Colin W O'Reilly
Assistant Professor of Economics
Heider College of Business
Institute for Economic Inquiry
Assistant Professor of Economics
Heider College of Business
Institute for Economic Inquiry
Banking regulation, regulatory capture and inequality
(with G.P. Manish)
Public Choice (Forthcoming)
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
Post-Genocide Justice: The Gacaca Courts
(with Dr. Yi Zhang)
Development Policy Review (Forthcoming)
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
Exogenous Resource Shocks and Economic Freedom
(with Dr. Ryan Murphy)
Comparative Economic Studies, 59(3): 243-260. 2017
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
Do Institutions Mitigate the Risk of Natural Resource Conflicts? [SSRN link]
(with Dr. Ryan Murphy)
Contemporary Economic Policy, 35(3) 532-541. 2017
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
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.
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.
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 (with Dr. Benjamin Powell) [SSRN link]
European Journal of Political Economy. Vol. 40: 31-41. 2015.
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
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.
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
Works in Progress:
Post-Conflict Convergence with Productivity-Augmenting Institutions
(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
Applying Panel Vector Autoregression to Institutions, Human Capital, and Output
(with Dr. Ryan Murphy)
We apply System GMM and Panel Vector Autoregression (PVAR) to investigate the long run relationships between output, human capital, liberalized political institutions, and liberalized economic institutions. We find consistent evidence that economic institutions and human capital both greatly contribute to output. We also find, however, that political institutions typically have no discernible effect. We believe our methodology provides basis for the existence of causal relationships.
Keywords: Economic Growth, Political Institutions, Economic Institutions, Human Capital
JEL Classification: O43
Oil Rents and Economic Policy
(with Dr. Dean Stansel)
The association between large natural resource rents and low economic growth (the “resource curse”) is well documented. Cross country studies link resource rents to fewer political rights, increased authoritarian governance, increased corruption, and worse bureaucratic quality, indicating that institutional deterioration is one possible channel through which the presence of natural resources may harm economic growth. However, O’Reilly and Murphy (2017) find no evidence that natural resource rent windfalls are associated with lower quality governing institutions (measured by an economic freedom index) in a panel of countries. We build on that, as well as the literature on the determinants of governing institutions, by examining the same relationship at the state level. We provide the first examination of the relationship between natural resource abundance (specifically, oil abundance) and institutional quality at the state level. Our preliminary results are mixed, but we generally fail to find evidence of an institutional channel for the resource curse at the state level.
Keywords: Natural Resource Curse, Oil, Institutions, Economic Freedom, Rent Seeking
JEL codes: D72, O13, 043, P10, E62
Civil War and Institutional Change: A Case Study of Sierra Leone
Violent conflict can break political equilibria and shape ideology leading to institutional change. Exposure to violence has been shown to increase political participation and public good provision, but also to erode trust an increase the scope of government. Building on existing micro-level case studies of the civil war in Sierra Leone and existing macroeconomic institutional measures we study the effect of civil war on economic and political institutions. We apply the synthetic control method to construct the counter factual trajectory of economic institutions in Sierra Leone following the civil war. The war is associated with an initial decline in institutional quality followed by a sharp improvement in institutional quality relative to the counter factual.
Keywords: Civil War, Sierra Leone, Economic Institutions, Institutional Change