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Revisiting the causal effect of democracy on long-run development

From a VoxEU post by Markus Eberhardt:

“Recent evidence suggests that a country switching to democracy achieves about 20% higher per capita GDP over subsequent decades. This column demonstrates the sensitivity of these findings to sample selection and presents an implementation which generalises the empirical approach. If we assume that the democracy–growth nexus can differ across countries and may be distorted by common shocks or network effects, the average long-run effect of democracy falls to 10%.

In a recent paper, Acemoglu et al. (2019), henceforth “ANRR”, demonstrated a significant and large causal effect of democracy on long-run growth. By adopting a simple binary indicator for democracy, and accounting for the dynamics of development, these authors found that a shift to democracy leads to a 20% higher level of development in the long run.1

The findings are remarkable in three ways:

  1. Previous research often emphasised that a simple binary measure for democracy was perhaps “too blunt a concept” (Persson and Tabellini 2006) to provide robust empirical evidence.
  2.  Positive effects of democracy on growth were typically only a “short-run boost” (Rodrik and Wacziarg 2005).
  3. The empirical findings are robust across a host of empirical estimators with different assumptions about the data generating process, including one adopting a novel instrumentation strategy (regional waves of democratisation).

ANRR’s findings are important because, as they highlight in a column on Vox, there is “a belief that democracy is bad for economic growth is common in both academic political economy as well as the popular press.” For example, Posner (2010) wrote that “[d]ictatorship will often be optimal for very poor countries”.

The simplicity of ANRR’s empirical setup, the large sample of countries, the long time horizon (1960 to 2010), and the robust positive – and remarkably stable – results across the many empirical methods they employ send a very powerful message against such doubts that democracy does cause growth.

I agree with their conclusion, but with qualifications. My investigation of democracy and growth (Eberhardt 2019) captures two important aspects that were assumed away in ANRR’s analysis:

  • Different countries may experience different relationships between democracy and growth. Existing work (including by ANRR) suggests that there may be thresholds related to democratic legacy, or level of development, or level of human capital, or whether the democratisation process was peaceful or violent. All may lead to differential growth trajectories.2
  • The world is a network. It is subject to common shocks that may affect countries differently. The Global Crisis is one example, as are spillovers across countries (Acemoglu et al. 2015, in the case of financial networks).”

Continue reading here.

From a VoxEU post by Markus Eberhardt:

“Recent evidence suggests that a country switching to democracy achieves about 20% higher per capita GDP over subsequent decades. This column demonstrates the sensitivity of these findings to sample selection and presents an implementation which generalises the empirical approach. If we assume that the democracy–growth nexus can differ across countries and may be distorted by common shocks or network effects, the average long-run effect of democracy falls to 10%.

Read the full article…

Posted by at 7:27 AM

Labels: Inclusive Growth

Shadows and lights of globalization

From Branko Milanovic:

“To think correctly about globalization one needs to think of it in historical context. This means seeing today’s globalization and its effects, positive and negative, as in many ways a mirror-replay  of the first globalization that took place from the mid-19th century to the First World War.

That globalization, underpinned by the Industrial Revolution in Western Europe, transformed the economic map of the world by making Europe much richer and politically and militarily more powerful than any other part of the world. It allowed European countries, and later the United States, to conquer most of Africa and significant parts of Asia, which even when they were not formally ruled by Westerners were subjected to their strong influence in terms of economic policy (opening to trade, control of custom revenues), or even juridical extraterritoriality for European citizens.

Advanced European countries became much richer, so that by 1914 the ratio of per capita income, according to the Maddison project database, between the UK and China was 8 to 1 compared to 3 to 1 one century earlier. (The figure below shows the reverse of this ratio: Chinese, Indian and Indonesian GDP per capita as percent of comparable West European GDPs per capita. It thus highlights the recent rise of Asian countries.) Moreover, the fruits of industrialization and globalization began to be spread across Western countries’ income distributions thus making even the poor people there richer than almost all Africans and most Asians. European dominance allowed it to “export” its surplus population and to blunt the edge of the incipient class  conflict.

This very short sketch of the well-known effects of the first globalization allows us  to remind ourselves of both its positive and negative sides: huge technological progress as against exploitation, increased incomes for many vs. grinding poverty and exclusion for others, European mastery of the world vs. a colonial status of Africa and much of Asia.

In what ways should it inform our thinking about the current globalization? First, in making us realize that broad historical movements cannot bring only benefits to everybody. Some will inevitably lose, others gains; and at times the loss of some is a condition for the gain of others. Second, thinking of the past enables us to see how the current globalization is in many respects a mirror-image of the first—but shorn of its more brutal effects of conquest and exploitation.”

