Aniruddha Mitra)
Applied Economics Letters Vol. 23(15): 1057-1061. 2016.
Link to: Conflict and Economic Growth: The Case for a Closer Look at Forms of Mobilization
This paper explores the idea that the lack of robust evidence on the growth impact of civil war could partially be a consequence of considering civil war as an unified conceptual category, regardless of the ordinate of group identity invoked in mobilizing for war. To do so, we distinguish explicitly between episodes of internal conflict where contestants mobilized along the lines of ethnicity and ones where mobilization occurred along other markers of group identity. Using alternative definitions of civil war and using both Fixed Effects and System-GMM estimators to address the endogeneity of conflict and per capita income, we obtain a robust negative impact of nonethnic civil war on economic growth over the period 1975-2005. By contrast, the impact of ethnic war, while negative, is statistically insignificant in all but two specifications.
Keywords : Growth, civil war, ethnicity, mobilization, system GMM
JEL Codes: O43, D74
This paper explores the idea that the lack of robust evidence on the growth impact of civil war could partially be a consequence of considering civil war as an unified conceptual category, regardless of the ordinate of group identity invoked in mobilizing for war. To do so, we distinguish explicitly between episodes of internal conflict where contestants mobilized along the lines of ethnicity and ones where mobilization occurred along other markers of group identity. Using alternative definitions of civil war and using both Fixed Effects and System-GMM estimators to address the endogeneity of conflict and per capita income, we obtain a robust negative impact of nonethnic civil war on economic growth over the period 1975-2005. By contrast, the impact of ethnic war, while negative, is statistically insignificant in all but two specifications.
Keywords : Growth, civil war, ethnicity, mobilization, system GMM
JEL Codes: O43, D74
Household Recovery from Internal Displacement in Northern Uganda [SSRN link]
World Development. Vol 72: 203-215. 2015.
World Development. Vol 72: 203-215. 2015.
Link to: Household Recovery from Internal Displacement in Northern Uganda [SSRN link]
Northern Uganda experienced violent conflict for over 15 years, resulting in the internal displacement of over 1,800,000 Ugandans. In the five years that followed a cease fire agreement in 2006 nearly all the displaced persons and refugees returned home. The difference in the growth of consumption between returnee households and a comparison group of non-displaced households is estimated using propensity score matching. After an initial shock to consumption and assets upon return, returnee households experience a period of catch-up growth. These results contribute to understanding the dynamics of recovery from displacement and have implications for the policy response during recovery.
Keywords: Civil War, Post-Conflict Recovery, Internal Displacement, Migration, Uganda, Refugees
JEL Classification: O12, O15, O55, E21
Northern Uganda experienced violent conflict for over 15 years, resulting in the internal displacement of over 1,800,000 Ugandans. In the five years that followed a cease fire agreement in 2006 nearly all the displaced persons and refugees returned home. The difference in the growth of consumption between returnee households and a comparison group of non-displaced households is estimated using propensity score matching. After an initial shock to consumption and assets upon return, returnee households experience a period of catch-up growth. These results contribute to understanding the dynamics of recovery from displacement and have implications for the policy response during recovery.
Keywords: Civil War, Post-Conflict Recovery, Internal Displacement, Migration, Uganda, Refugees
JEL Classification: O12, O15, O55, E21
War and the Growth of Government [SSRN link]
(with Dr. Benjamin Powell)
European Journal of Political Economy. Vol. 40: 31-41. 2015.
(with Dr. Benjamin Powell)
European Journal of Political Economy. Vol. 40: 31-41. 2015.
Link to: War and the Growth of Government [SSRN link]
Does war cause the growth of government? This paper empirically examines how wars impact the size and scope of government using a panel of all wars from 1965 to 2010. Higgs (1987) gives us reason to believe that wars may permanently increase government size and scope (the ratchet effect) while Olson (1982) describes how wars can dislodge interest groups and allow for market liberalizing reforms. We find that wars permanently expand the scope of government regulation but do not impact government size systematically across the countries we study.
Keywords: War, Economic Freedom, Size of Government, Institutional Change
JEL Classification: H11, H12, N40, P48
Does war cause the growth of government? This paper empirically examines how wars impact the size and scope of government using a panel of all wars from 1965 to 2010. Higgs (1987) gives us reason to believe that wars may permanently increase government size and scope (the ratchet effect) while Olson (1982) describes how wars can dislodge interest groups and allow for market liberalizing reforms. We find that wars permanently expand the scope of government regulation but do not impact government size systematically across the countries we study.
