Elite Political Stability and Development: The Case of Europe

Alex Lee of Rochester and Avi Acharya of Stanford write:

During the Middle Ages, most European polities operated under a norm that gave only the close male relatives of a deceased monarch a clear place in the line of succession. When no such heirs were available, succession disputes were more likely, with more distant relatives and female(-line) heirs laying competing claims to the throne. These disputes often produced violent conflicts that destroyed existing state institutions and harmed subsequent economic development. Given these facts, we hypothesize that a shortage of male heirs to a European monarchy in the Middle Ages has a deleterious effect on levels of development across contemporary European regions ruled by that monarchy. We confirm this hypothesis by showing that regions that were more likely to have a shortage of such heirs are today poorer than other regions. This finding highlights the importance of the medieval period in European development, and shows how a sequence of small shocks can work in combination with both institutions and norms in shaping long-run development trajectories.

……. Our main empirical finding demonstrates the path dependent effects of the uneven nature of state development in medieval Europe arising due to the availability of male heirs. We show that regions of Europe that were ruled by medieval monarchs who had an abundance of male heirs are today richer than other regions. We are also able to trace our effects over time by showing that urban density in each century between 1300 and 1800 was higher in regions that had an abundance of male heirs. In addition, we show that an abundance of male heirs also decreased the frequency of internal wars and coups during the Late Middle Ages, and we find that contemporary economic development is negatively correlated with the frequency of these medieval wars and coups.

Forget the sweeping comparisons between England and the rest (esp France) that is common in works about economic development in Europe. This paper offers lots of great insights about the mechanics of statebuilding (and institution building) and the impact on economic development.

The linking of medieval European political realities to economics outcomes in 2007-2009 still requires a tighter justification. But the general insights in the paper about elite-level conflict and institution-building are spot on.

The paper is a reminder that our obsession with vertical accountability (mostly elections) as a means for institution-building is patently misguided. Much of the action takes place at the elite-level, hence the need to focus on horizontal accountability (as yours truly does….)

As they say, the paper is self-recommending.

H/T Andy Hall.

The vanishingly small African middle class

The Economist reports:

Screen Shot 2015-10-23 at 12.50.11 PMGood data on the exact size of the middle class are hard to come by, but it remains small across most parts of the continent. The Pew Research Centre, an American outfit, reckons that just 6% of Africans qualify as middle class, which it defines as those earning $10-$20 a day. On this measure the number of middle-income earners in Africa barely changed in the decade to 2011.

…… Unlike Asia, Africa has failed to develop industries that generate lots of employment and pay good wages. Only a few countries manufacture very much, largely because national markets are small and barriers to trading within Africa are huge. Most people who leave the countryside move into labour-intensive but not very productive jobs such as trading in markets. John Page, also of Brookings, reckons that such jobs are on average only about twice as productive as the ones that many left behind.

The Correlation Between Patience and Economic Development

Thomas Dohmen and co-authors write:

According to standard dynamic choice theories, patience is a key driving factor behind the accumulation of the proximate determinants of economic development. Using a novel representative data set on time preferences from 80,000 individuals in 76 countries, we investigate the empirical relevance of this hypothesis in the context of a development accounting framework. We find a significant reduced-form relationship between patience and development, whether measured in terms of contemporary income, historical development, or medium- and long-run growth rates, with patience explaining a substantial fraction of development differences across countries. Consistent with the idea that patience affects national income through accumulation processes, patience also strongly correlates with human and physical capital accumulation, investments into productivity, and institutional quality. Additional results show that the relationship between patience, human capital, and income extends to analyses across regions within countries, and across individuals within regions. Taken together, our results point to the importance of heterogeneity in time preferences for understanding comparative development.

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The results establish that, within countries, average patience in geographical regions predicts both regional income per capita and average years of education. Analogous results obtain in individual-level analyses, where individual patience predicts both household income and educational attainment within countries and regions. Thus, our subnational results on the interplay between patience, accumulation processes, and income closely mirror those established in cross-country analyses, highlighting that our results are not driven by unobserved country characteristics or survey procedures.

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The paper is very interesting. And definitely worth reading.

Academics are working hard to unlock ways of studying the correlation between culture and economic development. This is one such example. I like that the authors appreciated the reverse causality between patience and institutions. I wish they had done the same with the proximate determinants as well.

