Estimating Returns to Schooling and Experience: A History of Thought

November 2023

Barry Chiswick (George Washington University)

IIEP working paper 2023-12

Abstract: This paper is a review of the literature in economics up to the early 1980s on the issue of estimating the earnings return to schooling and labor market experience. It begins with a presentation of Adam Smith’s (1776) analysis of wage determination, with the second of his five points on compensating wage differentials being “the easiness or cheapness, or the difficulty and expense” of acquiring skills. It then proceeds to the analysis by Walsh (1935) estimating the net present value of investments at various levels of educational attainment. Friedman and Kuznets (1945) also used the net present value method to study the earnings in five independent professional practices. Based on the net present value technique, Becker (1964) estimates internal rates of return from high school and college/university schooling, primarily for native-born white men, but also for other demographic groups.
The first regression-based approach is the development of the schooling-earnings function by Becker and Chiswick (1966), which relates the logarithm of earnings, as a linear function of years invested in human capital, with the application to years of schooling. This was expanded by Mincer (1974) to the “human capital earnings function” (HCEF), which added years of post-school labor market experience. Attractive features of the HCEF are discussed. Extensions of the HCEF in the 1970s and early 1980s account for interrupted labor marker experience, geographic mobility, and self-employment and unpaid family workers.

JEL Codes: I24, I26, J3, J46, J61, O15, B290

Key Words: Human Capital, Schooling Earnings Function, Human Capital Earnings Function, Schooling, Labor Market Experience, Women, Immigrants, Less Developed Countries, Self-Employed, Unpaid Workers

Illuminating Africa?

November 2023

Tanner Regan (George Washington University)
Giorgio Chiovelli (Universidad de Montevideo)
Stelios Michalopoulos (Brown University, CEPR and NBER)
Elias Papaioannou (London Business School, CEPR)

IIEP working paper 2023-11

Abstract: Satellite images of nighttime lights are commonly used to proxy local economic conditions. Despite their popularity, there are concerns about how accurately they capture local development in low-income settings and different scales. We compile a yearly series of comparable nighttime lights for Africa from 1992 to 2020, considering key factors that affect accuracy and comparability over time: sensor quality, top coding, blooming, and, importantly, variations in satellite systems (DMPS and VIIRS) using an ensemble, machine learning, approach. The harmonized luminosity series outperforms the unadjusted series as a stronger predictor of local development, particularly over time and at higher spatial resolutions.

JEL Codes: O1, R1, E01, I32

Keywords: Night Lights, Economic Development, Measurement, Africa

International Spillovers of Quality Regulations

June 2023

Ariel Weinberger (George Washington University)
Luca Macedoni (Aarhus University)

IIEP working paper 2023-10

Abstract: This paper investigates the positive international spillover effects of non-discriminatory product regulations, such as quality standards. We incorporate regulations into a multi-country general equilibrium framework with firm heterogeneity and variable markups. We model regulations as a fixed cost that any firm selling to an economy must pay, consistent with stylized facts that we present. We demonstrate that in the presence of variable markups, the fixed cost generates a positive spillover on the rest of the world as it induces entry of high-quality firms, and it improves the terms of trade of the non-imposing countries. We argue that the benefits of such regulations are not fully realized under non-cooperative policy settings, leading to a call for international cooperation in setting regulations. We estimate our model and apply its gravity formulation to quantify the global welfare consequences of altering regulatory policies, the extent of the positive externalities across countries, the effects of cooperation, and the comparison with further tariff liberalization. Our analysis reveals that the entry of new high-quality firms, rather than changes in terms of trade, is the main quantitative driver of international spillovers.

JEL Codes: F12, F13, L11

Keywords: Allocative Efficiency, International Spillover, Quality Standards, Variable Markups, Trade Policy

Outward and Upward Construction: A 3D Analysis of the Global Building Stock

October 2023

Remi Jedwab (GWU & NYU)
Thomas Esch (DLR-DFD)
Klaus Deininger (World Bank)
Daniela Palacios-Lopez (DLR-DFD)

IIEP working paper 2023-09

Abstract: The developing world has built structures on an unprecedented scale to accommodate population growth, demographic change, and urbanisation. The horizontal and vertical structuring of the building stock resulting from this “megatrend construction” strongly influences urban and rural poverty, sustainability, resilience, and quality of life. However, due to data constraints, little is known about how and why 3D building patterns vary globally, and in the developing world in particular. This study uncovers novel facts on global 3D building patterns as a result of outward and upward preferences in construction and investigates their relation to the development process. To this end, novel ground-breaking high-resolution data on the area, height, and volume of the global building stock is combined with a unique series of analyses undertaken at different spatial domains. The results show that building stocks per capita increase convexly with income, but that income only explains two-thirds of international volume differences. Additionally, while building upwards systematically drives international volume differences, low-rise buildings, not high-rise buildings, still dominate construction patterns. Also, megatrend construction is not just a phenomenon of megacities, as small settlements account for the largest share of global building volume. Finally, the presented analyses on construction preferences help assess construction needs by providing crowding measures and forecasting volume requirements in major developing economies.

Keywords: World in 3D; Construction; Urbanization; Vertical and Horizontal Expansion; Development Process; Global Socio-Economic Development; Housing; Poverty; Sustainability

Missing Persons: The case of public participation in AI strategies

August 2023

Susan Aaronson (George Washington University)
Adam Zable (Digital Trade and Data Governance Hub)

IIEP working paper 2023-08

Abstract: Governance requires trust. If policy makers inform, consult and involve citizens in decisions, policy makers are likely to build trust in their efforts. Public participation is particularly important as policy makers seek to govern data-driven technologies such as artificial intelligence (AI). Although many users rely on AI systems, they do not understand how these systems use their data to make predictions and recommendations that can affect their daily lives. Over time, if they see their data being misused, users may learn to distrust both the system and how policy makers regulate them. Hence, it seems logical that policy makers would make an extra effort to inform and consult their citizens about how to govern AI systems. This paper examines whether officials informed and consulted their citizens as they developed a key aspect of AI policy — national AI strategies. According to the Organisation for Economic Co-operation and Development (OECD), such strategies articulate how the government sees the role of AI in the country and its contribution to the country’s social and economic development. They also set priorities for public investment in AI and delineate research and innovation priorities. Most high-middle-income and high-income nations have drafted such strategies. Building on a data set of 68 countries and the European Union, qualitative methods were used to examine whether, how and when governments engaged with their citizens on their AI strategies and whether they were responsive to public comment. The authors did not find any country which modeled responsive democratic decision making in which policy makers invited public comment, reviewed these comments and made changes in a collaborative manner. As of October 2022, some 43 of the 68 nations and the EU sample had an AI strategy, but only 18 nations attempted to engage their citizens in the strategy’s development. Moreover, only 13 of these nations issued an open invitation for public comment and only four of these 13 provided evidence that public inputs helped shape the final text. Few governments made efforts to encourage their citizens to provide such feedback. As a result, in many nations, policy makers received relatively few comments. The individuals who did comment were generally knowledgeable about AI, while the general public barely participated. Policy makers are therefore missing an opportunity to build trust in AI by not using this process to involve a broader cross-section of their constituents.

JEL Codes: P48, P51, 038

Keywords: trust, AI, political participation, governance

Data Dysphoria: The Governance Challenge Posed by Large Learning Models for Generative AI

August 2023

Susan Aaronson (George Washington University)

IIEP working paper 2023-07

Abstract: Only 8 months have passed since Chat-GPT and the large learning model underpinning it took the world by storm. This article focuses on the data supply chain—the data collected and then utilized to train large language models and the governance challenge it presents to policymakers These challenges include: • How web scraping may affect individuals and firms which hold copyrights. • How web scraping may affect individuals and groups who are supposed to be protected under privacy and personal data protection laws. • How web scraping revealed the lack of protections for content creators and content providers on open access web sites; and • How the debate over open and closed source LLM reveals the lack of clear and universal rules to ensure the quality and validity of datasets. As the US National Institute of Standards explained, many LLMs depend on “largescale datasets, which can lead to data quality and validity concerns. “The difficulty of finding the “right” data may lead AI actors to select datasets based more on accessibility and availability than on suitability… Such decisions could contribute to an environment where the data used in processes is not fully representative of the populations or phenomena that are being modeled, introducing downstream risks” –in short problems of quality and validity (NIST: 2023, 80). Thie author uses qualitative methods to examine these data governance challenges. In general, this report discusses only those governments that adopted specific steps (actions, policies, new regulations etc.) to address web scraping, LLMs, or generative AI. The author acknowledges that these examples do not comprise a representative sample based on income, LLM expertise, and geographic diversity. However, the author uses these examples to show that while some policymakers are responsive to rising concerns, they do not seem to be looking at these issues systemically. A systemic approach has two components: First policymakers recognize that these AI chatbots are a complex system with different sources of data, that are linked to other systems designed, developed, owned, and controlled by different people and organizations. Data and algorithm production, deployment, and use are distributed among a wide range of actors who together produce the system’s outcomes and functionality Hence accountability is diffused and opaque(Cobbe et al: 2023). Secondly, as a report for the US National Academy of Sciences notes, the only way to govern such complex systems is to create “a governance ecosystem that cuts across sectors and disciplinary silos and solicits and addresses the concerns of many stakeholders.” This assessment is particularly true for LLMs—a global product with a global supply chain with numerous interdependencies among those who supply data, those who control data, and those who are data subjects or content creators (Cobbe et al: 2023).

JEL Codes: 033, 034, 036, 038, P51

Key Words: data, data governance, personal data, property rights, open data, open source, governance

The Effects of Climate Change in the Poorest Countries: Evidence from the Permanent Shrinking of Lake Chad

August 2023

Remi Jedwab (George Washington University)
Federico Haslop (George Washington University
)
Roman D. Zarate
(World Bank)
Carlos RodríguezCastelán
(World Bank)

IIEP working paper 2023-06

Abstract: Empirical studies of the economic effects of climate change (CC) largely rely on climate anomalies for causal identification purposes. Slow and permanent changes in climate-driven geographical conditions, i.e. CC as defined by the IPCC (2013), have been studied relatively less, especially in Africa which remains the most vulnerable continent to CC. We focus on Lake Chad, which used to be the 11th-largest lake in the world. This African lake the size of El Salvador, Israel, or Massachusetts slowly shrunk by 90% for exogenous reasons between 1963 and 1990. While water supply decreased, land supply increased, generating a priori ambiguous effects. These effects make the increasing global disappearance of lakes a critical trend to study. For Cameroon, Chad, Nigeria, and Niger – 25% of sub-Saharan Africa’s population –, we construct a novel data set tracking population patterns at a fine spatial level from the 1940s to the 2010s. Difference-in-differences show much slower growth in the proximity of the lake, but only after the lake started shrinking. These effects persist two decades after the lake stopped shrinking, implying limited adaptation. Additionally, the negative water supply effects on fishing, farming, and herding outweighed the growth in land supply and other positive effects. A quantitative spatial model used to rationalize these results and estimate aggregate welfare losses taking into account adaptation shows overall losses of about 6%. The model also allows us to study the aggregate and spatial effects of policies related to migration, land use, trade, roads, and cities.

