Institutions & Development PDF - University of Namur

Institutions & Development University of Namur Guilhem Cassan September 19th, 2024 1  Guilhem Cassan email: [email protected] Office 530 Office hours: Tuesday 14h-15h (appointment) 2  Auguste Debroise...

Institutions & Development University of Namur Guilhem Cassan September 19th, 2024 1  Guilhem Cassan email: [email protected] Office 530 Office hours: Tuesday 14h-15h (appointment) 2  Auguste Debroise email: [email protected] 3 This course: organization 24h course, with sessions of 8*3 hours sessions. Each course will present thoroughly a couple of articles on a specific theme. The course relies on research papers that are available on webcampus. Syllabus: papers marked with a star are required reading for the course (subject to update). All class material is made available shortly before the class on webcampus ECONM822 page. On Teams, the course group is also ECONM822. 4 This course: objective Survey of current research on institutions and development. Being familiarized with empirical research. Being critical about this research. Being able to use examples from research to inform one’s view and organize arguments. 5 This course: Presentations Students will be asked to present papers: 25% of the final grade. A typical class: 2h of lectures, 1h of presentation on the topic of the previous week. Ideally in presential, but may have to be hybrid Presentations will start on Oct 17. 6 Presentations Groups of max. 4 students. Presentation of 30 mn (i.e 2 presentations per week), including questions. Summary of the paper, link to the topic of the course, how does this paper fit in the literature ? Critique of the paper: is the paper convincing ? Are the author’s conclusions supported by the data ? Can you think of an alternative way of testing the author argument ? If not enough slots for oral presentations: individual report. Plagiarism not allowed !! 7 Presentations Papers will be made available on Webcampus shortly A google sheet in online for students to choose which article they want to present, on first come first served basis There is a choice between 4 papers per theme, but only two papers can be chosen. Once two papers are picked, it is not possible to take an other one from the theme Put your name and email next to the paper that you want to present. Students that can not do a presentation will hand in a referee report. 8 Exam A 2h exam consisting in questions of understanding will be done at the end of the course. 75% of the final grade. Exam sessions : January and September. Closed book exam. Reflexive question + course question. 9 Re take Exam Retake: only the exam can be retaken, not the presentation. The grades of the presentation are kept. Students taking this course for the second year: you need a new presentation/report grade. 10 Calendar 1. 19/9 Introduction (Cassan) 2. 26/9 Do institutions matter ? (Cassan) 3. 3/10 Empirical evidence on the role of institutions: colonization (Debroise) 4. 17/10 Property rights (Debroise) 5. 7/11 Democracy and Development (Cassan) 6. 14/11 Patronage politics (Cassan) 7. 5/12 “Informal” institutions in the process of development (1/2) (Debroise) 8. 12/12 “Informal” institutions in the process of development (2/2) (Debroise) 11 Roadmap Organisation of the course Trends in inequality across countries Trends in inequality and poverty across individuals Why those inequalities? The reversal of fortune Conclusion 12 Countries’ size by GDP (year 1) Source: World Mapper. 13 Countries’ size by population (year 1) Source: World Mapper. 14 Countries’ size by GDP (year 1500) Source: World Mapper. 15 Countries’ size by population (year 1500) Source: World Mapper. 16 Countries’ size by GDP (year 2018) Source: World Mapper. 17 Countries’ size by population (year 2018) Source: World Mapper. 18 Countries were not always so unequal 30000 20000 GDP per Capita 10000 0 1800 1850 1900 1950 2000 year France United Kingdom United States China India Source: Maddison 2010. 19 Evolution of inequality Up to 1500, little inequality across countries in pc terms. Divergence seems to have taken place after, and has accelerated in the XIXth and XXth century. 20 Roadmap Organisation of the course Trends in inequality across countries Trends in inequality and poverty across individuals Why those inequalities? The reversal of fortune Conclusion 21 Evolution of global inequality 22 Evolution of global inequality Source: World Inequality Report, 2022. 23 Evolution of global inequality: per world region 24 Evolution of global inequality: per world region 25 Evolution of global inequality: between vs within country Source: World Inequality Report, 2022. 26 Evolution of global inequality: who benefits from growth? Source: World Inequality Report, 2022. 27 Evolution of inequality at the individual level Inequality at the individual level has increased in the XIXth century Little progress for bottom half. Between country inequality increasing role up to 1980s then within country Change in the composition of the rich (rise of China) Growth not evenly distributed. 28 World poverty 1820-2015 Source: Our world in data. 29 Poverty by world region, 1990-2018 Source: Our world in data. 30 Health:Massive increase in life expectancy Source: Our world in data. 31 Health:More dangerous to be born in 1914 than to be in the trenches Source: Baland, Cassan and Decerf. 2021, AEJ Applied. 32 Roadmap Organisation of the course Trends in inequality across countries Trends in inequality and poverty across individuals Why those inequalities? The reversal of fortune Conclusion 33 What are the sources of these evolutions? How come countries in similar position in 1500 diverged so much? How come countries in better position in 1500 have seen their fortune change? How come certain countries dramatically change trajectory (Western Europe after 1500, China after 1990...) At the world level, what explains differences in countries ? But also differences within countries? 