Patience does not strike me as something that springs from deep endowments. It is something that can be nurtured, for example, by increasing average years of schooling; or living in an environment that guaranteed physical security and a reasonable degree of predictability (see Blattman on fear).

A Commentary on Research Priorities in Development Economics

Over at the Bank’s Future Development blog, Princeton Economist Jeffrey Hammer writes:

The Chief Minister posed serious questions that have traditionally been the bread and butter of the economics profession. Unfortunately, we are not even trying to answer them any more. The specific question was “Should I put more money into transport? Infrastructure (power, roads, water)? Law and order? Social services? Or what? And where am I going to get the money?” What questions could be more solidly part of the core of economics than these? Unfortunately none of these were even remotely the focus of the “evidence-based” policy making discussed.

Almost all of the cases analyzed were  single, simple policy “tweaks” that were, first of all, isolated from the broader market context in which they occurred and, second, had no conception of opportunity cost – what we would have to give up to pursue these things? We had an answer to “how to improve a public food distribution system” but even with a precise answer (to whether a tweak would work) we had no idea whether the substantial amount of money funding such a system is a good idea. Maybe the Chief Minister would be better off improving education or road networks or police or rural electricity. Some of these alternative policies could have more impact on food consumption than food distribution if we thought about how the world worked. Getting food to market securely (roads, better cold storage, trustworthy police and safe roads – this is Pakistan, which no one seemed to notice) may increase food availability much more than any tunnel-visioned food program Or not – maybe the food distribution system is better. We just don’t know. And none of us “experts” are trying to find out.

When someone says “we should have more “X” because we have evidence that it works”, the response should be “compared to what?” What should we cut in order to promote your particular interest? My hobby horse these days is more sanitation in South Asia. I should have to defend it against (at least) a few alternatives.

What’s your justification for your latest hobby horse?

My take on the gap highlighted by Hammer is that what is good for reviewers is seldom useful to policymakers. The incentive for academics is to publish. And this will always be reflected in the design and implementation of interventions headed by academics. This is not necessarily a bad thing [For obvious reasons we should firewall academic research from the actual process of policymaking. The latter should be the political process that it is, albeit informed by the former]. I think the widespread acceptance of rigorous evidence-based policymaking has been a net benefit for the developing world. What it means though, is that the “public sector” development research community — i.e. the IMF, the World Bank, & host country research institutes — should do more to ensure that funding for hyper-targeted interventions do not detract from broader macro research (like, when and why did the rain start beating Ghana?)

However, in the long run, developing countries will be better served by having more and more of their own/country-based politically relevant macroeconomists.

This is because answering the types of questions posed by Hammer requires one to also take a political stand (on account of a lack of consensus among economists). Economists who can’t do this will invariably resort to “technical” solutions that can be perceived as “apolitical” by both host governments and the sponsoring foreign development agencies. Again not necessarily a bad thing, just a reflection of the politics of knowledge production.

H/T William Easterly.

Is evidence-based institutional analysis a possibility?

Chris Blattman writes:

But Acemoglu is right that institutional and political change are more important and the evidence-based crowd have done very little here. Most of that evidence is about anti-corruption or election monitoring or other things that I doubt change politics very much.

Meanwhile all the good political economy research (like Acemoglu’s) has no clear implication for social and political change in the world. There is a big disconnect. These scholars have mostly ignored this gap either because… I don’t know why. Maybe it’s too treacherous or hard, or they don’t find it interesting enough, or they are cynical about policy change. I don’t know. Someone explain it to me.

Blattman is spot on.

I think that students of institutions and institutional development have not joined the evidence-based crowd for two main reasons:

  • Politics I: Much of the evidence-based research out there eschews politics, instead focusing on the technical aspects of problems. Works that explicitly deal with political scenarios exist, but are rare. Part of the reason this is the case is that agencies that finance impact evaluations and other kinds of evidence-based policy research agendas have incentives to remain as apolitical as they can (you need host country government permission to do research in the first place …..)
  • Politics II: The other reason is that it is almost impossible to engage in politically relevant big-picture-development research while remaining apolitical. You see this in splits among macroeconomists in the United States (Macro questions make it really hard for researchers to shed off their normative priors). In the same vein, the best placed people to carry out evidence-based studies of institutions and how to change them are often professors in universities in the developing world — the problem is they do not do enough research due to a lack of resources and/or the relevant skill sets; and their own governments often neglect them. Regardless of their nationality, the most visible development economists in universities in the North Atlantic often lack the political connections or the bandwidth to engage in host-country politics; and are thus limited in the extent to which they can effectively study the most vexing policy questions out there.