JEL Codes: Q54; Q56; Q15; Q20; R11; R12; O13; O44

Key Words: Climate Change; Aridification; Shrinkage of Lakes; Natural Disasters; Environment; Water Supply; Land Supply; Rural Decline; Agricultural Sectors; Adaptation; Land Use; Africa

The Role of Social Connections in the Racial Segregation of US Cities

July 2023

Tanner Regan (George Washington University)
Andreas Diemer
(Stockholm University (SOFI))
Cheng Keat Tang
(Nanyang Tech. University)

IIEP working paper 2023-05

Abstract: We study the extent of segregation in the social space of urban America. We measure segregation as the (lack of) actual personal connections between groups as opposed to conventional measures based on own neighbourhood composition. We distinguish social segregation from geographical definitions of segregation, and build and compare city-level indices of each. Conditional on residential segregation, cities with more institutions that foster social cohesion (churches and community associations) are less socially segregated. Looking at within-city variation across neighbourhoods, growing up more socially exposed to non-white neighbourhoods is related to various adulthood outcomes (jailed, income rank, married, and non-migrant) for black individuals. Social exposure to non-white neighbourhoods is always related to worsening adulthood outcomes in neighbourhoods that are majority non-white. Our results suggest that social connections, beyond residential location or other spatial relationships, are important for understanding the effective segregation of race in America.

JEL Codes: R23, J15

Key Words: Residential and Social Segregation, Networks, Social connectedness

Public Disclosure and Tax Compliance: Evidence from Uganda

June 2023

Tanner Regan (George Washington University)
Priya Manwaring
(University of Oxford)

IIEP working paper 2023-04

Abstract: Public disclosure of tax behavior is a promising policy tool for raising tax compliance in low-income countries with limited capacity for alternative enforcement mechanisms. Through a field experiment involving over 65,000 taxpayers in Kampala, we study effects of reporting delinquents and recognizing compliers and provide evidence on the social determinants of tax compliance. The threat of publicly disclosing delinquency raises compliance, but subsequently disseminating delinquent behavior lowers compliance of others. Public recognition backfires, lowering compliance both for those promised recognition and for those who receive information about compliant taxpayers. These results are consistent with a model of tax evasion with privacy costs to tax eligibility status and limited shame of delinquency. Disseminating tax behavior reduces compliance by lowering compliance beliefs as measured in survey data. Overall, public disclosure policies in this context are limited at raising revenue and enforcement reminder nudges more effective.

JEL Codes: O18, H30, H26

Key Words: property tax, tax morale, public disclosure, shaming

The Occupational Attainment of American Jewish Men in the Mid-19th Century

March 2023

Barry R. Chiswick (George Washington University)
RaeAnn H. Robinson (George Washington University)

IIEP working paper 2023-03

Abstract: This paper is concerned with analyzing the occupational status of American Jewish men compared to other free men in the mid19th century to help fill a gap in the literature. It does this by using the 1/100 microdata sample from the 1850 Census of Population, the first census to ask occupation. Two independent lists of surnames are used to identify men with a higher probability of being Jewish. The men identified as Jews had a higher probability of being professionals, managers, and craft workers, and were less likely to be in farm occupations or in operative jobs. Using the Duncan Socioeconomic Index (SEI), the Jewish men have a higher SEI overall. In the multiple regression analysis, it is found that among Jewish and other free men occupational status increases with age (up to about age 44 for all men), literacy, being married, being native born, living in the South, and living in an urban area. Controlling for a set of these variables, Jews have a significantly higher SEI, which is the equivalent of about half the size of the effect of being literate. This higher occupational status is consistent with patterns found elsewhere for American Jews throughout the 20th century.

JEL Codes: N31, J62, J15

Key Words: Jews, Occupational Status, Duncan Socioeconomic Index, 1850 Census of Population, Antebellum America, Labor Market Analysis, Human Capital

Early pension withdrawal as stimulus

February 2023

Steven Hamilton (George Washington University)
Geoffrey Liu (Harvard University)
Tristram Sainsbury (Australian National University)

IIEP working paper 2023-02

Abstract: During the COVID-19 pandemic, the Australian government allowed eligible individuals to withdraw up to A$20,000 (around half median annual wage income) across two tranches from their retirement accounts, ordinarily inaccessible until retirement. Based on historical returns, the modal withdrawal by the modal-aged withdrawer can be expected to reduce their balance at retirement by more than $120,000 in today’s dollars. One in six working-age people withdrew a total of $38 billion (on average, 51% of their balances). These transfers represented a liquidity shock and were much larger than those considered in the literature to date. Using administrative and weekly bank transactions data, we find a high marginal propensity to spend (MPX) given the size of the transfers of at least 0.43 within eight weeks, spread broadly across categories (including around half or more on non-durables) and across withdrawers. The response to the second withdrawal, which two-thirds returned for and which occurred after activity had recovered, was even larger at 0.48. Withdrawal and spending are predicted strongly by numerous measures of poor financial health, high pre-withdrawal rates of cash withdrawal and gambling, and younger age. The MPX of rational, forward-looking but liquidity constrained consumers can be expected to asymptote to zero as the transfer size rises, while that of present-biased consumers can be expected to remain high. Our findings overwhelmingly are consistent with the latter, suggesting roughly 80% of withdrawers were present-biased. In selecting strongly on the present-biased, the program presents a sharp trade-off between effective macroeconomic stimulus and suboptimal retirement saving policy.

JEL Codes: E21, E63, E71, H31, H55, J32

Key Words: Stimulus, retirement saving, marginal propensity to consume, present bias

Governance for Systemic and Transformational Change: Redesigning Governance for the Anthropocene

January 2023

Ann Florini (New America and Arizona State University)
Sunil Sharma (George Washington University)
Gordon LaForge (New America)

Abstract: We live in an era of uncertainty and volatility. Rapid technological change, inequalities in income and opportunities, environmental deterioration, social disruptions, and political divisions are upending our political, social, and economic orders. Humanity’s best defense against these multiple and escalating crises of the Anthropocene is our capacity for collective action on an extraordinary scale. The challenge of governance today is how to bring about a systemic transformation of our politics, economics, and society that will allow liberal democracy, a fair capitalism, and a regenerative natural environment to cohabit amicably. But to do so at the pace and scale needed requires far more imaginative, flexible, adaptive, and responsive governance than our current arrangements can offer. In an evolving information and digital epoch, our governing mechanisms — top-down steering, market-based transactions, and self-organized networks — must be rethought with new relationships between states, firms, and civil society. The article examines current deficiencies in governance and proposes a new approach for orchestrating system-wide transformational change that involves balancing three key relationships: state and market, labor and capital, and nature and humanity. It then uses a complexity lens to advocate four principles for redesigning institutions and policy – systemic thinking, meaningful transparency, political and social inclusion, and effective subsidiarity.

Key Words: Governance, Human Development, Anthropocene, Climate Change, Information Age, Institutions, Politics, Governments, Corporations, Markets, Civil Society, Complexity, Systemic Thinking, Transparency, Inclusion, Subsidiarity.

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Exciting, Boring, and Non-Existent Skylines: Vertical Building Gaps in Global Perspective

September 2022

Remi Jedwab (George Washington University)
Jason Barr (Rutgers University-Newark)

IIEP working paper 2022-11

Abstract: Despite the widespread prevalence and economic importance of tall buildings, little is known about how their patterns vary across space and time. We focus on vertical real estate, aiming to quantify differences across major world regions over time (1950-2020). To do so, we exploit a novel database on the location, height (above 55 meters), and year of construction of nearly all tall buildings in the world. We propose a new methodology to estimate the extent to which some world regions build up more than others given similar economic and geographic conditions, city size distributions, and other features. Our analyses reveal that many skylines may visually appear more prominent than they really are once one includes all tall buildings and core controls, which alters how regions are ranked in terms of tall building stocks. Using results by city size, centrality, height of buildings, and building function, we classify world regions into different groups, finding that international tall building stocks are driven by mostly boring skylines of residential high-rises, and to a lesser extent exciting skylines of skyscrapers and office supertall towers. Finally, land-use regulations and preferences, not historical preservation nor dispersed ownership, likely account for most observed differences.

JEL Codes: R14; R30; R38; R31; R33

Key Words: Buildings Heights; Skyscrapers; Global Real Estate; Housing Supply

A Missed Opportunity to Further Build Trust in AI: A Landscape Analysis of OECD.AI

September 2022

Susan Ariel Aaronson (George Washington University)

IIEP working paper 2022-10

Abstract: OECD.AI is the world’s best source for information on public policies dedicated to AI, trustworthy AI and international efforts to advance cooperation in AI. However, the web site is also a missed opportunity to ascertain best practice and to build trust in AI not just for citizens of reporting nations but for the world. The author came to that conclusion after examining the documentation that nations placed online at OECD.AI. website. She utilized a landscape analysis to group these policies reported to the OECD by country and type, whether the initiative was evaluated or reported on, and whether it provided new insights about best practice trust, in AI, and/or trustworthy AI. Some 61 countries and the EU reported to the OECD on their AI initiatives (for a total of 62). Although the members of the OECD are generally high and high-middle income nations, the 62 governments providing information to OECD.AI represent a mix of AI capacity, income level, economic system, and location. Some 814 initiatives placed on the website as of August 2022, but 4 were duplicative and some 30 were blank, leaving 780. Of these, countries claimed that 48 of these initiatives were evaluated. However, we actually found only four evaluations (and one in progress) with a clear evaluative methodology. Two initiatives were labeled evaluations but did not include a methodology. Many of the other 42 were reports rather than evaluations. In addition, only a small percentage (41 initiatives or 5% of all initiatives) were designed to build trust in AI or to create trustworthy AI systems. National policymakers and not the OECD Secretariat decide what each of the 62 governments choose to put on the site. These officials don’t list every initiative their country implements to foster AI. But their choices reveal their priorities. Most of the documentation focuses on what they are doing to build domestic AI capacity and a supportive governance context for AI. We also found relatively few efforts to build international cooperation on AI, or to strengthen other countries’ AI capacity. Taken in sum, these efforts are important but reveal little effort to build international trust in AI.

JEL Codes: A1, 034, 032, 038, 057

Key Words: AI (artificial intelligence) trust, trustworthy, policies, innovation

Wicked Problems Might Inspire Greater Data Sharing

September 2022

Susan Ariel Aaronson (George Washington University)

IIEP working paper 2022-09

Abstract: Global public goods are goods and services with benefits and costs that potentially extend to all countries, people, and generations. Global data sharing can also help solve what scholars call wicked problems-problems so complex that they require innovative, cost effective and global mitigating strategies. Wicked problems are problems that no one knows how to solve without creating further problems. Hence, policymakers must find ways to encourage greater data sharing among entities that hold large troves of various types of data, while protecting that data from theft, manipulation etc. Many factors impede global data sharing for public good purposes; this analysis focuses on two. First, policymakers generally don’t think about data as a global public good; they view data as a commercial asset that they should nurture and control. While they may understand that data can serve the public interest, they are more concerned with using data to serve their country’s economic interest. Secondly, many leaders of civil society and business see the data they have collected as proprietary data. So far many leaders of private entities with troves of data are not convinced that their organization will benefit from such sharing. At the same time, companies voluntarily share some data for social good purposes. However, data cannot meet its public good purpose if data is not shared among societal entities. Moreover, if data as a sovereign asset, policymakers are unlikely to encourage data sharing across borders oriented towards addressing shared problems. Consequently, society will be less able to use data as both a commercial asset and as a resource to enhance human welfare. This paper discusses why the world has made so little progress encouraging a vision of data as a global public good. As UNCTAD noted, data generated in one country can also provide social value in other countries, which would call for sharing of data at the international level through a set of shared and accountable rules (UNCTAD: 2021). Moreover, the world is drowning in data, yet much of that data remains hidden and underutilized. But guilt is a great motivator. The author suggests a new agency, the Wicked Problems Agency, to act as a counterweight to that opacity and to create a demand and a market for data sharing in the public good.