Keywords: War, Economic Freedom, Size of Government, Institutional Change
JEL Classification: H11, H12, N40, P48
Firm Investment Decisions in the Post-Conflict Context
The Economics of Transition. Vol 23 (4): 717-751 2015
The Economics of Transition. Vol 23 (4): 717-751 2015
Link to: Firm Investment Decisions in the Post-Conflict Context
Economic and political transition can occur through peaceful or violent means. Violent transition disrupts the incentive for firms to make productive investments. This paper studies the determinants of profit reinvestment for firms in post-conflict transition economies. Results indicate that while access to finance is an important determinant of reinvestment during transition, it is not as important in the post-conflict context. However, property rights protections, in particular institutions of contract enforcement, are a more important determinant of profit reinvestment for firms operating in the post-conflict environment than for firms in general. This indicates that obstacles to investment are context specific.
Keywords: Post-Civil War Recovery, Civil Conflict, Reinvestment, Property Rights, Judicial Institutions
JEL Classification: P14, P26, P37, O16
Economic and political transition can occur through peaceful or violent means. Violent transition disrupts the incentive for firms to make productive investments. This paper studies the determinants of profit reinvestment for firms in post-conflict transition economies. Results indicate that while access to finance is an important determinant of reinvestment during transition, it is not as important in the post-conflict context. However, property rights protections, in particular institutions of contract enforcement, are a more important determinant of profit reinvestment for firms operating in the post-conflict environment than for firms in general. This indicates that obstacles to investment are context specific.
Keywords: Post-Civil War Recovery, Civil Conflict, Reinvestment, Property Rights, Judicial Institutions
JEL Classification: P14, P26, P37, O16
Institutions and Investment in Post-Civil War Recovery [SSRN link]
Comparative Economic Studies. Vol 56 (1): 1-24. 2014.
Comparative Economic Studies. Vol 56 (1): 1-24. 2014.
Link to: Institutions and Investment in Post-Civil War Recovery [SSRN link]
Theories of post-civil war recovery predict a “peace dividend” via the re-accumulation of capital per worker. I hypothesize that such a recovery will occur only when quality institutions have been established. To test this hypothesis I couple data on civil wars from 1970 to 2000 with the measure of legal structure and protection of private property from the Economic Freedom of the World Index. Results from growth regressions using an interaction between an index of property rights and legal institutions, and investment as a percentage of GDP confirm that weak and uncertain institutions inhibit investment, particularly private investment from being allocated efficiently to contribute to recovery in the post-conflict environment. This paper provides empirical support for a model of conflict recovery via capital accumulation, conditional on legal structure and the protection of property rights.
Keywords: Civil War, post-war recovery, institutions, investment, peace dividend, El Salvador
JEL Classification: 011, 017, 043, 050
Theories of post-civil war recovery predict a “peace dividend” via the re-accumulation of capital per worker. I hypothesize that such a recovery will occur only when quality institutions have been established. To test this hypothesis I couple data on civil wars from 1970 to 2000 with the measure of legal structure and protection of private property from the Economic Freedom of the World Index. Results from growth regressions using an interaction between an index of property rights and legal institutions, and investment as a percentage of GDP confirm that weak and uncertain institutions inhibit investment, particularly private investment from being allocated efficiently to contribute to recovery in the post-conflict environment. This paper provides empirical support for a model of conflict recovery via capital accumulation, conditional on legal structure and the protection of property rights.
Keywords: Civil War, post-war recovery, institutions, investment, peace dividend, El Salvador
JEL Classification: 011, 017, 043, 050
Other Publications
Integrating the Economic Way of Thinking into US History Courses
(with Scott Neiderjohn)
Chapter in: J. Hall and K. Lawson (eds). Teaching Economics. Springer, (2019).
(with Scott Neiderjohn)
Chapter in: J. Hall and K. Lawson (eds). Teaching Economics. Springer, (2019).
Link to: Integrating the Economic Way of Thinking into US History Courses
Can the economic way of thinking be integrated into high school and middle school US history courses? We introduce an instrument, the Test of Economic Thinking, to assess student’s ability to apply the economic way of thinking. In a pilot study involving 120 high school and middle school students across three states, we implement the Test of Economic Thinking to assess the effectiveness of integrating economic concepts into US history courses using the supplemental Economic Episodes in American History textbook. The results indicate that the supplemental textbook improves student’s ability to apply economic concepts. The pilot study suggests that integrating the economic way of thinking into high school US history can be fruitful and that the Economic Episodes in American History text can be a useful tool to facilitate the integration.