These reasons are not due to anyone’s fault, just how research is currently financed and structured.

A possible way to get around these problems could be MBA-style case studies of reform programs from across the globe that can then be retooled by Comparativist country specialists — incoming Stanford CDDRL director Frank Fukuyama has very exciting ongoing work on this front.

On a tangentially-related point, I think that works that combine technical brilliance and deep local knowledge (think Bates’ lesser-read books on the Zambian Copperbelt) are about to come in vogue again. It used to be that only a few grad school programs (at least in political science) emphasized technical competence out of econ envy to match the economists. This is getting more commonplace, thereby establishing a new baseline (the data revolution is also helping a great deal by increasing the scope of country-specific studies of macro questions). And once a critical mass is achieved then the comparative advantage will favor those who are both technically competent and can also speak intelligently about how policy dovetails with local politics. The title “country-specialist” will soon no longer be synonymous with “qualitative research”; and more students will be primed to value good qualitative research.

Are Power Pools the Answer to Chronic Power Shortages?

Auriol and Biancini have a nice theoretical take on the subject of regional power pools in the World Bank Economic Review:

Power market integration is analyzed in a two-country model with nationally regulated firms and costly public funds. If the generation costs between the two countries are too similar, negative business stealing outweighs efficiency gains so that, subsequent to integration, welfare decreases in both regions. Integration is welfare enhancing when the cost difference between two regions is large enough. The benefits from export profits increase the total welfare in the exporting country, whereas the importing country benefits from a lower price. In this case, market integration also improves incentives to invest compared to autarky. The investment levels remain inefficient, however, especially for transportation facilities. Free riding reduces incentives to invest in these public-good components of the network, whereas business stealing tends to decrease the capacity to finance new investment.


Existing and Planned Power Pools in Africa

There is a lot of excitement in the power sector in Africa these days. Eastern Africa will probably be the most power-rich in the next few years: Ethiopia’s 1870MW Gibe III will likely come online later this year (oh, and there is the ongoing Grand Renaissance Dam project that will produce 6000MW [or 2800MW?]); Kenya has had a massive push for geothermal, solar and wind generation; and Kenya, Uganda, and Tanzania have commercially viable deposits of oil and gas that will also come online within the next six years. The region is also very well integrated, although there is need to upgrade power transmission infrastructure. The Bank has an ongoing project in this regard [that is way behind schedule].

For more on this subject see my commentary on energy sector integration in Africa over at the African Development Bank blog.

Working With the Grain in Development

I finally got to reading Brian Levy’s Working With the Grain. It is easily the most underestimated development book of 2014, and should be read alongside William Easterly’s Tyranny of Experts (which it both complements and pushes back against). Like Easterly, Levy worked at the Bank and has insightful case studies and anecdotes from South Korea, to Ethiopia, to Bangladesh, among other countries. The book’s main thrust is that approaches to interventionist development policy ought to internalize the fact that:

… Successful reforms need to be aligned with a country’s political and institutional realities. For any specific reform, an incentive compatible approach begins by asking, who might be the critical mass of actors who both have standing and a stake in the proposed arrangements – and so are in a position to support and protect them in the face of opposition? [p. 142-3]

From a policy perspective, Levy tackles the relationship between governance, regime types, and development head on. How do you deal with the Biyas, Kagames or Zenawis of this world if you deeply care about [both] the material aspects of human welfare – roads, hospitals, schools, electricity, etc., [and] political freedoms and inclusive institutions?

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Levy’s answer is that development experts should work with the grain, focusing on incrementally solidifying past gains in specific agencies and issue areas, instead of engaging in epic battles against ill-defined and equally poorly understood “bad institutions” and evils like “corruption.” He aptly points out that you do not need the full set of the “good governance” bundle in order to continue chugging along on the path to economic prosperity.

