The slides and references associated with a talk I’m scheduled to give about this subject can be downloaded here. Note if you download the slides prior to 5 June, they may change if I tinker with them.
May 25, 2015
May 6, 2014
Does democratic governance deliver economic dividends? Even if it didn’t we might still have cause to think democracy was worth it. After all, it seems fair to let people have a say in shaping the rules that govern their lives, and there is some evidence to suggest that democracy delivers important non-economic benefits. Nevertheless, the question of democracy’s impact on economic growth is an important one; at least up to a point wealth is an important component of welfare. And until recently the most influential studies in economics suggested that democratic governance has not been growth enhancing. In particular, sophisticated econometric work by conservative economist Robert Barro showed, or appeared to show, democracy having a small average negative effect on growth, everything else being equal. Barro’s work wasn’t the final word on the matter. Empirical work by political scientist John Gerring and co-authors found that in the long run democracy was probably growth enhancing, and at least one, more recent, econometric study suggests democratisation improves subsequent economic performance. Yet, for the most part, empirical work post-Barro has failed to find a positive causal relationship between democracy and growth. And this, coupled with the recent spectacular economic performance of China, has been enough to suggest to many observers that, however nice it may be, democracy is no better, and maybe even worse, than autocracy in generating growth.
All this might be about to change though…click here to read the rest of this post on Devpolicy.
March 30, 2014
That seems to be the conclusion of this new study in the Lancet. Or to put it another way – this is evidence to suggest that improving the welfare of the least well off in society requires direct action. Although – worth noting they do find a significant negative correlation between level of wealth and level of welfare. It’s just not there in data on changes.
March 25, 2014
While there is a lot to be said for democracy, generally the consensus is that there has, to date, been little robust evidence to prove it generates – on average – higher levels of economic development. Given the names attached to this new NBER working paper this situation may be about to change…
Democracy Does Cause Growth
Daron Acemoglu, Suresh Naidu, Pascual Restrepo, James A. Robinson
NBER Working Paper No. 20004
Issued in March 2014
NBER Program(s): DEV EFG POL
We provide evidence that democracy has a significant and robust positive effect on GDP. Our empirical strategy relies on a dichotomous measure of democracy coded from several sources to reduce measurement error and controls for country fixed effects and the rich dynamics of GDP, which otherwise confound the effect of democracy on economic growth. Our baseline results use a linear model for GDP dynamics estimated using either a standard within estimator or various different Generalized Method of Moments estimators, and show that democratizations increase GDP per capita by about 20% in the long run. These results are confirmed when we use a semiparametric propensity score matching estimator to control for GDP dynamics. We also obtain similar results using regional waves of democratizations and reversals to instrument for country democracy. Our results suggest that democracy increases future GDP by encouraging investment, increasing schooling, inducing economic reforms, improving public good provision, and reducing social unrest. We find little support for the view that democracy is a constraint on economic growth for less developed economies.
February 25, 2014
Over two weeks in 1996 I travelled between extremes of the public transport spectrum. At one end were the buses of Sumbawa in Indonesia – grumpy, diesel-spitting creatures that lurched their way around potholes taking hours to get anywhere. At the other end was the London Underground. Trains were frequent, quick and – despite everyone’s complaints – mostly on time.
Compared to the bus riders of Sumbawa, all but the poorest travellers on the London Underground were also wildly wealthy. And yet they appeared miserable. Commuting in silence. Pale, staring at their shoes. The Sumbawan bus travellers, on the other hand, were full of cheer. The buses rang with talk and laughter.
For a time this contrast led me to question the merits of development. If London was wealthy but glum and Sumbawa poor but happy then — I thought — perhaps we should abandon development and live like Sumbawanese? Such thinking was common currency on the backpackers’ trail. And something similar is also, I discovered when I did a Development Studies degree in 2003, common currency amongst an influential group of intellectuals, the so-called ‘post-development’ thinkers. The first book I was assigned to read for class was The Development Dictionary a post-development tract edited by German academic Wolfgang Sachs, in which a range of well-credentialed researchers excoriated the development enterprise, taking the doubts of backpackers and fortifying them with critical theory…read the rest of this post on Devpolicy.
August 28, 2013
A handy link on the Shleifer affair, surely the darkest hour (not without competition of course) in the annals of ‘development economists not exactly practising what they preach.’
July 20, 2013
Setting aside the suffering, and the potential impact on a depressed global economy, the interesting development related question is how will China’s political and social institutions fare through the political stresses caused by a slow down?
