UDADISI

Common Shocks, Different Outcomes.

2013-06-17T18:00:00.001-07:00

The figure is from a review of Why Nations Fail and Pillars of Prosperity. The review is by McLeod (Journal of Economic Literature, March 2013).

Links (06/16/2013)

2013-06-16T18:45:00.003-07:00

Arkansas personal and economic freedom. (The interesting question is: why?).
Pics from Turkey.
Small donations to support higher education for Haitian students.
Ghost cities in China.
The incredible things migrants are willing to do for a better life. Spanish. English.
Who are the new economic optimists?
Car crashes should be a global health priority. HT @m_clem.

My reading

2013-06-15T12:14:00.001-07:00

I am reading The Odyssey, which is a fascinating tale in itself, but it is also interesting to economists, and institutional economists in particular, for the way in which Ulysses prepares himself and his men to avoid the temptation of following the enchanting songs of the sirens, which would lead them all to a sure dead. Knowing in advance of the danger Ulysses makes his men to tie him up to the mast of the ship, and to fill their ears with wax.

For institutional economics the story is useful because it suggests that to avoid temptations such as those that come with power, like accepting bribes and engaging in corruption, people can design mechanisms in advance to elude falling into those practices. People can tie up themselves to a mast, so to speak. More generally, the same argument can be used to understand constitutions.

What I find interesting, however, is that after successfully avoiding the sirens, another temptation comes and Ulysses and their men were not able to generate the mechanisms to protect themselves. When visiting what seems to be a paradisiac island, even though Ulysses asks his men not to kill and eat the cattle of the Sun, they do. As a revenge the Sun asks the gods to kill them all, and only Ulysses escapes.

Reason trumps seduction in the first case, but hunger trumps reason in the second.

Remittances and Protests in Africa

2013-06-14T16:11:00.001-07:00

This paper investigates whether there is a link between remittance flows and protests in Africa. Studies on protests in the developing world have emphasized domestic factors in the economic and political context, but have overlooked the role remittances may play in affecting an individual’s decision to protest. This paper finds a modest relationship between remittances and protest suggesting that the cost of protesting decreases as one receives private transfers from abroad. The effect of remittances is clearer when taking the political context into account. Under politically open regimes, remittances provide an added resource for individuals to bear the cost of protesting. On the other hand, as polities become more closed individuals receiving remittances may feel discouraged to protest. The mechanisms for the diverging interaction effects between remittances and political openness on protests is a subject for further research.

The source is this paper by Jesse Acevedo.

The graph is also taken from Acevedo's paper. The upward trend might be related to recent democratization in the continent, although more democratization might also be the effect of protests - more technology might have played a role as well.

The Social Costs of Financial Crises

2013-06-14T05:41:00.001-07:00

This paper studies the impact of financial crises on society. Using data on 187 banking crises in 126 countries over the period 1970-2009, I examine the impact of a crisis not only on the economy and the financial sector, but also on health, education, poverty, and gender issues. A wider-angle lens exposes broad-ranging implications for society. For example, in the six years following a crisis, average life expectancy declines by nine months, primary school enrolment drops by 3.5%, and fertility falls by 5.5% (but adolescent fertility rises by 4.5%). I also find a considerable short-run worsening of poverty and income equality, and a lasting 50% increase in outbound refugees and inbound foreign aid. Although output and employment suffer at least as much for developed countries, the social costs of financial crises are much greater for less-developed countries.

That is from a new paper by Van Dijk (June 2013).

Music: Illegal downloading & legal purchases

2013-06-13T18:20:00.001-07:00

The goal of this paper is to analyze the behavior of digital music consumers on the Internet. Using clickstream data on a panel of more than 16,000 European consumers, we estimate the effects of illegal downloading and legal streaming on the legal purchases of digital music. Our results suggest that Internet users do not view illegal downloading as a substitute to legal dig- ital music. Although positive and significant, our estimated elasticities are essentially zero: a 10% increase in clicks on illegal downloading websites leads to a 0.2% increase in clicks on legal purchases websites. Online music streaming services are found to have a somewhat larger (but still small) effect on the purchases of digital sound recordings, suggesting complementarities between these two modes of music consumption. According to our results, a 10% increase in clicks on legal streaming websites lead to up to a 0.7% increase in clicks on legal digital pur- chases websites. We find important cross country difference in these effects.