In other words, we don’t have to put everything else on pause until we get the institutions right (or topple the bad guys). It is not an all or nothing game. His argument is persuasive (“good governance” has failed as a prescriptive remedy for underdevelopment), albeit at the cost of casting the immense toll of living under autocratic regimes as somewhat ineluctable on the road to economic prosperity. But at least he dares to challenge conventional approaches to governance reform that have at best failed, and at worst distracted governing elites from initiatives that could have worked to improve human welfare in developing countries.

As I read the book I wondered what Levy might think of the current state of development research. We are lucky to live in an age of increasing appreciation for evidence-based policy development, implementation, and evaluation. However, the resulting aura of “objectivity” in development research often leaves little room for politics, and its inefficiencies and contextual nuances. Sometimes the quest for generalizability makes us get too much into the weeds and forget that what is good for journal reviewers seldom passes the politicians’ (or other influential actors’) incentive compatibility test, rendering our findings useless from their perspective.

It is obvious, but worth reiterating, that the outcomes we can quantify, and therefore study, do not always overlap with the most pressing issues in development or policies that are politically feasible.

Perhaps this is a call for greater investment in public policy schools (not two-day capacity building workshops) in the developing world that will train experts to bridge the gap between academic development research and actual policy formulation and implementation (talking to policymakers makes your realize that this gap is wider than you think). Linking research findings to actual policy may sound easy, but you only need to see a “policy recommendations” section of a report written by those of us in the academy to know that it is not.

Who is the African child on the cover of William Easterly’s new book?

ImageUPDATE: A reader, C. Mwangi, just brought to my attention this quote from William Easterly’s 2009 review of Dambisa Moyo’s Dead Aid.

Moyo is onto something important but, as she says, seldom discussed openly. One of development’s dark secrets is its still-influential origins in the “poor people are children” view, a view with a deeply rooted and very long history. The “development” metaphor was itself is a biological one: poor people “develop” from childhood (poverty) into adulthood (prosperity). Some of the signs of this mindset are subtle but unmistakable. Just think of who was pictured in the last glossy “aid to Africa” brochure you saw? I am willing to bet it was African children. As David Rieff said in his classic book A Bed for the Night, “There are two groups of people who like to be photographed with children: dictators and aid officials.” And of course, you don’t let children manage their own affairs; the adults must do it for them.

The rest of the review, originally meant for publication in the LRB, is available here.


They say don’t judge a book by its cover, but if it wasn’t for Bill Easterly’s reputation for sound thinking on matters to do with Development, I would not have pre-ordered his upcoming book The Tyranny of Experts.

Seriously, as a new year resolution can we all promise never to fall into the temptation to include anonymous African children (invariably looking poor and shabby with flies on their faces or carrying guns, among other things) on the cover of books on poverty and development?

PLEASE? It is no longer good form (and never has been), especially coming from people who ought to know better. Were the boy’s parents or guardians consulted? Do they even know that their kid is on the cover of Easterly’s book?

The book title suggests that Easterly cares about the forgotten rights of the poor, yet the use of the cover image violates an important right of the poor: the right against unfair objectification. There is research out there suggesting that African states face an FDI inflow penalty simply because they are African. Images like these on the cover of books do not help the cause to reverse this reality.

To be fair (as a commenter pointed out to me on twitter) it is the publishers who decide these things to drive sales. But authors still have a right (and in my view, a duty) to ensure that this sort of stuff doesn’t happen.

I feel bad calling out Easterly on this because he is one of the more nuanced and very sane development economists/practitioners out there (and there are certainly far much worse instances of this phenomenon out there); but the habit of using a whole region and its peoples as shorthand for poverty, underdevelopment and dysfunction has to stop. And it starts with each and every one of us.

More on direct cash transfers

As Chris Blattman put it, the Cashonistas are rejoicing. And with very good reason.

There is mounting evidence that giving money directly to poor people does a much better job of improving their welfare than traditional channels of institutional(ized) aid-giving. On a related note, this evidence lends credence to claims by proponents of oil-to-cash programs. Oil to cash enthusiasts advocate for direct payments to citizens of revenues from extractive sectors (and especially oil) so as to avoid what is commonly known as the resource curse (more on oil-to-cash here). I am not one to argue against evidence, so I am intrigued by the success of Give Directly, and look forward to further impact assessments to ascertain the stickiness of the observed welfare gains.