Can the economic way of thinking be integrated into high school and middle school US history courses? We introduce an instrument, the Test of Economic Thinking, to assess student’s ability to apply the economic way of thinking. In a pilot study involving 120 high school and middle school students across three states, we implement the Test of Economic Thinking to assess the effectiveness of integrating economic concepts into US history courses using the supplemental Economic Episodes in American History textbook. The results indicate that the supplemental textbook improves student’s ability to apply economic concepts. The pilot study suggests that integrating the economic way of thinking into high school US history can be fruitful and that the Economic Episodes in American History text can be a useful tool to facilitate the integration.
Works in Progress
Link: Violent Conflict and Institutional Change
Violent conflict such as civil war may influence institutional quality by changing the political equilibrium or by changing preferences and norms. Shocks to institutional quality are likely to influence the immediate post-civil war economic recovery as well as long run economic development. We apply the synthetic control method to 25 cases of civil war between 1960 and 2010 to construct a counterfactual path of institutional quality in the absence of civil war. The effects of civil war are heterogenous, but for a substantial minority of cases civil war appears to deteriorate institutional quality.
Keywords: Institutional Change, Institutional Quality, Violent Conflict, Civil War, Economic Development.
JEL Codes: D74, O17, P48, P50
Violent conflict such as civil war may influence institutional quality by changing the political equilibrium or by changing preferences and norms. Shocks to institutional quality are likely to influence the immediate post-civil war economic recovery as well as long run economic development. We apply the synthetic control method to 25 cases of civil war between 1960 and 2010 to construct a counterfactual path of institutional quality in the absence of civil war. The effects of civil war are heterogenous, but for a substantial minority of cases civil war appears to deteriorate institutional quality.
Keywords: Institutional Change, Institutional Quality, Violent Conflict, Civil War, Economic Development.
JEL Codes: D74, O17, P48, P50
The Natural Resource Illusion: Oil Revenue and State Government Expenditure
(with Dean Stansel)
(with Dean Stansel)
Fiscal illusion occurs when perceived revenue is lower than actual revenue. This reduces the perceived tax price of government services leading to an increase in government expenditure. The flypaper effect is a prominent example of this, in which federal grants encourage more spending at the state and local level. We test if fiscal illusion exists for revenue from natural resource rents at the state level. Taxes on those resources are largely factored into their prices, which are then paid by consumers everywhere, not just those in that state. We provide the first examination of the relationship between resource rents, specifically oil production and severance tax revenue, and measures of the size of government at the U.S. state level. Results indicate that oil production is associated with more state expenditure but is not consistently associated with changes in tax policy. On net these results suggest that resource rents are associated with a larger state government, which supports the idea that, like federal grants, they can create fiscal illusion.
Keywords: Fiscal Illusion, Size of Government, Oil, Natural Resource Curse, Economic Freedom, Rent Seeking
JEL codes: D72, O13, 043, P10, E62
Keywords: Fiscal Illusion, Size of Government, Oil, Natural Resource Curse, Economic Freedom, Rent Seeking
JEL codes: D72, O13, 043, P10, E62
The adoption of markets over the last forty years has helped raised over billion people out of poverty. But most of the so-called Bottom Billion still living in extreme poverty reside in fragile states with weak formal institutions. The path out of poverty in the absence of a stable institutional framework is not as simple as adopting reforms to liberalize formal institutions. Following the institutional taxonomy in Boettke et al. (2008) this paper evaluates the predictions of New Development Economics. Specifically, the implication that allowing endogenously developed institutions to operate can improve institutional quality in fragile and conflict afflicted countries. Reviews of recent research on informal governance in Afghanistan and Rwanda validate the implications of the model. Customary governance and dispute resolution in Afghanistan and Rwanda improved institutional quality. These cases demonstrate that a path to development for fragile states involves allowing endogenously developed informal institutions to operate.