HT: Catalina Granda Carvajal
Source.

Research links

2013-06-13T11:10:00.001-07:00

Combat Intensity and Religious Behavior

2013-06-12T18:42:00.000-07:00

After the battle, the moral and mortality stresses influence different soldiers in different ways. Using two large-scale surveys of World War II veterans, this research investigates the role of combat and long-term religiosity. Study 1 shows that as combat became more frightening, the percentage of soldiers who reported praying rose from 42% to 72%. Study 2 shows that 50 years later, many soldiers still exhibited religious behavior, but it varied by their war experience. Those facing heavy combat (versus no combat) attended church 21% more often if they claimed their war experience was negative, but those who claimed their experience was positive attended 26% less often. The more a veteran disliked the war, the more religious they were 50 years later. While implications for counselors, clergy, and health practitioners are outlined, saying there are no atheists in foxholes may be less of an argument against atheism than it is against foxholes.

Source.

“Learn, Teach and Share”

2013-06-12T09:31:00.002-07:00

Instead, Cowen said, among other uses, they want to reach students in countries who can’t pay, and also help professors at other institutions flip their classrooms by using the recorded lectures from Marginal Revolution like a textbook. To do that, Cowen said, professors can ask students to view videos before class from MRUniversity. Then, during class, the professors can use class time for things other than broad lectures. If this happens, the Marginal Revolution courses become video textbooks for students.

There is more here.

Leading indicators

2013-06-11T04:17:00.000-07:00

We document that aggregate accounting earnings growth is a significant leading indicator of growth in Gross Domestic Product (GDP) up to four quarters ahead. Professional macro forecasters, however, do not fully incorporate the predictive content embedded in publicly available accounting earnings data. As a result, future GDP growth forecast errors are predictable based on accounting earnings data that are available to professional macro forecasters in real time.

That is from a new paper by Konchitchki & Patatoukas (June 2013). The title is "Accounting Earnings and Gross Domestic Product."

Low importance of patents to UK firms

2013-06-09T15:15:00.000-07:00

This new paper by Hall et al (May 2013) finds that an unexpectedly low percentage of firms patent in the UK, and it offers explanations of why that is the case.

From the conclusions:

Our descriptive analysis shows about one third of UK firms report any form of innovation. Strikingly, we find that only 3% of firms in our sample patent and that even among firms that conduct R&D, only 4% patent. In particular, the share of patenting firms is much lower than what one might expect given that around 20% of firms that invest in R&D report product innovations.

The paper is titled "The Importance (or not) of Patents to UK Firms."

The way in which bad weather affects voting behavior

2013-06-04T12:38:00.000-07:00

[A]fter controlling for policy preferences, partisanship, and other background variables, bad weather depresses individual mood and risk tolerance, i.e., voters are more likely to vote for the candidate who is perceived to be less risky.

That is from a new paper by Anna Bassi (May 2013).

Explaining suicide (OECD)

2013-06-02T10:53:00.000-07:00

The socio-economic determinants of suicide rates might be different across regions of the world. In a recent study by Okada & Samreth published in the JSE (August 2013) the authors find that the divorce rate affects the suicide rate positively and that increases in GDP per capita reduce the suicide rate.

From the conclusions:

Our estimation results provide strong evidence that divorce rates and per capita real GDP have significantly increasing and reducing impacts on suicide, respectively, since their effects are confirmed in nine out of 13 selected countries. For fertility rates, the results show that its increase leads to a decrease in suicide rates in four countries and a rise in suicide rates in one country. As for per capita alcohol consumption, we obtain evidence supporting its significantly increasing effects only in three countries.

A draft is here.

In Italy a higher amount of suicides has been linked to the recent economic recession.

Tax havens and official statistics

2013-06-02T09:51:00.000-07:00

A Gabriel Zucman's paper in the QJE (April 2013) looks into the net foreign-asset positions of the U. S. and euro-zone countries. What is different in the study is that it takes into account assets in tax havens.