However, I agree with Brett Keller that we shouldn’t allow the present evidence to distract us from thinking about things like schools, hospitals, business-promoting state institutions, etc.

Despite the within-community evidence of positive effects of direct cash transfers, we shouldn’t forget that these communities do not exist in a vacuum but within political economies of various states. For instance, given what we know about ethnicity and attendant barriers against collective action, what would be the effect of giving all the money to the people and then requiring them to comply with tax regimes and other collective action endeavors?

Furthermore, giving poor people money is often based on an implicit premise that the poor ought to become entrepreneurs and lift themselves out of poverty (People respond to incentives, and we know what would happen if say we guaranteed them direct cash transfers in perpetuity. So the scheme only works if poor people can use the money to start businesses). But entrepreneurship is hard. Even for people with trust funds and super-charged business incubation resources. So is it really fair to require that the objectively most risk averse among us lift themselves out of poverty by starting businesses? Isn’t this the role of the middle and upper middle classes who can tolerate the risk? I am not saying that entrepreneurship is limited to particular classes (lots of people from humble backgrounds have created wildly successful businesses the world over). What I am saying is that as a matter of policy we shouldn’t unnecessarily burden the most vulnerable among us.

Also, to borrow from Huntington, we are well advised to keep in mind that even though economic success leads to stabilization, the process of development can be destabilizing. With this in mind, for most development initiatives to succeed, they need political cover (broadly defined as the ability to shape or influence government policy). Interventions to accelerate growth must never lose sight of this fact. Those who make and/or can influence policy matter a great deal.

This might sound very 20th century, but I think that the best anti-poverty measure out there is still mass job creation by BIG business (and agree with Chris Blattman here). It beats all the pro-poverty pro-poor interventions I can think of. So may be instead of raining cash on the poor it might be better to think of smart ways of jumpstarting the growth of SMEs in the developing world into mass employers. This is not a trickle down economics argument. It is an argument for the continued emphasis on macro reforms in the political economy to provide an enabling environment for mass job creation.

We can’t continue to insist that institutions matter but then turn around and do our best to device anti-poverty interventions that skirt the very same institutions that we insist are the fundamental cause of long-run growth.

Direct cash transfers might prove to be a key part of the shortcut to Denmark (and I hope the successes stick). But like with most shortcuts, the potential for disappointment is a little higher than most of us would like to admit.

Pockets of California amid sub-Saharan Africa?

Rant and rave alert. 

As an undergrad at Yale I took several classes in which professors, TAs and fellow students would casually say things that insinuated that all of Africa (read sub-Saharan Africa) was a cross between a hospice, a giant slum and a war zone. Let’s just say that it all made me a little bit uncomfortable, and sometimes forced me to over-compensate in discussions and with papers and homework. I was particularly disappointed in my professors for not knowing any better. It probably also played a big role in my choice to pursue a career as an academic in the social sciences. 

The quote below reminded me of those episodes:

Despite considerable economic growth and increasing self-confidence as a major global player, modern India is a disaster zone in which millions of lives are wrecked by hunger and by pitiable investment in health and education services. Pockets of California amid sub-Saharan Africa, sum up Sen and Drèze.

It’s one thing when an ignoramus who imagines Kenya to be a town in South Africa that does a mean giraffe barbecue says something nasty about an entire region and its people. But it’s quite another when it comes from a college professor or from people that you expect to know better. 

For instance, when we say California, are we talking Palo Alto or East Palo Alto? I must add here that because it is Sen (my beloved author of The Idea of Justice), may be he meant the “median Californian experience” vs the “median African experience” as opposed to simply comparing Palo Alto with Kibera. May be.

I admire Prof. Sen. Very much.  But I would like to register my disappointment over this offending line. The full article in the Guardian is actually quite illuminating regarding inequality in India. 

If you ever teach a class or write a book or newspaper article or give a talk, please know that it is not kosher to use the word Africa as short hand for everything that you imagine to be wrong with this world. Always remember that part of your audience might include real flesh and blood Africans. Spare us the awkwardness. Please.