Transcript Slide 1

A presentation for Development Workshop by
Michał Oleksowicz & Elisabeth Niendorf
"Sustained growth and the role of
institutions" presented by Michal &
Elisabeth
20.07.2015
1/22
I. „Growth Accelerations“ – Hausmann, Pritchett & Rodrik, 2005
I.I Main research question & key findings
I.II Value added & Innovativeness
I.III Pro‘s & Con‘s Methodology
I.IV Contribution to literature on growth theory & additional literature
I.V Conclusions
II. „Do Institutions cause Growth?“ – Glaeser, La Porta, Lopez-deSilanes, Schleifer (GPLS), 2004
II.I Main Message
II.II Critique of Institutional View
II.III Measures of Political Institutions
IV. Instrumental Variables
V. OLS Regression
II.VI From schooling to institutions
III. Discussion
"Sustained growth and the role of
institutions" presented by Michal &
Elisabeth
20.07.2015
2/22
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Main Data Set: Penn World Tables (PWT) 6.1
Sample of 110 countries, between 1957 and 1992
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The identification of periods of sustained growth
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Fix criteria that classify a shift in growth performance as a growth
acceleration
n=7
"Sustained growth and the role of
institutions" presented by Michal &
Elisabeth
20.07.2015
3/22
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Conditions:
 This filter yields 83 such episodes!
"Sustained growth and the role of
institutions" presented by Michal &
Elisabeth
20.07.2015
4/22
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Can we identify the determinants of growth accelerations?
 Correlated with:
 increases in trade and investment
 real exchange depreciations
 However, no causality!
"Sustained growth and the role of
institutions" presented by Michal &
Elisabeth
20.07.2015
5/22
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Are they predictable?
Standard determinants of economic growth, such as ...
 Favourable external circumstances -> expressed by Terms of Trade
 Political Changes -> expressed as transition towards democracy
(+Change) or towards greater authoritarianism (-Change)
 Economic reform -> captured by transition towards „openess“ according
to Sachs-Warner-Wacziarg-Welch (SWWW) Index (2003)
... do not have much explanatory power as predictors of growth
accelerations!
"Sustained growth and the role of
institutions" presented by Michal &
Elisabeth
20.07.2015
6/22
85 % not perceded or accompanied by lib.
1 in 5 episodes of ec. lib. followed by growth take-off
„Not even happy families are alike“ (Tolstoy)
"Sustained growth and the role of
institutions" presented by Michal &
Elisabeth
20.07.2015
7/22
Results from Probit Analysis:
"Sustained growth and the role of
institutions" presented by Michal &
Elisabeth
20.07.2015
8/22
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They ask the same question: Why do some countries grow
faster than others?
But introduce the notion of sustained growth!
Preceding & simulataneous works: e.g. Pritchett (2000), Jones
& Olken (2005)
fixes stylized facts about the classification of
growth accelerations
"Sustained growth and the role of
institutions" presented by Michal &
Elisabeth
20.07.2015
9/22
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Classification criteria
 Carefully derived by observing the data, robustness check World
Development Indicators
 Arbitrary
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Explanatory power of indices
◦ e.g. Critique on „Openess-Index” by Sachs & Warner (1995) by Rodriguez
& Rodrik (1999)
◦ even the corrected Sachs-Warner-Wacziarg-Welch (SWWW) Index (2003)
heavily relies on black-market premium and export-marketing board
◦ Trade-unrelated information is introduced that risks biases of the
openess-trade relation
"Sustained growth and the role of
institutions" presented by Michal &
Elisabeth
20.07.2015
10/22
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Pave the way for a more long-term oriented thinking about growth that
is sustained
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Set of assumptions debatable
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Hausmann, Rodrik & Velasco (2004): “Growth diagnostics”
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Berg, Ostry & Zettelmeyer (2008): “What makes growth sustained?”
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Jones & Olken (2005): different statistical method - use first differences
rather than log-linear trends
"Sustained growth and the role of
institutions" presented by Michal &
Elisabeth
20.07.2015
11/22
Institutional View
Development View
Democracy
Human & Physical
Capital
Property rights
Human & Physical
Capital
Economic Growth
Education & Wealth
Democracy &
Institutional
Improvements
"Sustained growth and the role of
institutions" presented by Michal &
Elisabeth
20.07.2015
12/22
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South Korea ( Vogel (1991))
◦ 1961-1979 Park Chung Hee
◦ 1987 Seoul National University student tortured to
death; Direct elections of the president.
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Taiwan (Kohli (2004))
◦ 1986 Democratic Progressive Party was formed
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China?
"Sustained growth and the role of
institutions" presented by Michal &
Elisabeth
20.07.2015
13/22
Glaeser, La Porta, Lopez-de-Silanes,
Schleifer (GPLS), 2004
"Sustained growth and the role of
institutions" presented by Michal &
Elisabeth
20.07.2015
14/22
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Primacy of human capital
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Flaws in institutional measures
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Democratization and constraints on
government do not need to come first
"Sustained growth and the role of
institutions" presented by Michal &
Elisabeth
20.07.2015
15/22
1.
