Education and Human Capital Externalities (in Benin)

Wantchekon, Klasnja and Novta have a really cool paper (forthcoming in QJE) investigating the relationship between human capital and development:

Using a unique dataset on students from the first regional schools in colonial Benin, we investigate the effect of education on living standards, occupation and political participation. Since both school locations and student cohorts were selected with very little information, treatment and control groups are balanced on observables. We can therefore estimate the effect of education by comparing the treated to the untreated living in the same village, as well as those living in villages where no schools were set up. We find a significant positive treatment effect of education for the first generation of students, as well as their descendants: they have higher living standards, are less likely to be farmers, and are more likely to be politically active. We find large village-level externalities – descendants of the uneducated in villages with schools do better than those in control villages. We also find extended family externalities – nephews and nieces directly benefit from their uncle’s education – and we show that this represents a “family-tax,” as educated uncles transfer resources to the extended family.

The amazing finding is that having just one educated person in an extended family makes a significant difference, not only for the educated person’s offspring, but also for their nieces and nephews:

These descendants have better education at all levels than descendants (either children on nieces and nephews) in families where no progenitor was educated. These effects are statistically significant and substantial  – such descendants are 20% more likely to have primary school education, 19% more likely to have secondary school education and 11% more likely to go to university..

The main takeaway of the paper is that investment in human capital has a positive effect on long-term development that is independent of (colonial) institutions.

Persistence of Culture (and Institutions)

“How persistent are cultural traits? Using data on anti-Semitism in Germany, we find local continuity over 600 years. Jews were often blamed when the Black Death killed at least a third of Europe’s population during 1348–50. We use plague-era pogroms as an indicator for medieval anti-Semitism. They reliably predict violence against Jews in the 1920s, votes for the Nazi Party, deportations after 1933, attacks on synagogues, and letters to Der Sturmer. We also identify areas where persistence was lower: cities withhigh levels of trade or immigration. Finally, we show that our results are not driven by political extremism or by different attitudes toward violence.”

That is Voigtlander and Voth writing in the Quarterly Journal of Economics.

Their paper speaks to my previous post on the challenges of institutional engineering given the stickiness of institutions (and by extension the cultures that create and then reinforce them). Of course culture is a dicey subject that is often misused to explain economic and social outcomes. Instead of using the amorphous term “culture” I prefer to hear more about the reward systems that make it beneficial for individuals and communities to engage in certain cultural practices.

On a more positive note, the paper provides some evidence of the power of economic opportunities to dis-incentivize engagement in hateful cultural practices:

“Instead of reinforcing persistence, we argue that economic factors had the potential to undermine it…… Our results also lend qualified support to Montesquieu’s famous dictum that trade encourages ‘‘civility.’’

The illusion of modern-day meritocracy

That is, most observers—novelists, economists, and laypersons alike—tend to assume that labor income now plays a much bigger role than inherited wealth in shaping people’s lives, and that human capital and hard work have become the key to personal material well-being. Although this is rarely formulated explicitly, the implicit assumption seems to be that the structure of modern economic growth has led to the rise of human capital, the decline of inheritance, and the triumph of meritocracy.

This article asks a simple question: is this optimistic view of economic development justified empirically and well grounded theoretically? The simple answer is “no.” Our empirical and the- oretical findings suggest that inherited wealth will most likely play as big a role in twenty-first-century capitalism as it did in nineteenth-century capitalism—at least from an aggregate view- point.

That is Piketty in an interesting paper on the long-run evolution of inheritance in France – in the current issue of the QJE (this is gated but ungated versions are available online ).