Indeed, Rodrik et al’s growth accelerations paper suggested (to me at least) that growth spurts can happen in poorly governed countries but sustained development, which means dealing with the wobbles on the road, is much harder to maintain. What’s more, Rodrik provided pretty convincing evidence in One Economics that democracies weather economic shocks considerably better than autocracies, which doesn’t bode well for slow down in China.
An optimist might hope (I certainly do) that the Chinese government responds to the pressures generated by economic downturn through democratic opening and redistributive transfers to the poor.
But a pessimist will remind you that there are many, many other potential outcomes.
May 17, 2013
Noah Smith recently offered an interesting take on the real reasons austerity garners so much support from elites, no matter hw badly it fails in practice. Elites, he argues, see economic distress as an opportunity to push through “reforms” — which basically means changes they want, which may or may not actually serve the interest of promoting economic growth — and oppose any policies that might mitigate crisis without the need for these changes…
I always thought the bad-faith of those pushing for austerity was evidenced by one simple fact: they, almost to a person, suggest budgets be balanced through cuts, or increases in sales taxes when the obvious, least painful, way of balancing the books would be to raise income taxes, particularly at the top. That this never seems to be a significant part of the austerity package suggests to me it’s never really been about balanced budgets. Cutting social spending, which will increase the odds of lower taxes in the future, is the order of the day. Naked self interest posing as policy. Charming.
Meanwhile, in the Guardian, discussion of evidence from the book ‘The Body Economic: Why Austerity Kills’:
In a powerful new book, The Body Economic, Stuckler and his colleague Sanjay Basu, an assistant professor of medicine and epidemiologist at Stanford University, show that austerity is now having a “devastating effect” on public health in Europe and North America.
The mass of data they have mined reveals that more than 10,000 additional suicides and up to a million extra cases of depression have been recorded across the two continents since governments started introducing austerity programmes in the aftermath of the crisis.
In the United States, more than five million Americans have lost access to healthcare since the recession began, essentially because when they lost their jobs, they also lost their health insurance. And in the UK, the authors say, 10,000 families have been pushed into homelessness following housing benefit cuts.
…The consequences [in Greece] have been dramatic. Cuts in HIV-prevention budgets have coincided with a 200% increase in the virus in Greece, driven by a sharp rise in intravenous drug use against the background of a youth unemployment rate now running at more than 50% and a spike in homelessness of around a quarter. The World Health Organisation, Stuckler says, recommends a supply of 200 clean needles a year for each intravenous drug user; groups that work with users in Athens estimate the current number available is about three.
In terms of “economic” suicides, “Greece has gone from one extreme to the other. It used to have one of Europe’s lowest suicide rates; it has seen a more than 60% rise.”
June 3, 2012
Assuming Michael Meacher has the numbers right this is mind blowing. Really.
March 28, 2012
Two things to do with petrol.
1. Kevin Watkins has a great post up at the Guardian on a major, neglected development/health issue: the damage done by traffic.
2. Over at CGD, in a post posing some questions to the three World Bank presidency contenders, Nancy Birdsall enthuses thus about Ngozi Okonjo-Iweala:
She has practiced good economics in the hard soil of tough politics in Nigeria, fighting high-level corruption at personal risk, recently working to eliminate gasoline subsidies that benefit the car-owning rich while sapping the public budget of resources to serve the poor.
I live and work on the other side of the world so maybe I’m mistaken but, aren’t these the same subsidies whose elimination sparked wide scale rioting and protest across Nigeria?
If so, then the first question I would want to ask for this Ms Okonjo-Iweala would be something like:
Are you committed to economic purism? Or are you willing to accept the political economy and institutional constraints mean that almost all developing countries (not to mention much of the developed world) are examples of ‘second-best’ policy spaces, where sometimes interventions that offend the intuitions of economists are often nevertheless the best we can do?
This would be my burning question because, contra Birdsall, it wasn’t just the rich protesting the end of the subsidies – the poor were up in arms to. This was the case because the subsidy withdrawal impacted on everyone, not just car drivers. Everywhere on Earth we pay the price of transport in our lives, be it through bus fares, or transported goods. Transport costs affect everyone. The poor may not own cars but they are often the least able to afford the price hikes they experience nonetheless.
Which isn’t to say that the subsidy is ideal. There are probably many other interventions through which the same amount of money could better enhance the welfare of the poor (better funding for health clinics; a simply UCT etc.)
However, are any of these alternatives actually on the table in Nigeria? And, even if they are, is the government capable of introducing them, and running them in a way that doesn’t leak like a rusty old petrol can?