JEL Codes: 024,034/032, 038, 045, C45 

Key Words: data, AI, public good, wicked problems, data-sharing

Quantifying the impact of the latest U.S. tariff sanctions on Russia – a sectoral analysis

August 2022

Simon A. B. Schropp (George Washington University)
Christian Lau (Sidley Austin LLP)
Olim Latipov (Sidley Austin LLP)
Kornel Mahlstein (Sidley Austin LLP)

IIEP working paper 2022-08

View the technical appendix here

Abstract: Following the recent G7 Summit in Germany, the United States announced a new sanction package that imposes significantly higher tariffs on products from Russia. These tariff increases concern 570 groups of products affecting more than $2 billion in imports from Russia. The declared objective of these tariff increases is to impose steep economic costs on Russia, while minimizing costs to U.S. consumers. The United States is also considering disbursement of revenues collected from these new tariffs to Ukraine.
Using a sector-specific partial-equilibrium model and the most reliable data available, this paper quantifies the welfare impact that the U.S. tariff increases will have on the Russian and the U.S. economies, respectively. We find that the new U.S. tariff sanctions will affect $2.6 billion of U.S. imports from Russia (or 8.7% of total U.S. imports from Russia). Moreover, these new tariff measures may decrease Russian welfare by $181 million per year, while imposing annual costs of $90 million on U.S. consumers. The United States can hope to collect $241 million per year in tariff revenues that may then be used to financially support Ukraine.
Our sectoral analysis shows that the U.S.’ choice of target sectors produces mixed results. On one hand, the sanctions cover dozens of sectors whose inclusion produce particularly large welfare losses to Russia and/or high welfare gains to the United States. Yet, the sanctions package also raises serious questions about its effectiveness for other sectors. For example, higher tariffs for several selected sectors result in zero harm to Russia, and/or greater harm to the United States than to Russia. These and other insights may provide guidance for the design of future tariff sanctions by G7 Members and other Allies.

JEL Codes: F02, F13, F15, F52

Key Words: International trade; Russia; economic sanctions; import tariffs; economic impact; partial equilibrium; sectoral analysis; welfare analysis; pass-through

Ask a local: Improving the public pricing of land titles in urban Tanzania

June 2022

Tanner Regan (George Washington University)
Martina Manara (London School of Economics)

IIEP working paper 2022-07

Abstract: Information on willingness-to-pay is key for public pricing and allocation of services but not easily collected. Studying land titles in Dar-es-Salaam, we ask whether local leaders know and will reveal plot owners’ willingness-to-pay. We randomly assign leaders to predict under different settings then elicit owners’ actual willingness-to-pay. Demand is substantial, but below exorbitant fees. Leaders can predict the aggregate demand curve and distinguish variation across owners. Predictions worsen when used to target subsidies, but adding cash incentives mitigates this. We demonstrate that leader-elicited information can improve the public pricing of title deeds, raising uptake while maintaining public funds.

JEL Codes: O17; H40; R21; D80

Key Words: property rights; willingness-to-pay; public pricing; local publicly provided goods

Modernizing and Reshaping the Bretton Woods Institutions for the 21st Century

September 2022

Ajay Chhibber (George Washington University)

IIEP working paper 2022-06

Abstract: This paper lays out the contours of a reformed Bretton Woods Institutions – the IMF, the World Bank Group (WBG) and the WTO – that the world needs for the 21st century. Some of the challenges the world faces today – rising inequality, growing nationalism and protection are what led to World War II from whose ruin emerged the current Bretton Woods international financial architecture. While these institutions performed well over their first 50 years – they have been struggling in more recent times as problems of rising inequality, financial instability and protectionism have re-emerged. But in addition, the threat of climate change and ecological stress, rising disasters, and a more inter-connected world with new threats like cyber-security and pandemics require a new international financial architecture. A modernized and re-invigorated set of Bretton Woods institutions to help address and mitigate these challenges, with a global remit and the mandate to monitor agreed global rules and enhanced resources not only to help individual countries but also to address global problems.

JEL Codes: F40, F60, F02, E00, Q00, G20

Key Words: Bretton Woods, IMF, WTO, World Bank

Consumption Cities vs. Production Cities: New Considerations and Evidence

June 2022

Remi Jedwab (George Washington University)
Elena Ianchovichina (The World Bank)
Federico Haslop (George Washington University)

IIEP working paper 2022-05

Abstract: Cities dramatically vary in their sectoral composition across the world, possibly lending credence to the theory that some cities are production cities with high employment shares of urban tradables while others are consumption cities with high employment shares of urban non-tradables. A model of structural change highlights three paths leading to the rise of consumption cities: resource rents from exporting fuels and mining products, agricultural exports, and premature deindustrialization. These findings appear to be corroborated using both country- and city-level data. Compared to cities in industrialized countries, cities of similar sizes in resource-rich and deindustrializing countries have lower shares of employment in manufacturing, tradable services and the formal sector, and higher shares of employment in non-tradables and the informal sector. Results on the construction of “vanitous” tall buildings provide additional evidence on the relationship between resource exports and consumption cities. Finally, the evidence suggests that having mostly consumption cities might have economic implications for a country.

JEL Codes: O11; E24; E26; O13; O14; O18; R1; R12

Key Words: Structural Change; Urbanization; Consumption Cities; Macro-Development Economics; Industrialization; Natural Resources; Deindustrialization; Construction

The Occupations of Free Women and Substitution with Enslaved Workers in the Antebellum United States

March 2022

Barry Chiswick (George Washington University)
RaeAnn Robinson (George Washington University)

IIEP working paper 2022-04

Abstract: This paper analyzes the occupational status and distribution of free women in the antebellum United States. It considers both their reported and unreported (imputed) occupations, using the 1/100 IPUMS files from the 1860 Census of Population. After developing and testing the model based on economic and demographic variables used to explain whether a free woman has an occupation, analyses are conducted comparing their occupational distribution to free men, along with analyses among women by nativity, urbanization, and region of the country. While foreign-born and illiterate women were more likely to report having an occupation compared to their native-born and literate counterparts, they were equally likely to be working when unreported family workers are included. In the analysis limited to the slave-holding states, it is shown that the greater the slave-intensity of the county, the less likely were free women to report having an occupation, particularly as private household workers, suggesting substitution in the labor market between free women and enslaved labor.

JEL Codes: N31, J16, J21, J82

Key Words: Women, Labor Force Participation, Occupational Distribution, Unreported Family Workers, Enslaved Workers, Immigrants, 1860 Census of Population

Economic Planning in India: Did We Throw the Baby Out with the Bathwater?

February 2022

Ajay Chhibber (George Washington University)

IIEP working paper 2022-03

Abstract: India has a long and a somewhat checkered history of planning – with some success but also many failures. Despite India’s federal structure India’s approach to planning has been top-down with the union government controlling many levers – financial and otherwise to determine the direction of the economy and social programs. India has tried 3 different types of planning – “directed planning”, “indicative planning” and now just a “strategy but no planning”. India needed to replace the Planning Commission but not give up on planning altogether. Just as the rest of the world was going back to a “new planning” surge to handle climate change and the desire to meet the SDG’s India abolished planning altogether. The successor to the planning commission – the Niti Aayog needs to get back to “new planning”, that is now being adopted by many countries with stronger leadership, a legitimized authorizing environment and effective use to plan for helping India achieve the SDGs by 2030 and become a prosperous country by 2047.

JEL Codes: O1, O2

Key Words: Economic Planning, Niti Aayog, Planning Commission, SDG’s

Scars of Pandemics from Lost Schooling and Experience: Aggregate Implications and Gender Differences Through the Lens of COVID-19

January 2022

Remi Jedwab  (George Washington University)
Roberto Samaniego (George Washington University)
Paul Romer (NYU Stern)
Asif M. Islam (World Bank)

IIEP working paper 2022-02

Abstract: Pandemic shocks disrupt human capital accumulation through schooling and work experience. This study quantifies the long-term economic impact of these disruptions in the case of COVID-19, focusing on countries at different levels of development and using returns to education and experience by college status that are globally estimated using 1,084 household surveys across 145 countries. The results show that both lost schooling and experience contribute to significant losses in global learning and output. Developed countries incur greater losses than developing countries, because they have more schooling to start with and higher returns to experience. The returns to education and experience are also separately estimated for men and women, to explore the differential effects by gender of the COVID-19 pandemic. Surprisingly, while we uncover gender differences in returns to education and schooling, gender differences in the impact of COVID-19 are small and short-lived, with a loss in female relative income of only $2.5$ percent or less mainly due to the greater severity of the employment shock on impact. These findings might challenge some of the ongoing narratives in policy circles. The methodology employed in this study is easily implementable for future pandemics.

JEL Codes: O11; O12; O15; E24; J11; J16; J17; J31

Key Words: Pandemics; Human Capital; Returns to Education; Returns to Experience; Gender; Female Relative Income; Labor Markets; Development Accounting; COVID-19

Killer Cities and Industrious Cities? New Data and Evidence on 250 Years of Urban Growth

January 2022

Remi Jedwab (George Washington University)
Marina Gindelsky (Bureau of Economic Analysis)

IIEP working paper 2022-01

Abstract: In the historical literature, cities of the Industrial Revolution are portrayed as having a demographic penalty: killer cities with high death rates and industrious cities with low birth rates. To econometrically test this, we construct a novel data set of almost 2,000 crude demographic rates for 142 large cities in 35 countries for 1700-1950. Mortality actually decreased faster than fertility during the Industrial Revolution era and rates of natural increase rose in the cities of industrializing countries, especially large cities. This implies a declining, not rising, demographic penalty thanks to the Industrial Revolution. To explain the puzzle, we posit that negative health and industriousness effects of industrial urbanization might have been outweighed by positive effects of increased income and life expectancy.

JEL Codes: N90, N30, N10, R00, J10

Key Words: Urban Demographic Penalty, Killer Cities, Industrious Cities, Mortality, Fertility, Natural Increase, Industrial Revolution, Urban Growth

Anti-Money Laundering Enforcement, Banks, and the Real Economy

June 2021

Senay Agca (George Washington University)
Pablo Slutzky (University of Maryland)
Stefan Zeume (UIUC)

IIEP working paper 2021-20

Abstract: We exploit a tightening of anti-money laundering (AML) enforcement that imposed disproportionate costs on small banks to examine the effects of a change in bank composition on real economic outcomes. In response to intensified enforcement, counties prone to high levels of money laundering experience a departure of small banks and increased activity by large banks. This results in an increase in the number of small establishments and real estate prices. Consistent with a household demand channel, wages and employment increase in the non-tradable sector. Last, we document secured lending as a potential driver of this outcome.