Keywords: Informal Institutions, Emergent Order, Development, Failed States
JEL Codes: O17, P51, P52
Keywords: Informal Institutions, Emergent Order, Development, Failed States
JEL Codes: O17, P51, P52
Post-Conflict Convergence with Productivity-Augmenting Institutions
(with Micah DelVecchio)
(with Micah DelVecchio)
Post-conflict economies are likely to begin a period of economic growth with a level of capital stock which is below their new long-run steady state (assuming that a period of peace is long-lasting) which would indicate higher levels of marginal productivity and faster rates of growth. It's also possible that the capital stock may fall in the onset of peace as the economy reorganizes and investors withhold nuance until the political climate has established security. This paper sets out to test this relationship through the use of a standard neoclassical convergence model. The model is augmented with political institutions to also test the importance of institutions in the recovery process. A method to compute steady -states using a dynamic panel model is employed to determine where each individual economy is relative to its institution-augmented steady state. Results indicate that the economies do converge to their long run growth paths, but from various directions relative to their steady states.
Keywords: macroeconomic analyses of economic development; institutions and growth; measurement of economic growth; cross-country output convergence; models with panel data; government policy
JEL Codes: O11, O38, O43, O47, C23, G18
Keywords: macroeconomic analyses of economic development; institutions and growth; measurement of economic growth; cross-country output convergence; models with panel data; government policy
JEL Codes: O11, O38, O43, O47, C23, G18
Property Rights, Gender Barriers, and Economic Development
(with Kathleen Sheehan)
(with Kathleen Sheehan)
Financial Regulation and Income Inequality
(with GP Manish)
(with GP Manish)
Several studies find that liberalizing financial markets is associated with lower inequality, possibly due to increasing access to credit to those at the bottom of the income distribution. Others such as de Haan and Sturm (2017) find that financial market liberalization increases inequality. One explanation for the divergent results is that liberalization or deregulation is a product of the political process. If incumbents in the financial industry hold political power, they may counter efforts to deregulate by lobbying for re-regulation to protect their incumbency. Using an alternative measure of liberalization in a large panel of countries, we confirm the positive association between inequality and liberalization found by de Haan and Strum (2017). Further, our results indicate that the positive association between inequality and liberalization decreases in magnitude and significance once a measure of banking supervision regulation is included in the analysis. We find that banking supervision regulation is positively associated with income inequality, suggesting that so-called deregulation is actually re-regulation – a finding similar to Manish and O’Reilly (2019). We conclude that one plausible explanation for the positive association between in income inequality and financial market liberalization is that the process of deregulation is often captured by incumbents.
Keywords: Regulation, Inequality, Regulatory Capture, Liberalization, Re-regulation
JEL Codes: D31; D63; D72; L51; F65
Keywords: Regulation, Inequality, Regulatory Capture, Liberalization, Re-regulation
JEL Codes: D31; D63; D72; L51; F65
Assessing State Capacity Libertarianism
(with Ryan H Murphy)
(with Ryan H Murphy)
Link: Assessing State Capacity Libertarianism
Cowen (2020) argues for a redirection of effort towards “State Capacity Libertarianism,” which keeps the core of policy proposals from libertarianism intact while emphasizing a select set of policies aimed at furthering economic growth. These policies center on the ability of the state to accomplish that which it sets out to accomplish, i.e. state capacity. This paper interprets Cowen’s proposal in terms of an interaction between economic freedom and state capacity. Using four measures of state capacity, it finds that state capacity and economic freedom are neither additive nor complementary. Rather, they are substitutes for one another. These results are uncomfortable for conventional libertarianism, for the advocates of state capacity, and for State Capacity Libertarianism itself. One measure of state capacity we use is a novel measure using data from the Varieties of Democracy dataset, which may be useful for researchers in other contexts.
Keywords: Economic Freedom; Institutional Quality; State Capacity; State Building
JEL Codes: O43; P50; P10
Regulation and Inequality in the United States
(with Dustin Chambers)
(with Dustin Chambers)
Income inequality in the United States has risen over the past several decades. Over the same period federal regulatory restrictions have increased. An emerging literature shows that regulations can have regressive effects on the distribution of income, exacerbating inequality. The Federal Regulation and State Enterprise (FRASE) index quantifies the regulatory restrictions that apply to each US state by industrial composition. We construct a panel of 50 US states from 1997 to 2015 to test whether states exposed to more federal regulatory restrictions have higher levels of income inequality. The results indicate that federal regulation is associated with greater income inequality as measured by the Gini coefficient.
Keywords: Regulation, Income Inequality, FRASE, Regressive Effects.
JEL Codes: D31, D63, L51
Keywords: Regulation, Income Inequality, FRASE, Regressive Effects.
JEL Codes: D31, D63, L51
