Topic_5_Initial Conditions and Institutions.pptx

Topic_5_Initial Conditions and Institutions.pptx - Econ...

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Econ 171/EEP 151: Development Economics Topic 5 – Initial Conditions and Institutions David Roland-Holst University of California, Berkeley Tuesday, Thursday, 11-12:30 A1 Hearst Field Annex
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2 18 September 2017 Development and Destiny? The models we studied last week emphasized the proximate causes of growth: capital, human capital, technology. We asked how cross-country differences in economic growth arise from differences in capital (physical or human) or technology. But, what the explains these differences in capital and technology across countries? We will examine two leading determinants: Initial Conditions: “Geography” – resource endowments (water, soil, forest, etc.), terrain (logistics), climate, ecology (disease, predation), proximity Institutions: Do countries with “better” institutions grow faster than countries with “worse” institutions?
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3 18 September 2017 All of development economics … on one page (Rodrik) 3 income institutions trade geography exogenous partly endogenous endogenous endowments productivity Central question of development economics: which are the most important arrows and why?
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4 18 September 2017 Geographical determinists claim that… 4 income institutions trade geography endowments productivity 1, 2 4 3 1: natural resources; soil quality 2: public health 3: colonialism, wars, migrations 4: resource curse
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5 18 September 2017 … trade fundamentalists claim that … 5 income institutions trade geography endowments productivity Integration convergence
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6 18 September 2017 … while the institutionalists prefer... 6 income institutions trade geography endowments productivity One kind versus many? Where do they come from?
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7 18 September 2017 Institutions and Income Positive correlation between institutions (as measured by security of property rights) and gdppc. But is it causal? Other explanations: Only wealthy countries can afford to enforce property rights. A third variable could explain both why countries are poor and why they have insecure property rights. How to test the hypothesis that the causality goes from institutions to economic outcomes?
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8 18 September 2017 Geography and Income Positive correlation between geography (as measured by distance from equator) and gdppc. But is it causal? Other explanations: Omitted variables: Geography could affect other variables that also affect growth (e.g. institutions). How to test the hypothesis that geography causes better economic outcomes?
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9 18 September 2017 Geography and Income
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10 18 September 2017 Geography Hypothesis I Why is geography important to economic development? Agricultural productivity: climate, land and soil quality, water, ecology, etc. Transportation and infrastructure development costs depend upon topography.
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