JEL Codes: G21, G28

Key Words: Money laundering, Financial Institutions, Real economy, Deposits and lending, Financial crime

The Impact of COVID-19 on Supply Chain Credit Risk

June 2021

Senay Agca (George Washington University)
John R. Birge (University of Chicago)
Zi’ang Wang (Chinese University of Hong Kong)
Jing Wu (Chinese University of Hong Kong)

IIEP working paper 2021-19

Abstract: Global supply chains expose firms to multi-regional risks, but also provide benefits by creating a buffer against local shocks. The COVID-19 pandemic and its differential impact on different parts of the world provide an opportunity for insight into supply chain credit risk, and how operational and structural characteristics of global supply chains affect this risk. In this paper, we examine supply chain credit risk during different phases of the COVID-19 pandemic by focusing on Credit Default Swap (CDS) spreads and US-China supply chain links. CDS spreads reflect both the probability of default and expected loss given default, and are available with daily frequency, which allows the assessment of supply chain partners’ credit risk in a timely manner. We find that CDS spreads for firms with China supply chain partners increase with the economic shutdown in China during the pandemic, and the spreads go down when the economic activity resumed with the re-opening in China. We consider Swift, Even Flow (SEF) and Social Network Theories (SNT) within our context. Supporting SEF theory, we find that the impact of pandemic-related disruptions to even flow of goods and materials reflected in supply chain credit risk is mitigated for firms with lower inventory turnover and those with better ability to work with longer lead times and operating cycles. Examining supply chain structural characteristics through SNT reveals that spatial and horizontal complexity, as well as network centrality (degree, closeness, betweenness, information) mitigate the impact of supply chain vulnerabilities on supply chain credit risk.

JEL Codes: E21, E51, F23, G12, G14, G23, G32, L11

Key Words: Supply Chains, Credit Risk, CDS, COVID-19, Pandemic

Credit Shock Propagation Along Supply Chains: Evidence from the CDS Market

June 2021

Senay Agca (George Washington University)
Volodymyr Babich (GeorgetownUniversity)
John R. Birge (University of Chicago)
Jing Wu (Chinese University of Hong Kong)

IIEP working paper 2021-18

Abstract: Using a panel of Credit Default Swap (CDS) spreads and supply chain links, we observe that both favorable and unfavorable credit shocks propagate through supply chains in the CDS market. Particularly, the three-day cumulative abnormal CDS spread change (CASC) is 63 basis points for firms whose customers experienced a CDS up-jump event (an adverse credit shock). The value is 74 basis points if their suppliers experienced a CDS up-jump event. The corresponding three-day CASC values are −36 and −38 basis points, respectively, for firms whose customers and suppliers, respectively, experienced an extreme CDS down-jump event (a favorable credit shock). These effects are approximately twice as large for adverse credit shocks originating from natural disasters. Credit shock propagation is absent in inactive supply chains, and is amplified if supply-chain partners are followed by the same analysts. Industry competition and financial linkages between supply chain partners, such as trade credit and large sales exposure, amplify the shock propagation along supply chains. Strong shock propagation persists through second and third supply-chain tiers for adverse shocks but attenuates for favorable shocks.

JEL Codes: E43, E51, G12, G14, G23, G24, G32, L11, L22

Key Words: supply chains, credit risk, CDS, propagation, supply networks

A New Approach to Measuring Intercity Differences in Housing Costs

July 2021

Hyung Joon Chung (George Washington University)
Nathaniel Harris (George Washington University)

IIEP working paper 2021-17

Abstract: Intercity housing price indexes that rely on median house price or pooled hedonic regressions adjust imperfectly for differences in housing characteristics. In addition, intercity house price indexes that rely on asset value are a biased measure of differences in the rental price of housing, because capitalization rates vary dramatically across cities. To mitigate these shortcomings, we create Fisher Ideal intercity housing price indexes for both rental and asset prices using a two-way Oaxaca-Blinder decomposition. Our method improves upon current house price indexes by using rental rather than asset prices, controlling for location and housing characteristics, and allowing implicit prices to vary across locations.

JEL Codes: C1, R1, R3

Key Words: intercity house price indices, blinder-oaxaca decomposition, Fisher Ideal index, interarea cost of living differences

Economics and American Judaism in the 21st Century

August 2021

Carmel U. Chiswick (George Washington University)

IIEP working paper 2021-16

Abstract: American Judaism is viewed from an economic perspective. Non-traditional family units and non-traditional religious practices are now persistent features of American Jewry. Incentives affecting the education, family formation and consumption patterns of American Jews are shown to have implications for patterns of Jewish observance and for the American Jewish community. Comparing US religious pluralism with Israel’s state-sponsored Rabbinate suggests stresses as well as complementarities between the two largest Jewish communities, including a rise in anti-Zionism and anti-Semitism. Forecasting the future of American Judaism is based on trends in economic conditions and changes in religious institutions affecting its cultural context. 

JEL Codes: Z12, J19, D10

Key Words: economics, demography, religion, Judaism, pluralism, consumption, value of time, cost of Judaism, Israel, anti-Semitism

Cities Without Skylines: Worldwide Building-Height Gaps and their Possible Determinants and Implications

August 2021

Remi Jedwab (George Washington University)
Jason Barr (Rutgers University)
Jan Brueckner (University of California)

IIEP working paper 2021-15

Abstract: There is a large literature on U.S. cities measuring the extent and stringency of land-use regulations and how regulatory and geographical constraints affect important outcomes such as housing prices and economic growth. This paper is the first to study the global extent and impact of regulatory and other constraints by estimating what we call building-height gaps. Using a novel data set on the year of construction and heights of tall buildings around the world, we compare the total height of a country’s stock of tall buildings to what the total height would have been if supply was more elastic, based on parameters from a benchmark set of countries. These gaps are larger for richer countries and for residential buildings than for commercial buildings in such countries. The gaps are driven by under-building in central areas of larger cities. These gaps are not compensated by tall building construction in peripheral areas of cities or less stringent limits on outward expansion beyond the existing boundaries of the cities. Countries with older, historic structures have larger gaps, likely due to more stringent height regulations and dispersed ownership that inhibits land assembly. Lastly, the gaps correlate strongly with international measures of housing prices, sprawl, congestion, and pollution.

JEL Codes: R3, R5, O18, O50

Key Words: International Buildings Heights; Land Use Regulations; Geographical Constraints; Housing Supply; Housing Prices; Sprawl; Congestion; Pollution

Educational Responses to Migration-Augmented Export Shocks: Evidence from China

May 2021

Yao Pan (George Washington University and Aalto University)
Jessica Leight (International Food Policy Research Institute)

IIEP working paper 2021-14

Abstract: This paper analyzes the effects of positive shocks to export-oriented industries following China’s accession to the World Trade Organization on human capital investment in urban and rural areas. Exploiting cross-county variations in the reduction in export tariff uncertainty both locally and at plausible migration destinations, we find that youth reaching matriculation age post-accession in counties experiencing a larger export shock show a lower probability of enrolling in high school. In urban areas, this effect is driven by local shocks, while in rural areas, it is primarily driven by shocks at migration destinations. Urban youth show evidence of a deterioration in labor market outcomes linked to declining matriculation rates, while there is no evidence of significant labor market effects for rural youth.

JEL Codes: F14, F16, J24, O15, O18, O19

Key Words: Export Shock, Human Capital Attainment, Urban-rural Inequality, China

Global Contagion and IMF Credit Cycles: A Lender of Partial Resort?

July 2021

Stephen B. Kaplan (George Washington University)
Sujeong Shim (University of Wisconsin-Madison)

IIEP working paper 2021-13

Abstract: The International Monetary Fund (IMF) has an incomplete governance architecture characterized by insufficient resources to fulfill its global financial stability mandate. We argue this institutional incompleteness influences how the IMF balances tensions between systemic risks and moral hazard, and when it surprisingly exits lending relationships. During high global contagion periods, the IMF targets stabilizing systemic risks to fulfill its mandate, granting large loans and overlooking non-compliance with conditionality. However, when the IMF perceives minimal contagion risk, it focuses on moral hazard, extending smaller loans with stricter conditionality, and willingly cuts financial ties to preserve its reputation and resources for future crises. Employing a comparative case analysis of IMF decision-making for Argentina (1998-2001) and Greece (2010-2015), we find evidence supporting our theoretical priors from content analysis of IMF executive board meeting minutes, complementary archival evidence, and field research interviews. These findings have important implications for the IMF, institutionalism, and development.

JEL Codes: O1, O16, O19, 052, 054, F21, F33, F34, F42, F49, F50, F55, F60, F65

Key Words: IMF, lender of last resort, financial crises, international financial risk, contagion risk, Argentina, Greece 

Can Trade Agreements Solve the Wicked Problem of Disinformation

April 2021

Susan Aaronson (George Washington University)

IIEP working paper 2021-12

Abstract: Disinformation is a wicked problem. Increasingly, disinformation comes from overseas. Many nations have adopted a wide range of strategies to mitigate disinformation. This patchwork may not be effective in mitigating cross-border disinformation. Moreover, the lack of coherent approaches could also lead to trade distortions and spillover effects upon internet openness and generativity. This paper shows how policymakers might use trade agreements to govern the cross-border data flows that at times fuel disinformation. 

JEL Codes: 038, 039, F68, F53

Key Words: trade, disinformation, spam, trust 

India’s Demographic Dividend or Disaster? Mismanaged Factors of Production – Land, Labor, Infrastructure, Cities

April 2021

Ajay Chhibber (George Washington University)

IIEP working paper 2021-11

Abstract: India entered its so-called demographic dividend around 2005 – expected to last until 2055. India has already utilized almost a third of the period of its demographic dividend– it saw a period of explosive growth from 2003-2012 – but has not been able to sustain that growth. And since 2012 growth has generated less and less employment, as it has turned inward, so it is not helping the working age population get usefully employed. The Labor force participation rate for women has been low and is now falling. To understand where India stands in this transformation we ask – why is India’s so dualistic? Why is so much of Indian labor not employed in the organized sector? Why does India with limited capital – and vast quantities of surplus labor invest so much in relatively capital intensive sectors? Why is land which is scarce so badly allocated ? why do most of its cities develop in an unplanned manner ? What can be done to use India’s underlying factors of production better to generate greater, more inclusive and sustained prosperity for its citizens?

JEL Codes: J0, J1, J2, J5, J6, J8, R0, R4, O1, O2

Key Words: Demographic Dividend, Labor Laws, Urban Development, Infrastructure, Logistics, Land Mis-allocation

Counterfactual Dissimilarity: Can Changes in Demographics and Income Explain Increased Racial Integration in U.S. Cities?

March 2021

Paul E. Carrillo (George Washington University)
Jonathan L. Rothbaum (U.S. Census Bureau)

IIEP working paper 2021-10

Abstract: Urban areas in the U.S. have experienced important changes in racial/ethnic distributions over the last two decades. In the average urban area today black-white racial integration has increased by 10.6 percent between 1990 and 2010. Changes in racial and ethnic distributions and gentrification are often associated with changes in residents’ demographic characteristics, such as income, education and age. This paper applies a non-parametric spatial decomposition technique using complete (restricted-use) microdata files from the 1990 Decennial Long Form Census and 2008-2012 American Community Surveys to assess what portion of the changes in racial distributions can be attributed to changes in individual characteristics. We find that that, on average, a little over a third of the observed increase in integration can be accounted for by changes in observed individual characteristics.

JEL Codes: C14, R23, R30

Key Words: Counterfactual Distribution, Decomposition, Spatial Econometrics

Why is India’s Financial Sector in Such Trouble: A Whodunnit?

August 2021

Ajay Chhibber (George Washington University)

IIEP working paper 2021-09

Abstract: India’s financial system has never collapsed – unlike many other emerging economies. But it suffers from a deep and expanding silent crisis, which has made it one of the most inefficient and non-inclusive financial systems in the world. This paper unravels the reasons for this deep crisis – who is responsible – the regulators, populist politicians, crony capitalists and India’s fiscal dominance. It shows that all the above are culpable. It lays out the major reforms needed and argues that if deep surgery is not performed India cannot emerge as a global economic powerhouse in the 21st century and will remain stuck in a low middle-income trap.