Continue reading here.

From Branko Milanovic:

“To think correctly about globalization one needs to think of it in historical context. This means seeing today’s globalization and its effects, positive and negative, as in many ways a mirror-replay  of the first globalization that took place from the mid-19th century to the First World War.

That globalization, underpinned by the Industrial Revolution in Western Europe, transformed the economic map of the world by making Europe much richer and politically and militarily more powerful than any other part of the world.

Read the full article…

Posted by at 7:25 AM

Labels: Inclusive Growth

Housing View – April 26, 2019

On cross-country:

 

On the US:

  • Home Value Cooling Is More About Changes in Demand Than Supply – Zillow
  • Upcoming event: Zoning, taxing, hoarding: Housing policies for the middle class – Brookings Institute
  • California’s Unfixable Housing Mess Is Years in the Making – Reason
  • How Single-Family Garages Can Ease California’s Housing Crisis – Citylab
  • Who’s Really Buying Property in San Francisco? – The Atlantic
  • Trump-Appointed Official Promises Full Push to Overhaul Plumbing of Mortgage Market – Wall Street Journal
  • Punishing Housing Providers for Racial Imbalances They Didn’t Cause Will Only Lead to More Racial Bias – Cato
  • Garage Conversions Could Ease California Housing Crisis – UCLA
  • Why Dense Housing is Green Housing – Redfin
  • Democrats Court a New Voting Bloc: People Who Don’t Own Homes – New York Times
  • Baby Boomers and the Future of Homeownership in the United States – Berkeley Economic Review
  • Want to Make Millions and Pay No Taxes? Try Real Estate – Bloomberg
  • Young People Can’t Buy Homes Until Older Owners … Move On – Bloomberg

 

On other countries:

On cross-country:

 

On the US:

  • Home Value Cooling Is More About Changes in Demand Than Supply – Zillow
  • Upcoming event: Zoning, taxing, hoarding: Housing policies for the middle class – Brookings Institute
  • California’s Unfixable Housing Mess Is Years in the Making – Reason
  • How Single-Family Garages Can Ease California’s Housing Crisis – Citylab
  • Who’s Really Buying Property in San Francisco?

Read the full article…

Posted by at 5:00 AM

Labels: Global Housing Watch

Forty years of inequality in Europe: Evidence from distributional national accounts

From a new VOX post:

“Despite the growing importance of inequalities in policy debates, it is still difficult to compare inequality levels across European countries and to tell how European growth has been shared across income groups. This column draws on new evidence combining surveys, tax data, and national accounts to document a rise in income inequality in most European countries between 1980 and 2017. It finds that income disparities on the old continent have increased less than in the US and shows that this is essentially due to ‘predistribution’ policies.”

“Figure 1 shows how bringing together surveys, tax data, and national accounts can greatly improve traditional survey-based estimates. In Poland, fiscal (pre-tax) top income shares obtained from Bukowski and Novokmet (2017) reveal a large and growing underrepresentation of top incomes in surveys. After correction, the top 10% pre-tax income share appears to be underestimated by more than 10 percentage points in 2017. By contrast, surveys are more efficient at measuring top incomes in Denmark, but accounting for the large share of undistributed profits accruing to resident households (more than 8% of GDP in recent years) leads to important upward revisions of inequality at the top end.”

From a new VOX post:

“Despite the growing importance of inequalities in policy debates, it is still difficult to compare inequality levels across European countries and to tell how European growth has been shared across income groups. This column draws on new evidence combining surveys, tax data, and national accounts to document a rise in income inequality in most European countries between 1980 and 2017. It finds that income disparities on the old continent have increased less than in the US and shows that this is essentially due to ‘predistribution’ policies.”

Read the full article…

Posted by at 10:44 AM

Labels: Inclusive Growth

18 spectacularly wrong predictions made around the time of first Earth Day in 1970, expect more this year

From a new AEI post by Mark J. Perry:

“Here are 18 examples of the spectacularly wrong predictions made around 1970 when the “green holy day” (aka Earth Day) started:

1. Harvard biologist George Wald estimated that “civilization will end within 15 or 30 years unless immediate action is taken against problems facing mankind.”

2. “We are in an environmental crisis which threatens the survival of this nation, and of the world as a suitable place of human habitation,” wrote Washington University biologist Barry Commoner in the Earth Day issue of the scholarly journal Environment.