I could be wrong of course, it’s not a part of the world I’m familiar with. Maybe the brave Finance Minister talked down the protesters, implemented an excellent cash transfer scheme, and the poor are now much better off. This might have happened but I would be surprised if it has.
I think there’s a lot to be said for the insights that come from analysis inspired by simple economic theory. But it has its limits. And the last time economic purism ran riot in the Bretton Woods institutions it was disastrous for the poor. And I’m not really sure I want a leader of the World Bank who is economically tidy, but also prone to causing the odd riot.
Pragmatism over purity.
That would be a good motto for the World Bank, I think.
May 2, 2011
The Impact of Pollution on Worker Productivity
Joshua S. Graff Zivin, Matthew J. Neidell
NBER Working Paper No. 17004
Issued in April 2011
NBER Program(s): EEE HE LS PR
Environmental protection is typically cast as a tax on the labor market and the economy in general. Since a large body of evidence links pollution with poor health, and health is an important part of human capital, efforts to reduce pollution could plausibly be viewed as an investment in human capital and thus a tool for promoting economic growth. While a handful of studies have documented the impacts of pollution on labor supply, this paper is the first to rigorously assess the less visible but likely more pervasive impacts on worker productivity. In particular, we exploit a novel panel dataset of daily farm worker output as recorded under piece rate contracts merged with data on environmental conditions to relate the plausibly exogenous daily variations in ozone with worker productivity. We find robust evidence that ozone levels well below federal air quality standards have a significant impact on productivity: a 10 ppb decrease in ozone concentrations increases worker productivity by 4.2 percent. gated
April 4, 2011
Meanwhile at Aid Thoughts Matt has a go at whapping the Guardian:
OK – here we go again. Deborah Doane writes on the Guardian Poverty Matters blog about how we should uniformly reject all neoliberal policies. One of her examples?
“In fact, four of the five fastest growing developing countries in the late 1990s were those that rejected neoliberalism. After a severe famine in 2005, Malawi rejected IMF and World Bank prescriptions and subsidised fertiliser for poor farmers. As a result, during the 2007/08 food price crisis, Malawi was not only able to feed its population, but became a bread basket to the region.”
A seemingly simple story about a developing countries throwing off the shackles of structural adjustment in order to do the right thing? Maybe not – Ms. Doah has failed to do her homework on Malawi’s recent history with the IMF.
Let’s rewind a bit to the beginning of multi-party democracy in Malawi, which also introduce a surge in inflation…
Inflation is sometimes seen as a bit of a boogeyman, but there is very little that is pro-poor about a 40% annual inflation rate. It was only through the hard work of the Malawian government and the IMF (under the PRGF) that inflation was brought under manageable level, as was government spending…What’s the lesson here? Sometimes `neoliberal’ policies are beneficial and sometimes they aren’t. Blanket policies are not very useful in the post-crisis world, but neither are blanket condemnations.
I agree with Matt that there’s not much sense in critiquing neo-liberalism or the Washington Consensus in it’s entirety (it’s something I’ve mistakenly done in the past). What really needs to be done is to examine the constituent parts of neo-liberal orthodoxy and see which of them might be right and which might be wrong. After all, the economic order that neo-liberalism replaced wasn’t an unqualified success, so it’s reasonably likely that at least some neo-liberal prescriptions may actually have improved economic policy making in some ways.
The trouble with Matt’s analysis though, is that the success story he’s telling us with regards to Malawi, and inflation and government spending, doesn’t actually look that neo-liberal.
Most economists, of any ilk, would regard unsustainable deficits and an inflation rate of over 40% as a bad thing. What sets neo-liberals apart is that they think inflation needs to be kept extremely low — somewhere close to price stability. You can still see this in the inflation targets of central banks in countries such as New Zealand (approx 3% IIRC). This may or may not be a good idea but it’s not really relevant to the Malawi tale Matt tells us above. Why? Because, the graph shows (or at least appears to show) that current inflation levels in Malawi are close to 10%.
In other words Malawi’s recent economic success doesn’t actually appear to have anything to do with a neo-Liberal approach to inflation. I think the IMF deserves credit (at least based on the facts Matt has provided) for helping Malawi to an approach to public debt and inflation that makes simple economic sense (and would do so to almost any economist — including those not at all neo-liberal). And I think there’s possibly an interesting story to be told about how the IMF itself isn’t actually that neo-liberal itself these days. But what I really can’t see in Matt’s post is any evidence of a neo-liberal economic success in Malawi.
I’d call this one a win on points to the Guardian.