JEL Codes: G00, G01, G18, G21, G32, G33

Key Words: Financial Crisis; Public Sector Banks; Financial Inclusion; Banking Reform

Deepening or Diminishing Ethnic Divides? The Impact of Urban Migration in Kenya

March 2021

Eric Kramon, George Washington University
Joan Hamory, University of Oklahoma
Sarah Baird, George Washington University
Edward Miguel, University of California, Berkeley

IIEP working paper 2021-08

Abstract: The impact of urban migration on ethnic politics is the subject of long-standing debate. “First-generation” modernization theories predict that urban migration should reduce ethnic identification and increase trust between groups. “Second-generation” modernization perspectives argue the opposite: Urban migration may amplify ethnic identification and reduce trust. We test these competing expectations with a three-wave panel survey following more than 8,000 Kenyans over a 15-year period, providing novel evidence on the impact of urban migration. Using individual fixed effects regressions, we show that urban migration leads to reductions in ethnic identification; ethnicity’s importance to the individual diminishes after migrating. Yet urban migration also reduces trust between ethnic groups, and trust in people generally. Urban migrants become less attached to their ethnicity but more suspicious. The results advance the literature on urbanization and politics and have implications for the potential consequences of ongoing urbanization processes around the world.

JEL Codes:

Key Words:

The Effect of Social Connectedness on Crime: Evidence from the Great Migration

March 2021

Bryan A. Stuart, George Washington University

Evan J. Taylor University of Arizona

IIEP working paper 2021-07

Abstract: This paper estimates the effect of social connectedness on crime across U.S. cities from 1970 to 2009. Migration networks among African Americans from the South generated variation across destinations in the concentration of migrants from the same birth town. Using this novel source of variation, we find that social connectedness considerably reduces murders, rapes, robberies, assaults, burglaries, and motor vehicle thefts, with a 1 standard deviation increase in social connectedness reducing murders by 21% and motor vehicle thefts by 20%. Social connectedness especially reduces murders of adolescents and young adults committed during gang and drug activity

JEL Codes: K42, N32, R23, Z13

Key Words: crime, social connectedness, Great Migration

Measuring Human Development for the Anthropocene

March 2021

Ajay Chhibber, (Distinguished Visiting Scholar , IIEP and Non-Resident Senior Fellow, Atlantic Council)

IIEP working paper 2021-06

Abstract: This paper makes the case for an adjusted Human Development Index (HDI) that adds sustainability, vulnerability and human security to the existing HDI components of income, health and education. It shows that these additional elements were part of the discourse in many original writings on human development. They are also central in any discourse on development today. The HDI has made progress by adding gender and inequality in its formulations, but is more reflective of the Millennium Development Goal (MDG) agenda than the more comprehensive Sustainable Development Goals (SDGs) agreed in 2015. The paper reviews existing indicators and suggests a way towards an adjusted HDI. It shows that above an HDI level of 0.8, the cut-off for very high human development, major trade-offs emerge with ecology. It argues for incorporating ecological and human security variables into the HDI, and creating a vulnerability-adjusted HDI that measures resilience to ecological, health and economic shocks, akin to the Inequality-adjusted HDI.

JEL Codes:

Key Words:

Data is Divisive: A History of Public Communications on E-commerce, 1998–2020

February 2021

Susan Ariel Aaronson and Thomas Struett

IIEP working paper 2021-04

Abstract: For 22 years, the members of the World Trade Organization (WTO) have been discussing how to govern e-commerce and the data that underpins it. In 2019, some 74 (now 86) nations began to negotiate e-commerce. These talks are conducted in secret and little is known about how they are progressing. However, WTO members issued a wide range of public comments on both the Work Programme on Electronic Commerce and the Joint Statement Initiative (JSI) on Electronic Commerce from 1998, when the work program began, to the present. These communications provide context as well as a window into the negotiations. Using qualitative techniques to analyze these communications, the authors found that throughout the 22-year period, member states were divided by their understanding, capacity and willingness to set rules governing e-commerce or digital trade. Members had divergent views on: whether or not to extend the moratorium on customs duties (although they have consistently extended it); how best to nurture the digital economy and what role trade agreements should play in governing it; and the ability of all WTO member states to participate effectively in these talks. Many countries had e-commerce expertise, but they did not have a wide range of firms with digital prowess. Moreover, many of the WTO member states did not have expertise governing various types of data. In short, data, digital prowess and data governance expertise were creating division among members. To bridge this divide, this paper offers three suggestions: First, donor nations should provide funds and expertise to help developing and middle-income nations build a data-driven economy. Second, digital trade/e-commerce agreements should be designed to enable more people to benefit from data-driven growth while simultaneously setting rules to govern digital trade that facilitate trust and predictability among market actors. To that end, the Digital Economy Partnership Agreement (DEPA), an agreement among New Zealand, Chile and Singapore, provides a good model of such collaboration and rule-setting. Third, as data governance has become a key issue for development, development organizations should define what comprehensive data governance looks like at the national level. Development organizations should next examine how they can help developing countries achieve flexible and technologically neutral governance. These organizations should also provide financial and technical assistance to help developing countries build data governance skill. 

JEL Codes: 

Key Words: trade, digital trade, data, development

What Do Hedonic House Price Estimates Tell Us When CAP Rates Vary?

February 2022

Paul E. Carrillo and Anthony Yezer

IIEP working paper 2021-03

Abstract: This paper demonstrates theoretically and empirically that estimated implicit prices from hedonic equations using house value do not reflect implicit willingness to pay for housing attributes unless very strong conditions are present. The argument is simple. Implicit prices obtained from rental hedonics, consistent with theory, can potentially be used to reveal the willingness to pay for current housing services. Therefore hedonic equations relating asset prices to current characteristics only reveal willingness to pay for structure and neighborhood services if cap rates (rent to value ratios) are constant. In some cases, the sign of the bias inherent in using asset rather than rental prices can be anticipated. Some rules and tests for situations where cap rates are constant are developed. At a minimum some of these checks for variation in cap rates should be implemented before using asset price hedonics to measure the current flow of housing services.

Key Words: Hedonic models, implicit markets, capitalization rate, environmental valuation

India’s Interventionist State: Reduce Its Scope and Improve Its Capability

January 2021

Ajay Chhibber, (Distinguished Visiting Scholar , IIEP and Non-Resident Senior Fellow, Atlantic Council)

IIEP working paper 2021-02

Abstract: This paper lays out a two-part strategy to improve the effectiveness of the state in India reduce the scope of the state and then improve its capability. It argues that the state tries to do too many things and ends up doing many of them badly. It must reduce its scope and change the way it does things – reduce their complexity. It must also strengthen the capabilities of the state institutions – especially those dealing with administrative functions and rule of law. The state must also build up the capability of local administration and increase its financing. It must also get out of the business of business by privatizing state -owned enterprises. 

JEL Codes: H00, H2,H4, H5,H7, H11

Key Words: Role of the State, State-Owned Enterprises, Devolution, State Capability

Farm Protests in India: A new menu needed

March 2021

Ajay Chhibber (George Washington University)

IIEP working paper 2021-01

Abstract: While the world has changed, India’s farm policy is stuck in a 50-year-old mindset. India’s response to food shortages in the 1960’s was to establish a mix of price (procurement, ration, and minimum support prices MSP’s) and non-price policies – irrigation, high yielding seed, subsidised fertiliser – which led a green revolution in cereals and a complex system of procuring and selling this grain through the Food Corporation of India and the Public Distribution System. But this system has outlived its usefulness for India but changing it is not easy as those whose livelihoods depend on it are unwilling to risk any changes as the farm protests show. This paper examines the issues behind the farm protests and suggests ways forward for India’s farm policy. 

JEL Codes: Q1,Q2,O1,O2,O3

Key Words: Farm protests, structural transformation, green revolution, farm price policy, farm subsidies 

Can the Mafia’s Tentacles Be Severed? The Economic Effects of Removing Corrupt City Councils

December 2020

Alessandra Fenizia and Raffaele Saggio

IIEP working paper 2020-22

Abstract: This paper evaluates the long-run economic impact of the fight against organized crime. It uses rich administrative data from Italy and studies one of the most aggressive policies aimed at combating criminal organizations: the city council dismissal. Under this policy, local administrations believed to be infiltrated by the Mafia are dismissed by the central government and the municipality is then administrated by a team of public servants appointed by the central government for approximately two years. Using a matched difference-in-differences design, we find that this policy fosters economic growth. Specifically, the city council dismissal increases formal employment by 16.9% nine years after the dismissal and this effect appears to be partially driven by the entry of new workers in the formal sector. Treated municipalities also display higher economic dynamism and a surge in industrial real estate prices in the aftermath of the intervention. These effects appear to be mediated by an increase in the quality of local politicians elected after the city council dismissal. We show that these newly elected politicians raise local tax compliance and were able to increase expenditures on roads and infrastructures. Overall, our results imply that there are significant long-run economic benefits associated with targeted law enforcement actions against criminal organizations.

JEL Codes: D73, G38, K42

Key Wordscorruption, mafia, organized crime

Candidate Filtering: The Strategic Use of Electoral Fraud in Russia

November 2020

David Szakonyi (George Washington University)

IIEP working paper 2020-23

Abstract: Incumbents have many tools to tip elections in their favor, yet we know little about how they choose between strategies. By comparing various tactics, this paper argues that electoral malpractice centered on manipulating institutions offers the greatest effectiveness while shielding incumbents from public anger and criminal prosecution. To demonstrate this, I focus on one widespread institutional tactic: preventing candidates from accessing the ballot. First, in survey experiments, Russian voters respond less negatively to institutional manipulations, such as rejecting candidates, than to blatant fraud, such as ballot-box stuffing. Next, using evidence from 25,935 Russian mayoral races, I show that lower societal and implementation costs enable incumbents to strategically reject candidacies from credible challengers and then reduce their electoral vulnerability. In all, the technology behind specific manipulations helps determine when and how incumbents violate electoral integrity.

JEL Codes: D7, H40

Key Words: electoral fraud, authoritarianism, Russia, public opinion

Electoral Manipulation and Regime Support: Survey Evidence from Russia

November 2020

David Szakonyi (George Washington University), Ora John Reuter (University of Wisconsin-Milwaukee)

IIEP working paper 2020-19

Abstract: Does electoral fraud stabilize authoritarian rule or undermine it? The answer to this question rests, in part, on how voters evaluate regime candidates who engage in fraud. Using a survey experiment conducted after the 2016 elections in Russia, we find that voters withdraw their support from ruling party candidates who commit electoral fraud. This effect is especially large among strong supporters of the regime. Core regime supporters are more likely to have ex ante beliefs that elections are free and fair. Revealing that fraud has occurred significantly reduces their propensity to support the regime. These findings illustrate that fraud is costly for autocrats not just because it may ignite protest, but also because it can undermine the regime’s core base of electoral support. Because many of its strongest supporters expect free and fair elections, the regime has strong incentives to conceal or otherwise limit its use of electoral fraud. 