The abstract:

This paper shows that official statistics substantially underestimate the net foreign asset positions of rich countries because they fail to capture most of the assets held by households in offshore tax havens. Drawing on a unique Swiss dataset and exploiting systematic anomalies in countries' portfolio investment positions, I find that around 8% of the global financial wealth of households is held in tax havens, three-quarters of which goes unrecorded. On the basis of plausible assumptions, accounting for unrecorded assets turns the eurozone, officially the world's second largest net debtor, into a net creditor. It also reduces the U.S. net debt significantly. The results shed new light on global imbalances and challenge the widespread view that, after a decade of poor-to-rich capital flows, external assets are now in poor countries and debts in rich countries. I provide concrete proposals to improve international statistics.

A draft of the paper is here (February 2013).

Factual believes about politics

2013-06-02T05:05:00.000-07:00

How large are the differences in perception/opinion among members of different political parties, say for example Republicans and Democrats in the US? Bullock et al., find that the difference might be more illusory than real when members face incentives (payments) when answering survey questions. This is the abstract:

Partisanship seems to affect factual beliefs about politics. For example, Republicans are more likely than Democrats to say that the deficit rose during the Clinton administration; Democrats are more likely to say that inflation rose under Reagan. We investigate whether such patterns reflect differing beliefs among partisans or instead reflect a desire to praise one party or criticize another. We develop a model of partisan survey response and report two experiments that are based on the model. The experiments show that small payments for correct and “don't know” responses sharply diminish the gap between Democrats and Republicans in responses to “partisan” factual questions. The results suggest that the apparent differences in factual beliefs between members of different parties may be more illusory than real.

A draft of the paper is here.

At first sight it seems that political ideology might be valued much less by the party members than I would have originally thought.

Conditional cash transfers, unconditional cash transfers, and energy consumption

2013-06-01T11:58:00.001-07:00

. . . [T]he speed at which the poor come out of poverty affects the size of this increase in energy demand, which has important implications for different countries. For example, we show that two countries that are at the same current level of income per capita may have different refrigerator ownership rates, with the country where recent growth was fast having a much higher ownership rate than the country that grew more slowly. Our model also has implications for how poverty alleviation policies such as cash transfer programs affect asset accumulation. Specifically, we show that the rate of the payments should matter for asset acquisition rates. For instance, a program that distributes transfers on a quarterly basis may lead to more refrigerator acquisition than a program that distributes transfers bi‐weekly.

That is from a new paper by Gertler et al. The title is "How Pro-Poor Growth Affects the Demand for Energy" (May 2013).

The paper looks at the effect of energy consumption as a result of a conditional cash-transfer program. It shows that the program increases asset acquisition, some of which might have a long term effect on economic development - refrigerators.

Conditional cash transfers usually require the receivers to do something in exchange for the transfer, for example enrolling the children in the household in primary school. This program, conditional transfers, is in contrast with another one: unconditional cash transfers, which is, as its name suggests, just giving money expecting nothing in exchange.

A new study by Cris Blattman has called a lot of attention to unconditional cash transfers as an effective way to provide aid and promote economic development. This means that probably the best way to help the poor is to give them money, period. From a microeconomic point of view that makes sense because providing cash expands income and allows the receiver to consume a bundle of good of her choice without restrictions. In the area of promoting economic development giving cash, period! could be as revolutionary as microcredit was (at least in terms of its popularity) when it was introduced by Muhammad Yunus in the early 1980s. Micro-lending meant trusting people, poor people! It meant trusting their investment and consumption decisions.

Giving cash might be also cheaper. You just need to give cash without thinking about all the procedures that implementing a "development program" entails. Precisely because of that we should expect some opposition to unconditional cash transfer as development strategy because it implies, at least a priori, that many people in the aid industry would lose their jobs.

Oh! And, going back to the main topic of the paper I cite above: interesting times comes for the energy industry . . .