34 Development is multidimensional Sen on “Development as freedom”. Concept of capabilities: “freedom to achieve valuable beings and doings” Many aspects to human development. Economic growth is not synonym to development: health, inequality, poverty... 35 Institutions as a fundamental cause of development Classical economics typically neglects institutions. Focus on “economic” determinants: saving rate, capital etc... But these do not come from nowhere. A policy of changing (say) the saving rate is difficult if one does not understand the reason why saving rate is low. Models relying on representative agents have hard time explaining questions of inequality. Countries are complex, and implementing top down reforms has proven to be unconvincing. Need to understand the non economic causes of economic development. 36 Fundamental causes of development There are wide differences in country’s wealth Economic growth theory has been concerned with differences in physical capital, human capital and technology. But why are there differences across those 3 components in the first place ? And how can they explain differences across individuals within country? Several candidates as fundamental causes (not exclusive): Geography, Luck, Institutions. 37 Geography The arguments goes back to Montesquieu. Climate, access to the sea, to rivers, ruggedness etc... all have important consequences on economic development. 38 Guns, germs and steel Jared Diamond (1997): why did the European invade America, and not vice versa ? 39 Countries’ size weighted by GDP (1500) 40 Guns, germs and steel Jared Diamond (1997): why did the European invade America, and not vice versa ? Geographical argument: orientation of continents, availability of animals and plants Big 5 : horse, cow, pig, sheep, goat from Eurasia Eurasia more dense in 1500, with better weapons and immunization : the Indians died from Europeans’ diseases, not the contrary. Geography an important part of the story 41 Roadmap Organisation of the course Trends in inequality across countries Trends in inequality and poverty across individuals Why those inequalities? The reversal of fortune Conclusion 42 Reversal of fortune If it’s geography, then given that geography doesn’t change (much) the differences between countries should remain more or less the same. But “reversal of fortune” It also fails to explain differences in inequality within countries. 43 Countries’ size weighted by GDP (1500) 44 Countries’ size weighted by GDP (2002) 45 Reversal of fortune Acemoglu, Johnson, Robinson (2002): former European colonies that were rich in 1500 are poor today Could institutions be (part of) the answer ? 46 RoF: Urbanisation (1500) vs GDP per capita (1995) 47 RoF: Density (1500) vs GDP per capita (1995) 48 Acemoglu, Johnson, Robinson (2002) Why is urbanisation/density a good proxy for 1500’s wealth ? Those correlations hold when controlling for geographical controls (temperature, distance from equator, humidity, ressources, access to sea...) 49 Acemoglu, Johnson, Robinson (2002) interpretation The reversal due to the fact that Europeans set up more extractive institutions in places that had developed more complex civilizations and reached greater prosperity. Institutions of private property: institutions that favor private property for a broad cross section of the society Extractive institutions: high risk of expropriation and hold up by government/small group... Europeans were more likely to set up extractive institutions in places that were more developed. Reconcile Diamond & AJR: Diamond explains wealth in 1500, AJR focus on the evolution after 1500. 50 Acemoglu, Johnson, Robinson (2002) geographical interpreta- tion The results are also consistent with a geographical interpretation: what if the effect of geography changed over time ? ex: European agricultural technology suited more some areas than others ? (advantage for tropical areas until domesticated animals, crop rotation... arrived) Timing of the reversal ? 51 RoF: Evolution of urbanisation 52 Roadmap Organisation of the course Trends in inequality across countries Trends in inequality and poverty across individuals Why those inequalities? The reversal of fortune Conclusion 53 Back to Institutions and Development “Development” and “Institutions” are very broad concepts. Their link is complex, as they influence one another. Scientifically challenging (empirically). 54 Challenges in the study of institutions & development 1/3 1. Institutions do not change often. 2. Institutions change for a reason. 3. Institutions are hard to measure. 55 Challenges in the study of institutions & development 2/3 Those (empirical) issues are challenges for the researcher. Certain tools are regularly used to get around them. 56 Challenges in the study of institutions & development 3/3 1. The study of the link between I & D typically uses economic history approaches. 2. The literature has been using instrumental variable techniques, and more and more natural experiments. 3. Various measures of “institutions”, typically going towards something more and more specific and micro. 57 Wrap up “Institutions” seems to be somehow related to “Development”, among the other fundamental causes. We have seen an example of a causal link going from on type of Institution (extractive vs private property) to Development. More specifically, we have seen how historical institutions can contribute to contemporary economic outcomes. We will continue to question this link in the two next lectures. 58 Wrap up Other lectures will continue to dig the various relationships between different types of institutions and development, but with less emphasis on history (corruption, property rights...) We will also study how “informal institution” matter for development, and how they are in turn affected by it. 59