JEL Codes: D7, H40

Key Words: electoral fraud; authoritarianism, Russia

Indecent Disclosures: Anti-Corruption Reforms and Political Selection

November 2020

David Szakonyi (George Washington University)

IIEP working paper 2020-21

Abstract: Cracking down on corruption has become a key tool for politicians to build popular support. But little is known about whether anti-corruption measures actually change political behavior. This paper evaluates the effects of a common reform — financial disclosures — using data on 25,724 elections in Putin-era Russia. I argue that financial disclosures function like a personal audit, generating information for journalists and prosecutors to investigate illicit gains earned inside and outside of government. Exploiting staggered elections, I find that the passage of a disclosures requirement led to roughly 25% fewer incumbents seeking re-election and 10% fewer candidates with suspicious financial histories. Greater media freedom and law enforcement capacity further increase the risk of corruption and tax evasion being exposed, resulting in even fewer candidacies from those criminally exposed. Increasing transparency changes the incentives for serving in elected office, even in settings where other political motives may be at play.

JEL Codes: D7, H40, D73

Key Words: corruption, anti-corruption, Russia, reforms, elections

Test Format and Calculator Use in the Testing of Basic Math Skills for Principles of Economics: Experimental Evidence

August 2020

Irene R. Foster (George Washington University),  Melanie Allwine Fennell (Randolph-Macon College)

IIEP working paper 2020-20

Abstract: Results from an experiment in Fall 2013 of 902 incoming students at this university are reported. In this experiment, after students were given a basic math assessment to ensure they had the necessary math skills to take a principles of economics course, they were randomly allocated to a treatment or control group to test if there was a significant impact of test format, calculator use, and calculator type on students’ scores. The interaction of calculator use/type and test format was also tested. The results from this experiment suggest that each treatment had a significant positive impact on students’ assessment scores, with much variation depending on the type of question asked and the level of performance.

JEL Codes: A22, C23

Key Words: Economic Education, Teaching Economics, Math Assessment, Microeconomics,
Calculator Use, Test Format

The IMF’s Financial Catch 22: Global Banker or Lender of Last Resort?

August 2020

Stephen B. Kaplan (George Washington University), Sujeong Shim (University of Wisconsin-Madison)

IIEP working paper 2020-18

Abstract: The International Monetary Fund (IMF) has dual institutional roles: a steward of international financial stability and a global banker safeguarding the resources of its sovereign shareholders. But, how does the IMF behave when its balance sheet becomes exposed to higher-than-usual credit risk, creating a financial catch-22? We expect the IMF varies its lending behavior, based on the nature of sovereign credit crises. When there is high contagion risk, the IMF aims to preserve global financial stability as a lender of last resort by extending large loans, notwithstanding its balance sheet strains. The IMF employs policy conditionality to hedge its lending risk, but prioritizes alleviating global market turmoil over program compliance. When market contagion is contained, however, the IMF is more likely to act as a traditional banker, suspending programs for non- compliance. Ironically, given its tendency to forgive non-compliance as a lender of last resort, our theoretical framework suggests that the Fund intensifies its moral hazard problem.

We test our theoretical priors by conducting a comparative case study analysis of IMF decision-making over time for two of its largest borrowers: Argentina and Greece. Leveraging volumes of hundred-paged minutes from IMF executive board
meeting archives and extensive field research interviews, we illustrate the lending stances of IMF directors evolve in response to changes in global contagion risk. By examining the IMF’s own institutional agency under high financial risk, this study offers new insights for the study of international political economy and international organizations.

JEL Codes

Key Words: IMF; lender of last resort; financial crises, institutional financial risk; contagion risk; Argentina; Greece

Epidemics, inequality and poverty in preindustrial and early industrial times

August 2020

Guido Alfani (Bocconi University, Dondena Centre, IGIER, and Stone Center for Research on Socio-Economic Inequaltiy)

IIEP working paper 2020-16

Abstract: *This paper is part of a Symposium organized by Dr. Remi Jedwab of the George Washington University that will appear in the Journal of Economic Literature.* Recent research has explored the distributive consequences of major historical epidemics, and the current crisis triggered by Covid-19 prompts us to look at the past for insights about how pandemics can affect inequalities in income, wealth, and health. The fourteenth-century Black Death, which is usually believed to have led to a significant reduction in economic inequality, has attracted the greatest attention. However, the picture becomes much more complex if other epidemics are considered. This article covers the worst epidemics of preindustrial times, from Justinian’s Plague of 540-41 to the last great European plagues of the seventeenth century, as well as the cholera waves of the nineteenth. It shows how the distributive outcomes of lethal epidemics do not only depend upon mortality rates, but are mediated by a range of factors, chief among them the institutional framework in place at the onset of each crisis. It then explores how past epidemics affected poverty, arguing that highly lethal epidemics could reduce its prevalence through two deeply different mechanisms: redistribution towards the poor, or extermination of the poor. It concludes by recalling the historical connection between the progressive weakening and spacing in time of lethal epidemics and improvements in life expectancy, and by discussing how epidemics affected inequality in health and living standards.

 

JEL Codes: D31, D63, I14, I30, J11, N30, N33

Key Words: epidemics; inequality; poverty

The 1918 Influenza Pandemic and its Lessons for COVID-19

August 2020

Brian Beach (Vanderbilt University and NBER), Karen Clay (Carnegie Mellon University and NBER), Martin Saavedra (Oberlin College)

IIEP working paper 2020-15

Abstract: *This paper is part of a Symposium organized by Dr. Remi Jedwab of the George Washington University that will appear in the Journal of Economic Literature.* This article reviews the global health and economic consequences of the 1918 infuenza pandemic, with a particular focus on topics that have seen a renewed interest because of COVID-19. We begin by providing an overview of key contextual and epidemiological details as well as the data that are available to researchers. We then examine the effects on mortality, fertility, and the economy in the short and medium run. The role of nonpharmaceutical interventions in shaping those outcomes is discussed throughout. We then examine longer-lasting health consequences and their impact on human capital accumulation and socioeconomic status. Throughout the paper we highlight important areas for future work.

 

JEL Codes: I10, N0, J10, J24

Key Words: Pandemics; 1918 Influenza; COVID-19; epidemics

The Economic Impact of the Black Death

June 2020

Remi Jedwab (George Washington University), Noel D. Johnson (George Mason University), Mark Koyama (George Mason University)

IIEP working paper 2020-14

Abstract: *This paper is part of a Symposium organized by Dr. Remi Jedwab of the George Washington University that will appear in the Journal of Economic Literature.* The Black Death was the largest demographic shock in European history. We review the evidence for the origins, spread, and mortality of the disease. We document that it was a plausibly exogenous shock to the European economy and trace out its aggregate and local impacts in both the short-run and the long-run. The initial effect of the plague was highly disruptive. Wages and per capita income rose. But, in the long-run, this rise was only sustained in some parts of Europe. The other indirect long-run effects of the Black Death are associated with the growth of Europe relative to the rest of the world, especially Asia and the Middle East (the Great Divergence), a shift in the economic geography of Europe towards the Northwest (the Little Divergence), the demise of serfdom in Western Europe, a decline in the authority of religious institutions, and the emergence of stronger states. Finally, avenues for future research are laid out.

 

JEL Codes: N00, N13, I15, I14, J11, O10, O43

Key Words: Pandemics; Black Death; Institutions; Cities; Urbanization; Malthusian Theory; Demography; Long-Run Growth; Middle Ages; Europe; Asia;

Pandemics, Poverty, and Social Cohesion: Lessons from the Past and Possible Solutions for COVID-19

June 2020

Remi Jedwab (George Washington University), Amjad M. Khan (The World Bank),Richard Damania (The World Bank), Jason Russ (The World Bank), Esha D. Zaveri (The World Bank)

IIEP working paper 2020-13

Abstract: Since COVID-19 broke out, there has been renewed interest in understanding the economic and social dynamics of historical and more recent pandemics and epidemics, from the plagues of Antiquity to modern-day outbreaks like Ebola. These events can have significant impacts on the interplay between poverty and social cohesion, i.e. how different groups in society interact and cooperate to survive and prosper. To that effect, this survey paper provides an overview of how social responses to past pandemics and epidemics were determined by the epidemiological and non-epidemiological characteristics of these outbreaks, with a particular focus on the scapegoating and persecution of minority groups, including migrants. More precisely, we discuss existing theories as well as historical and quantitative studies, and highlight the cases and contexts where pandemics may lead to milder or more severe forms of scapegoating. Finally, we conclude with a summary of priorities for future research on pandemics and social cohesion and discuss the possible effects and policy implications of COVID-19.

 

JEL Codes: O15, O18, I15, I19, J61, J71

Key Words: COVID-19; Pandemics; Epidemics; Disasters; Social Cohesion; Stigmatization; Minority Persecution; Conflict; Poverty; Migration; Social Capital; Trust

A tale of two wage subsidies: The American and Australian fiscal responses to COVID-19

July 2020

Steven Hamilton (George Washington University)

IIEP working paper 2020-12

Abstract: Australia suppressed the virus with swift and strong public health measures including stringent border controls. As of July 2020, the virus continues to spread uncontrolled across the US, resulting in the most recorded cases and deaths of any country. Both countries instituted widespread lock-downs and similarly generous fiscal support, yet Australia has experienced a far milder recession, highlighting the critical role of public health measures in protecting the economy. The role of broad cash stimulus necessarily has been more limited than in an ordinary recession, justifying the use of wage subsidies that encourage businesses to retain workers. The Australian wage subsidy, delivered via the tax authority, was better targeted, more generous, more accessible, but slower to deliver liquidity than the American wage subsidy delivered via private banks. The experience highlights the critical need for significant investments in IRS infrastructure to better prepare for future crises.

 

JEL Codes:

Key Words

Women at Work in the Pre-Civil War United States: An Analysis of Unreported Family Workers

June 2020

Barry R. Chiswick (George Washington University) and RaeAnn Halenda Robinson (George Washington University)

IIEP working paper 2020-11

Abstract: Rates of labor force participation in the US in the second half of the nineteenth century among free women were exceedingly (and implausibly) low, about 11 percent. This is due, in part, to social perceptions of working women, cultural and societal expectations of female’s role, and lack of accurate or thorough enumeration by Census officials. This paper develops an augmented free female labor force participation rate for 1860. It is calculated by identifying free women (age 16 and older) who were likely providing informal and unenumerated labor for market production in support of a family business, that is, unreported family workers. These individuals are identified as not having a reported occupation, but are likely to be working on the basis of the self-employment occupation of other relatives in their households. Family workers are classified into three categories: farm, merchant, and craft. The inclusion of this category of workers more than triples the free female labor force participation rate in the 1860 Census, from 16 percent to 56 percent, which is comparable to today’s rate (57 percent in 2018).

 

JEL Codes: N31, J16, J21, J82

Key Words: Women, Labor Force Participation, Occupational Attainment, Unpaid Workers, Unreported Family Workers, 1860 Census

Long-Run Effects of Incentivizing Work After Childbirth

May 2020

Elira Kuka (George Washington University, IZA, and NBER) and Na’ama Shenhav (Dartmouth College and NBER)

IIEP working paper 2020-10

Abstract: This paper uses a panel of SSA earnings linked to the CPS to estimate the impact of increasing post-childbirth work incentives on mothers’ long-run career trajectories. We implement a novel research design that exploits variation in the timing of the 1993 reform of the Earned Income Tax Credit (EITC) around a woman’s first birth and in eligibility for the credit. We find that single mothers exposed to the expansion immediately after a first birth (“early-exposed”) have 3 to 4 p.p. higher employment in the 5 years after a first birth than single mothers exposed 3 to 6 years after a first birth (“late-exposed”). Ten to nineteen years after a first birth, early-exposed mothers have the same employment and hours as late-exposed mothers, but have accrued 0.5 to 0.6 more years of work experience and have 6 percent higher earnings. Incorporating long-run effects on EITC benefits and earnings increases the implied marginal value of public funds (MVPF) of the expansion. Our results suggest that there are steep returns to work incentives at childbirth that accumulate over the life-cycle.