Counterintuitive results (education in Burkina Faso) [y última semana en Senegal]

2013-06-01T05:07:00.001-07:00

Using data from BRIGHT, an integrated program that aims to improve school participation in rural communities in Burkina Faso, we investigate the impact of school subsidies and increased access to education on child work. Regression discontinuity estimates demonstrate that, while BRIGHT substantially improved school participation, it did not reduce – in fact may have increased – children’s participation in economic activities and household chores. . . If education programmes are implemented to achieve a combination of increased school participation and a reduction in child work they may either have to be combined with different interventions that effectively reduce child work or they may have to be tuned more carefully to the incentives and constraints the child labourer faces.

Source: a new paper by De Hoop and Rosati (May 2013). The tille is "Does Promoting School Attendance Reduce Child Labour? Evidence from Burkina Faso's Bright Project."

[AM: Children involvement on economic activities or household chores is not necessary a bad thing.]

[Esta es nuestra última semana en Senegal. Les dejo una gráfica de buenas noticias para este país - lo que se observa también en otros países de Africa]:

The Dalai Lama Effect on International Trade

2013-05-29T09:54:00.003-07:00

Is political compliance a precondition for healthy trade relations with China? The Chinese government frequently threatens that meetings between its trading partners’ officials and the Dalai Lama will be met with animosity and ultimately harm trade ties. We run a gravity model of exports to China from 159 partner countries between 1991 and 2008 to test the extent to which bilateral tensions affect trade with autocratic China. In particular, we empirically investigate whether countries that receive the Dalai Lama despite China’s opposition experience a significant reduction in their exports to China. In order to account for the potential endogeneity of meetings with the Dalai Lama, the number of Tibet Support Groups and the travel pattern of the Tibetan leader are used as instruments. Our empirical results support the idea that countries officially receiving the Dalai Lama at the highest political level are punished through a reduction of their exports to China. However, this ‘Dalai Lama Effect’ is only observed for the Hu Jintao era and not for earlier periods. Furthermore, we find that this effect is mainly driven by reduced exports of machinery and transport equipment and that it disappears in the second year after a meeting took place.

Source. A draft of the paper is here.

Decentralization and Corruption [y tambores]

2013-05-26T12:02:00.002-07:00

This paper has attempted to identify major drivers of corruption in order to isolate the role of centralized decision-making. In a sample of industrial and non-industrial countries, the lack of service orientation in the public sector, weak democratic institutions, economic isolation (closed economy), colonial past, internal bureaucratic controls and centralized decision- making are identified as the major causes of corruption. For a sample of non-industrial countries, drivers for corruption are lack of service orientation in the public sector, weak democratic institutions and a closed economy. Decentralization has a greater negative impact on corruption in unitary countries than in federal countries. In conclusion, decentralization is confirmed here to support greater accountability in the public sector and reduced corruption.

See the paper here.

One of the handicaps of the paper is the small sample of countries. But still it tells an interesting story and the findings are also interesting. The question is how citizens can make the public servants to be more "service oriented." Some ideas come to mind. Probably the basic one is to give more information to the public saying that public servants are there to serve. Which is obvious but may be it is not for a large amount of people.

[Hora de escuchar tambores aqui en Dakar].

4 research links (05/23/13)

2013-05-23T13:25:00.005-07:00

Culture and trade (Germany)

2013-05-22T10:19:00.001-07:00

In this paper, we examine the effect of dialect similarity on intra-German trade patterns. Applying a standard gravity model of trade, we find that linguistic ties strongly promote trade. Since differences in local dialects do not hinder direct communication, and since all parts of Germany share a common institutional framework, we interpret our findings as evidence for the effect of culture on trade.

Source.
HT: Roberto Zanola.

Credit status and productivity

2013-05-20T11:00:00.002-07:00

Many employers screen new hires by examining the credit reports of job applicants. The practice has sparked debate, with opponents asserting that it amounts to discrimination and proponents maintaining that it is an important tool for employers to assure the quality of new employees. To date, little evidence exists on the validity of credit status as a screening device. The issue is complicated by the potential endogeneity of credit measures to labor market outcomes. This paper develops a typology of employer beliefs and a unique identification strategy to test whether credit status is predictive of employee productivity. The paper finds that the character-related portion of credit status is not a significant predictor of worker productivity.