Flaws in measures of political institutions
2.
Wrong Instrumental Variables
3.
OLS evidence
"Sustained growth and the role of
institutions" presented by Michal &
Elisabeth
20.07.2015
16/22
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Indicators of institutional quality
(law and order, bureaucratic quality, corruption, risk of
expropriation)
- subjective assessment of risk
- reflect what happened
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Government effectiveness
-highly correlated with economic development
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Polity IV data to measure the limits of
executive power
- reflect what happened in last elections
"Sustained growth and the role of
institutions" presented by Michal &
Elisabeth
20.07.2015
17/22
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Problem: growth may itself lead to better
institutions
Solution: Instrumental variables
Critique: widely used instruments are not
valid
"Sustained growth and the role of
institutions" presented by Michal &
Elisabeth
20.07.2015
18/22
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Dependent variable: growth of per capita income
between 1960 and 2000
Independent variables:
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Initial income per capita
Initial education
Share of a country’s population in temperate zones
Executive constraints
Expropriation risk
Autocracy
Government effectiveness
Judicial independence
Constitutional review
Plurality
Proportional representation
Result: Level of education is a strong predictor of
economic growth. No support for the claim that
institutions cause growth.
"Sustained growth and the role of
institutions" presented by Michal &
Elisabeth
20.07.2015
19/22
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If institutions come first, then lagged values of
political variables should predict improvements
in education
If education is the critical input, then lagged
values of education should predict improvement
in institutional outcomes
Result: schooling is a predictor of improving
institutional outcomes. High human capital leads
to institutional improvement (political externality
of human capital: courts and legislatures replace
guns).
"Sustained growth and the role of
institutions" presented by Michal &
Elisabeth
20.07.2015
20/22
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Growth Accelerations appear to be a frequent phenomena...
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... But we don‘t know anything yet about welfare, redistribution, inequality
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„Usual suspects“ of cross-country analysis little explanatory power for growth
accelerations
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What matters for getting growth seems to be different from what keeps growth going
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Growth accelerations seem to be driven by idiosyncratic causes
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Human capital is a better determinant for growth than institutions
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Democratization and constraints on government do not need to come first
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Focus on country-by-country microlevel analysis
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Conesequence of this puzzle: no policy implications yet!
"Sustained growth and the role of
institutions" presented by Michal &
Elisabeth
20.07.2015
21/22
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„ We have aimed to demonstrate democracy
superficially with „free and fair” elections, „vibrant”
civil society and a „representative” Parliament. Yet
they are far from free, fair, vibrant or representative.
In other words, we have focused our efforts on the
visible outcomes of democracy at the expense of the
quality of the processes that produce them.
Democracy is about people and their interactions. […]
We must strive to promote social and economic
equality in a land rife with corruption, where money is
power and the majority is poor, where ethnicity, tribe
and gender determine one’s lot. We must work at
local levels with ordinary people to do this. The
democratic ideal will never be achieved solely
through national-level initiatives.”
"Sustained growth and the role of
institutions" presented by Michal &
Elisabeth
20.07.2015
22/22
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Adlparvar N., 2009. Democracy for Afghanistan?. Arab News
Berg A., LeiteC., Ostry J., Zettelmeyer J., 2008. What makes
growth sustained?.
Glaeser E., Porta R., Lopez-de-Silanes F., Schleifer A. 2004.Do
Institutions Cause Growth?.
Hausmann R., Rodrik D., Velasco A., 2004. Growth Diagnostics.
Hausmann R., Pritchett L., Rodrik D., 2005. Growth
Accelerations.
Jones, B., Olken B., 2005. The Anatomy of Start-Stop Growth.
Kohli, Atul. 2004. State- directed Development: Political Power
and Industrialization in the global Periphery.
Prichett L., 2000. Understanding Patterns of Economic Growth:
Searching for Hills among Plateaus, Mountains, and Plains.
Rodriguez F., Rodrik, D., 1999. Trade Policy and economic
Growth: A Sketic‘s Guide to Cross-National Evidence.
Vogel, Ezra. 1991. The Four Little Dragons: The Spread of
Industrialization in East Asia.
"Sustained growth and the role of
institutions" presented by Michal &
Elisabeth
20.07.2015
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a. Linear regression line
b. Spline regression line
Spline regression is a regression which estimates
different linear slopes for different ranges of the
independent variables.
"Sustained growth and the role of
institutions" presented by Michal &
Elisabeth
20.07.2015
24
Sustained
Indonesia 1967; India 1982;
China 1978; Botswana 1969;
Mauritius 1971;
Korea 1962 & 1984
Unsustained
Nigeria 1967; Trinid.&Tob.
1975; Algeria 1975;
Colombia 1967; Brazil
1966; Pakistan 1979
"Sustained growth and the role of
institutions" presented by Michal &
Elisabeth
20.07.2015
25