 

JEL Codes: J16, J31, H2

Key Words: child penalty, EITC

Medieval Cities Through the Lens of Urban Economic Theories

May 2020

Remi Jedwab (George Washington University), Noel D. Johnson (George Mason University), and Mark Koyama (George Mason University)

IIEP working paper 2020-9

Abstract: We draw on theories and empirical findings from urban economics to explore and explain patterns of city growth in the Middle Ages (c. 800-1500 CE). We discuss how agricultural development and physical geography determined the location and size of cities during the medieval period. We also consider the relative importance of economies of scale, agglomeration, and human capital spillovers in medieval cities and discuss how their growth was limited by disamenities and constraints on mobility. We discuss how medieval cities responded to shocks such as the Black Death and describe how institutions became increasingly important in determining their trajectories. Avenues for future research are also laid out.

 

JEL Codes: R11; R12; R19; N9; N93; N95

Key Words: Medieval Era; City Growth; Urbanization; Food Surplus Hypothesis; Agglomeration Effects; Labor Mobility; Pandemics; Institutions; Europe; Asia

A Plurilateral “Single Data Area” Is the Solution to Canada’s Data Trilemma

September 2019

Susan A. Aaronson and Patrick Leblond

IIEP working paper 2020-8

Summary: With its relatively small population, Canada faces a challenge in terms of the amount of high-quality data that it can generate to support a successful data-driven economy. As a result, Canada needs to allow data to flow freely across its borders. However, it also has to provide a high-trust data environment if it wants individuals, firms and government to participate actively in such an economy. As such, Canada (and other countries) faces what can be called the data trilemma, whereby it is not possible to have simultaneously data that flows freely across borders, a high-trust data environment and a national data protection regime; one of these three objectives has to give so that only two are effectively possible at the same time.

To resolve the data trilemma, Canada should work with its key economic partners — namely the European Union, Japan and the United States — to develop a single data area that would be managed by an international data standards board. The envisioned single data area would allow for all types of personal and non-personal data to flow freely across borders while ensuring that individuals, consumers, workers, firms and governments are protected from potential harm arising from activities such as the collection, processing, use, storage or purchase/sale of data. If Canada and its economic partners share similar norms and standards for regulating data, then allowing data to flow freely across borders with these countries no longer risks undermining trust, which is crucial to a successful data-driven economy.

America’s uneven approach to AI and its consequences

April 2020

Susan A. Aaronson

IIEP working paper 2020-7

Introduction Excerpt: The world’s oceans are in trouble. Global warming is causing sea levels to rise and reducing the supply of food in the oceans. The ecological balance of the ocean has been disturbed by invasive species and cholera. Many pesticides and nutrients used in agriculture end up in the coastal waters, resulting in oxygen depletion that kills marine plants and shellfish. Meanwhile the supply of fish is declining due to overfishing. Yet to flourish, humankind requires healthy oceans; the oceans generate half of the oxygen we breathe, and, at any given moment, they contain more than 97% of the world’s water. Oceans provide at least a sixth of the animal protein people eat. Living oceans absorb carbon dioxide from the atmosphere and reduce climate change impacts. Many civil society groups (NGOs) are trying to protect this shared resource. As example, OceanMind uses satellite data and artificial intelligence (AI) to analyze the movements of vessels and compare their activities to historical patterns. The NGO can thus identify damaging behavior such as overfishing

Data Governance, AI, and Trade: Asia as a Case Study

April 2020

IIEP working paper 2020-6

Introduction Excerpt: The arc of history seems to be bending again towards the dynamic nations of Asia (Gordon: 2008). The countries and territories of the Asia Pacific region are both a locus for trade and a source of technology fueled growth. In 2017, Asia recorded the highest growth in merchandise trade volume in 2017 for both exports and imports (WTO: 2018, 32). UNCTAD reports that exports of digitally deliverable services increased substantially across all regions during the period 2005– 2018, with a compound annual growth rate ranging between 6 and 12 per cent (table III.1). Growth was the highest in developing countries, especially in Asia (UNCTAD: 2019, 66).

Artificial intelligence (AI) is already a leading source of growth for many Asian countries. The AI market in the Asia Pacific was estimated at around US $450 million in 2017 and is expected to grow at a compounded annual growth rate of 46.9% by 2022 (Ghasemi: 2018). Several analysts believe Asia’s AI growth will soon overtake the US (Lee: 2018; Ghasemi: 2018)

Data Is Dangerous: Comparing the Risks That the United States, Canada and Germany See in Data Troves

April 2020

Susan A. Aaronson

IIEP working paper 2020-5

Summary: Citizens of the United States, Canada and Germany know that the online world is simultaneously a wondrous and dangerous place. They have seen details about their activities, education, financial status and beliefs stolen, misused and manipulated. This paper attempts to examine why stores of personal data (data troves) held by private firms became a national security problem in the United States and compares the US response to that of Canada and Germany. Citizens in all three countries rely on many of the same data-driven services and give personal information to many of the same companies. German and Canadian policy makers and scholars have also warned of potential national security spillovers of large data troves. However, the three nations have defined and addressed the problem differently. US policy makers see a problem in the ownership and use of personal data (what and how) instead of in America’s own failure to adequately govern personal data. The United States has not adopted a strong national law for protecting personal data, although national security officials have repeatedly warned of the importance of doing so. Instead, the United States has banned certain apps and adopted investment reviews of foreign firms that want to acquire firms with large troves of personal data. Meanwhile, Canada and Germany see a different national security risk. They find the problem is where and how data is stored and processed. Canadian and German officials are determined to ensure that Canadian and German laws apply to Canadian and German personal and/or government data when it is stored on the cloud (often on US cloud service providers). The case studies illuminate a governance gap: personal data troves held by governments and firms can present a multitude of security risks. However, policy makers have put forward nationalistic solutions that do not reflect the global nature of the risk.

The Value of Reputation in Trade: Evidence from Alibaba

March 2020

Maggie X. Chen and Min Wu

IIEP working paper 2020-4

Abstract: We examine the role of an online reputation mechanism in international trade by exploring T-shirt exports on Alibaba. Exploiting rich transaction data and features of search and rating algorithms, we show that exporters displaying a superior reputation perform significantly better than peers with nearly identical true ratings and observables and the value of reputation rises with the level of information friction and the specificity of information. We develop a dynamic reputation model with heterogeneous cross-country information friction to quantify the effect of the reputation mechanism and find a 20-percent increase in aggregate exports fueled by a market reallocation towards superstars.

JEL Codes: F1, D8

Key Words: reputation, information, superstar, and Alibaba

Human Capital Accumulation at Work: Estimates for the World and Implications for Development

February 2020

Remi Jedwab, Asif Islam, Paul Romer, and Robert Samaniego

IIEP working paper 2020-3

Abstract: In this paper, we: (i) study wage-experience profiles and obtain measures of returns to potential work experience using data from about 24 million individuals in 1,084 household surveys and census samples across 145 countries; (ii) show that returns to work experience are strongly correlated with economic development – workers in developed countries appear to accumulate twice more human capital at work than workers in developing countries; and (iii) use a simple accounting framework to find that the contribution of work experience to human capital accumulation and economic development might be as important as the contribution of education itself.

JEL: O11; O12; O15; O47; E24; J11; J31

Keywords: Returns to Work Experience; Returns to Education; Human Capital Accumulation; Economic Development; Labor Markets; Development Accounting

The Financial Center Leverage Cycle: Does it Spread Around the World?

February 2020

Graciela Laura Kaminsky, Leandro Medina, Shiyi Wang

IIEP working paper 2020-2

Abstract: With a novel database, we examine the evolution of capital flows to the periphery since the collapse of the Bretton Woods System in the early 1970s. We decompose capital flows into global, regional, and idiosyncratic factors. In contrast to previous findings, which mostly use data from the 2000s, we find that booms and busts in capital flows are mainly explained by regional factors and not the global factor. We then ask, what drives these regional factors. Is it the leverage cycle in the financial center? What triggers the leverage cycle in the financial center? Is it a change in global investors’ risk appetite? Or, is it a change in the demand for capital in the periphery? We link leverage in the financial center to regional capital flows and the cost of borrowing in international capital markets to answer these questions. Our estimations indicate that regional capital flows are driven by supply shocks. Interestingly, we find that the leverage in the financial center has a time-varying behavior, with a movement away from lending to the emerging periphery in the 1970s to the 1990s towards lending to the advanced periphery in the 2000s.

Keywords: International Borrowing Cycles. Global and Regional Factors. Push and Pull Factors of Capital Flows. Financial Center Leverage Cycles.

JEL Codes: F30, F34, F65

 

 

 

Mismatch in Online Job Search

February 2020

Tara M. Sinclair and Martha E. Gimbel

IIEP working paper 2020-1

Abstract: Labor market mismatch is an important measure of the health of the economy but is notoriously hard to measure since it requires information on both employer needs and job seeker characteristics. In this paper we use data from a large online job search website which has detailed information on both sides of the labor market. Mismatch is measured as the dissimilarity between the distribution of job seekers across a set of predefined categories and the distribution of job vacancies across the same categories. We produce time series measures of mismatch for the US and a set of English-speaking countries from January of 2014 through December of 2019. We find that title-level mismatch is substantial, with about 33% of the labor force needing to change job titles for the US to have zero mismatch in 2019, but that it declined from 40% in 2014 as the labor market has tightened. Furthermore, over the same time period, the mix of job opportunities has shifted substantially, but in a way that has made the overall distribution of jobs more similar to the distribution of job seekers. We interpret this finding as evidence that mismatch between job seekers and employers eased due to jobs coming back in the slow recovery after the Great Recession.

JEL Codes: E24, J11, J21, J24, J40, J62

Keywords: Job search, vacancies, employment, unemployment

Distinguishing Self-interest from Greed: Ethical Constraints and Economic Efficiency

October 2019

Steven Suranovic

IIEP working paper 2019-17

Abstract: This paper demonstrates that economic efficiency is enhanced when market participants adhere to certain ethical constraints. These ethical constraints are implicit in the neoclassical economics models, but are rarely emphasized by the economics discipline in standard texts. Avoidance of this issue has contributed to many misunderstandings including the role that individual self-interest plays in promoting economic success. This paper applies the ethical principles identified here to establish a definition for greedy behavior and to distinguish it from enlightened self-interest, which is the mode of behavior required of homo economicus. The paper offers numerous examples that show that many of the negative impressions people have about economic and business activity arise largely when market participants act greedily and therefore are not conforming to the necessary ethical restrictions on homo economicus.

JEL Codes: A2, B4, P1

Key Words: Ethics, efficiency, greed, homo economicus, self-interest, economics, business ethics

Numerological Preferences, Timing of Births and the Long-term Effect on Schooling

October 2019

Cheng Huang, Xiaojing Ma, Shiying Zhang, Qingguo Zhao

IIEP working paper 2019-16

Abstract: Cultural beliefs may affect demographic behaviors. According to traditional Chinese astrology, babies born on auspicious days will have good luck in their lifetime, whereas those born on inauspicious days will have bad luck. Using administrative data from birth certificates in Guangdong, China, we provide empirical evidence on the short-term effects of such numerological preferences. We find that approximately 3.9% extra births occur on auspicious days and 1.4% of births are avoided on inauspicious days. Additionally, there is a higher male/female sex ratio for births on auspicious days. Since such manipulation of the birthdate is typically performed through scheduled C-sections, C-section births increase significantly on auspicious days. Moreover, we use a second dataset to examine the long-term effect of numerological preferences and find that people born on auspicious days are more likely to attend college.