3. The day after the first Earth Day, the New York Times editorial page warned, “Man must stop pollution and conserve his resources, not merely to enhance existence but to save the race from intolerable deterioration and possible extinction.”

4. “Population will inevitably and completely outstrip whatever small increases in food supplies we make,” Paul Ehrlich confidently declared in the April 1970 issue of Mademoiselle. “The death rate will increase until at least 100-200 million people per year will be starving to death during the next ten years.”

5. “Most of the people who are going to die in the greatest cataclysm in the history of man have already been born,” wrote Paul Ehrlich in a 1969 essay titled “Eco-Catastrophe! “By…[1975] some experts feel that food shortages will have escalated the present level of world hunger and starvation into famines of unbelievable proportions. Other experts, more optimistic, think the ultimate food-population collision will not occur until the decade of the 1980s.”

6. Ehrlich sketched out his most alarmist scenario for the 1970 Earth Day issue of The Progressive, assuring readers that between 1980 and 1989, some 4 billion people, including 65 million Americans, would perish in the “Great Die-Off.”

7. “It is already too late to avoid mass starvation,” declared Denis Hayes, the chief organizer for Earth Day, in the Spring 1970 issue of The Living Wilderness.

8. Peter Gunter, a North Texas State University professor, wrote in 1970, “Demographers agree almost unanimously on the following grim timetable: by 1975 widespread famines will begin in India; these will spread by 1990 to include all of India, Pakistan, China and the Near East, Africa. By the year 2000, or conceivably sooner, South and Central America will exist under famine conditions….By the year 2000, thirty years from now, the entire world, with the exception of Western Europe, North America, and Australia, will be in famine.”

9. In January 1970, Life reported, “Scientists have solid experimental and theoretical evidence to support…the following predictions: In a decade, urban dwellers will have to wear gas masks to survive air pollution…by 1985 air pollution will have reduced the amount of sunlight reaching earth by one half….”

10. Ecologist Kenneth Watt told Time that, “At the present rate of nitrogen buildup, it’s only a matter of time before light will be filtered out of the atmosphere and none of our land will be usable.”

11. Barry Commoner predicted that decaying organic pollutants would use up all of the oxygen in America’s rivers, causing freshwater fish to suffocate.

12. Paul Ehrlich chimed in, predicting in 1970 that “air pollution…is certainly going to take hundreds of thousands of lives in the next few years alone.” Ehrlich sketched a scenario in which 200,000 Americans would die in 1973 during “smog disasters” in New York and Los Angeles.

13. Paul Ehrlich warned in the May 1970 issue of Audubon that DDT and other chlorinated hydrocarbons “may have substantially reduced the life expectancy of people born since 1945.” Ehrlich warned that Americans born since 1946…now had a life expectancy of only 49 years, and he predicted that if current patterns continued this expectancy would reach 42 years by 1980, when it might level out. (Note: According to the most recent CDC report, life expectancy in the US is 78.8 years).

14. Ecologist Kenneth Watt declared, “By the year 2000, if present trends continue, we will be using up crude oil at such a rate…that there won’t be any more crude oil. You’ll drive up to the pump and say, `Fill ‘er up, buddy,’ and he’ll say, `I am very sorry, there isn’t any.’”

15. Harrison Brown, a scientist at the National Academy of Sciences, published a chart in Scientific American that looked at metal reserves and estimated the humanity would totally run out of copper shortly after 2000. Lead, zinc, tin, gold, and silver would be gone before 1990.

16. Sen. Gaylord Nelson wrote in Look that, “Dr. S. Dillon Ripley, secretary of the Smithsonian Institute, believes that in 25 years, somewhere between 75 and 80 percent of all the species of living animals will be extinct.”

17. In 1975, Paul Ehrlich predicted that “since more than nine-tenths of the original tropical rainforests will be removed in most areas within the next 30 years or so, it is expected that half of the organisms in these areas will vanish with it.”

18. Kenneth Watt warned about a pending Ice Age in a speech. “The world has been chilling sharply for about twenty years,” he declared. “If present trends continue, the world will be about four degrees colder for the global mean temperature in 1990, but eleven degrees colder in the year 2000. This is about twice what it would take to put us into an ice age.””

From a new AEI post by Mark J. Perry:

“Here are 18 examples of the spectacularly wrong predictions made around 1970 when the “green holy day” (aka Earth Day) started:

1. Harvard biologist George Wald estimated that “civilization will end within 15 or 30 years unless immediate action is taken against problems facing mankind.”

2. “We are in an environmental crisis which threatens the survival of this nation,

Read the full article…

Posted by at 10:41 AM

Labels: Forecasting Forum

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