Source.

Kidney Donations

2013-05-18T09:09:00.000-07:00

This new published paper by Fernandez et al., investigates the relationship between cadaveric kidney donations and living kidney donations. They authors explain:

Transplantation is notable for the degree to which resources are allocated via administrative rather than market mechanisms. However, non-monetary incentives still permeate the system. Using instrumental variable regression, we estimate the substitution patterns between cadaveric and living kidney donations in the United States from 1988 to 2008. On average, a decrease of two to five cadaveric donations causes living kidney donations to increase by one. Disaggregating living donors into blood-related and non-blood-related donors, the strongest effect is found among non-blood-related donors known to the organ recipient. A 1% increase of cadaveric donations decreases living donations from this group by 1.54%.

Instrumental variable

Currently, the organs market is regulated such that trades take place at the price of zero. For a market to exist at this price there needs to be a population of altruistic individuals willing to donate. Therefore, both living and cadaveric donations are positively correlated with altruism. The potential of an econometric bias when estimating the effect cadaveric donations on living donations exists because altruism is unobserved by the econometrician. Failing to control for altruism may lead researchers to conclude that the number of living donors and cadaveric donors are positively correlated. We propose using traffic safety laws as instruments for the supply of cadaveric donors. Many of these laws are initially adopted by states because the federal government tied federal highway maintenance/construction funds to these laws. Therefore, these laws were neither adopted to affect altruism levels in the state, nor to manipulate the supply of cadaveric/living organ donors.

The paper can be downloaded here.

The political economy of fertility

2013-05-17T15:22:00.001-07:00

Unconsciously I have had a preference for papers on fertility and gender, and that is because their conclusions are often counterintuitive and surprising, or simply interesting. Take this paper for example:

The abstract:

This paper studies the political economy of fertility. Specifically, I argue that fertility may be a strategic choice for ethnic groups engaged in redistributive conflict. I first present a simple conflict model where high fertility is optimal for each ethnic group if and only if the economy’s ethnic diversity is high, institutions are weak, or both. I then test the model in a cross-national dataset. Consistent with the theory, I find that economies where the product of ethnic diversity and a measure of institutional weakness is high have increased fertility rates. I conclude that fertility may depend on political factors.

A draft of the paper is here. It is published in Public Choice (June 2013) an it is by Thorsten Janus.

Measuring Crack Cocaine and its Impact

2013-05-17T11:37:00.001-07:00

One problems to study the causes of violence in Latin America is the lack of data on drug activity. For example, we do not know how much of the violence is caused by conflict among drug cartels.

In a new paper Fryer et al (Economic Inquiry, July 2013. A draft - 2006 - is here) argue:

Numerous social indicators turned negative for Blacks in the 1980s and rebounded a decade later. We explore whether crack cocaine explains these patterns. Absent a direct measure, we construct a crack prevalence index using multiple proxies. Our index reproduces spatial and temporal patterns described in ethnographic accounts of the crack epidemic. It explains much of the 1980s rise in Black youth homicide and more moderate increases in adverse birth outcomes. Although our index remains high through the 1990s, crack's deleterious social impact fades. Changes over time in behavior, crack markets, and the user population may have mitigated crack's damaging impacts.

Although, clearly, the paper does not address the effect of violence caused by conflict among drug cartels, methodologically, the idea of the index can be very useful to analyze violence in Latin America.

The index in the paper:

. . . we construct an index based on a range of indirect proxies (cocaine arrests, cocaine-related emergency room visits, cocaine-induced drug deaths, crack mentions in newspapers, and DEA drug busts). . .

The findings

We find that our measure of crack can explain much of the rise in Black youth homicides, as well as more moderate increases in a wide range of adverse birth outcomes for Blacks in the 1980s. . .

Although our crack index remains high through the 1990s, the deleterious social impact of crack fades. One interpretation of this result is that changes over time in behavior, crack markets, and the crack using population mitigated the damaging impacts of crack. Our analysis suggests that the greatest social costs of crack have been associated with the prohibition-related violence, rather than drug use per se.