Keywords: Numerological preferences. Birthdate . Timed births. Chinese astrology

JEL: I21 . Z10 .J13 . D19

Search for Yield in Large International Corporate Bonds: Investor Behavior and Firm Responses

November 2019

Tomas Williams, Charles W. Calomiris, Mauricio Larrain, Sergio L. Schmukler

IIEP working paper 2019-15

Abstract: Emerging market corporations have significantly increased their borrowing in international markets since 2008. We show that this increase was driven by large denomination bond issuances, most of them with face value of exactly US$500 million. Large issuances are eligible for inclusion in important international market indexes. These bonds appeal to institutional investors because they are more liquid and facilitate targeting market benchmarks. We find that the rewards of issuing index-eligible bonds rose drastically after 2008. Emerging market firms were able to cut their cost of funds by more than 76 basis points by issuing bonds with a face value equal to or greater than US$500 million relative to smaller bonds. Firms contemplating whether to take advantage of this cost saving faced a tradeoff after 2008: they could benefit from the lower yields associated with large, indexeligible bonds, but they paid the potential cost of having to hoard low-yielding cash assets if their investment opportunities were less than US$500 million. Because of the post-2008 “size yield discount,” many companies issued index-eligible bonds, while substantially increasing their cash holdings. We present evidence suggesting that these post-2008 behaviors reflected a search for yield by institutional investors into higher-risk securities. These patterns are not apparent in the issuance of investment grade bonds by firms in developed economies.

JEL Classification Codes: F21, F23, F32, F36, F65, G11, G15, G31

Keywords: benchmark indexes, bond issuance, corporate financing, emerging markets,
institutional investors

Emerging Trade Battlefield with China: Export Competition and Firms’ Coping Strategies

October 2019

Yao Pan, Katariina Nilsson Hakkala

IIEP working paper 2019-14

Abstract: This paper analyzes how intensified Chinese export competition affects the exports and product ranges of Western firms. Using a novel identification strategy that exploits changes in Chinese export policies, we find that Chinese export competition reduces aggregate product level exports of Finland. Firm-level analysis using administrative data further shows that Chinese competition leads to substantial price cuts to retain market shares, especially for homogeneous products. In addition, we also discover that firms respond to the increased level of Chinese export competition by dropping their marginal products. Taken together, these results highlight the importance of export competition with China for developed countries.

Keywords: Trade Flows, Export Competition, Firm-level, Product Mix, China

JEL Classification: F14, F61, L25

Cities of Workers, Children or Seniors? Age Structure and Economic Growth in a Global Cross-Section of Cities

August 2019

Remi Jedwab, Daniel Pereira, and Mark Roberts

IIEP working paper 2019-13

Abstract: A large literature documents the positive influence of a city’s skill structure on its rate of economic growth. By contrast, the effect of a city’s age structure on its economic growth has been a hitherto largely neglected area of research. We hypothesize that cities with more working-age adults are likely to grow faster than cities with more children or seniors and set out the potential channels through which such differential growth may occur. Using data from a variety of historical and contemporary sources, we show that there exists marked variation in the age structure of the world’s largest cities, both across cities and over time. We then study how age structure affects economic growth for a global cross-section of mega-cities. Using various identification strategies, we find that mega-cities with higher dependency ratios – i.e. with more children and/or seniors per working-age adult – grow significantly slower. Such effects are particularly pronounced for cities with high shares of children. This result appears to be mainly driven by the direct negative effects of a higher dependency ratio on the size of the working-age population and the indirect effects on work hours and productivity for working age adults within a city.

JEL: R10; R11; R19; J11; J13; J14; O11; N30

Keywords: Urbanization; Cities; Age Structure; Dependency Ratios; Children; Ageing; Demographic Cycles; Agglomeration Effects; Human Capital; Growth; Development

Divorce among European and Mexican Immigrants in the U.S

August 2019

Barry Chiswick and Christina Houseworth

IIEP working paper 2019-12

Abstract: This paper analyzes the status of being currently divorced among European and Mexican immigrants in the U.S., among themselves and in comparison to the native born of the same ancestries. The data are for males and females age 18 to 55, who married only once, in the 2010-2014 American Community Surveys.

Among immigrants, better job opportunities, measured by educational attainment, English proficiency and a longer duration in the U.S. are associated with a higher probability of being divorced. Those who married prior to migration and who first married at an older age are less likely to be divorced. Those who live in states with a higher divorce rate are more likely to be divorced. Thus, currently being divorced among immigrants is more likely for those who are better positioned in the labor market, less closely connected to their ethnic origins, and among Mexican immigrants who live in an environment in which divorce is more prevalent.

Key Words: Marriage, Divorce, Minorities, Immigrants, Gender, Human Capital

JEL Codes: J12, J15, J16, J24

How Should We Measure City Size? Theory and Evidence Within and Across Rich and Poor Countries

August 2019

Remi Jedwab, Prakash Loungani, and Anthony Yezer

IIEP working paper 2019-11

Abstract: It is obvious that holding city population constant, differences in cities across the world are enormous. Urban giants in poor countries are not large using measures such as land area, interior space or value of output. These differences are easily reconciled mathematically as population is the product of land area, structure space per unit land (i.e., heights), and population per unit interior space (i.e., crowding). The first two are far larger in the cities of developed countries while the latter is larger for the cities of developing countries. In order to study sources of diversity among cities with similar population, we construct a version of the standard urban model (SUM) that yields the prediction that the elasticity of city size with respect to income could be similar within both developing countries and developed countries. However, differences in income and urban technology can explain the physical differences between the cities of developed countries and developing countries. Second, using a variety of newly merged data sets, the predictions of the SUM for similarities and differences of cities in developed and developing countries are tested. The findings suggest that population is a sufficient statistic to characterize city differences among cities within the same country, not across countries.

JEL Codes: R13; R14; R31; R41; R42; O18; O2; O33

Keywords: Urbanization; Cities; Urban Giants; Population; Standard Urban Model; Measurement; Urban Technology; Building Heights; Sprawl; Housing; Transportation

The Economics of Missionary Expansion: Evidence from Africa and Implications for Development

May 2019

Remi Jedwab, Felix Meier zu Selhausen, and Alexander Moradi

IIEP Working Paper 2019-10

Abstract: How did Christianity expand in sub-Saharan Africa to become the continent’s dominant religion? Using annual panel data on all Christian missions from 1751 to 1932 in Ghana, as well as cross-sectional data on missions for 43 sub-Saharan African countries in 1900 and 1924, we shed light on the spatial dynamics and determinants of this religious diffusion process. Missions expanded into healthier, safer, more accessible, and more developed areas, privileging these locations first. Results are confirmed for selected factors using various identification strategies. This pattern has implications for extensive literature using missions established during colonial times as a source of variation to study the long-term economic effects of religion, human capital and culture. Our results provide a less favorable account of the impact of Christian missions on modern African economic development. We also highlight the risks of omission and endogenous measurement error biases when using historical data and events for identification.

JEL Codes: N3, N37, N95, Z12, O12, O15

Keywords: Economics of Religion; Religious Diffusion; Path Dependence; Economic Development; Compression of History; Measurement; Christianity; Africa

Economic and Political Factors in Infrastructure Investment: Evidence from Railroads and Roads in Africa 1960–2015

September 2017

Remi Jedwab and Adam Storeygard

IIEP Working Paper 2019-9

Abstract: Transport investment has played an important role in the economic development of many countries. Starting from a low base, African countries have recently initiated several massive transportation infrastructure projects. However, surprisingly little is known about the current levels, past evolution, and correlates of transportation infrastructure in Africa. In this paper, we introduce a new data set on the evolution of the stocks of railroads (1862-2015) and multiple types of roads (1960-2015) for 43 sub-Saharan African countries. First, we compare our estimates with those from other available data sets, such as the World Development Indicators. Second, we document the aggregate evolution of transportation investments over the past century in Africa. We confirm that railroads were a “colonial” transportation technology, whereas paved roads were a “post-colonial” technology. We also highlight how investment patterns have followed economic patterns. Third, we report conditional correlations between 5-year infrastructure growth and several geographic, economic and political factors during the period 1960-2015. We find strong correlations between transportation investments and economic development as well as more political factors including pre-colonial centralization, ethnic fractionalization, European settlement, natural resource dependence, and democracy. This suggests that non-economic factors may have a significant role in the ability of countries to invest in these public goods.

JEL Codes: O11; O18; O20; H54; R11; R12; R40; N77

Keywords: Transportation Infrastructure; Public Investment; Railroads; Roads; Paved Roads; Africa; Growth; Institutions; Comparative Development; History

The Average and Heterogeneous Effects of Transportation Investments: Evidence from sub-Saharan Africa 1960-2010

March 2019

Remi Jedwab and Adam Storeygard

IIEP Working Paper 2019-8

Abstract: Previous work on transportation investments has focused on average impacts in high- and middle-income countries. We estimate average and heterogeneous effects in a poor continent, Africa, using roads and cities data spanning 50 years in 39 countries. Using changes in market access due to distant road construction as a source of exogenous variation, we estimate an 30-year elasticity of city population with respect to market access of 0.06–0.18. Our results suggest that this elasticity is stronger for small and remote cities, and weaker in politically favored and agriculturally suitable areas. Access to foreign cities matters little.

JEL Codes: R11; R12; R4; O18; O20; F15; F16

Keywords: Transportation Infrastructure; Paved Roads; Urbanization; Cities; Africa; Market Access; Trade Costs; Highways; Internal Migration; Heterogeneity

Boom-Bust Capital Flow Cycles

May 2019

Graciela Laura Kaminsky

IIEP Working Paper 2019-7

Abstract: This paper examines the new trends in research on capital flows fueled by the 2007-2009 Global Crisis. Previous studies on capital flows focused on current-account imbalances and net capital flows. The Global Crisis changed that. The onset of this crisis was preceded by a dramatic increase in gross financial flows while net capital flows remained mostly subdued. The attention in academia zoomed in on gross inflows and outflows with special attention to cross border banking flows before the crisis erupted and the shift towards corporate bond issuance in its aftermath. The boom and bust in capital flows around the Global Crisis also stimulated a new area of research: capturing the “global factor.” This research adopts two different approaches. The traditional literature on the push-pull factors, which before the crisis was mostly focused on monetary policy in the financial center as the “push factor,” started to explore what other factors contribute to the comovement of capital flows as well as to amplify the role of monetary policy in the financial center on capital flows to the periphery. This new research focuses on global banks’ leverage, risk appetite, and global uncertainty. Since the “global factor” is not known, a second branch of the literature has captured this factor indirectly using dynamic common factors extracted from actual capital flows or movements in asset prices.

Keywords: The Global Crisis, Capital flow cycles, global banks, “push” and “pull” factors, corporate borrowing, global factors, dynamic latent factor models.

JEL Codes: F30, F34, F65

 

Drug Money and Bank Lending: The Unintended Consequences of Anti-Money Laundering

March 2019

Tomas Williams, Pablo Slutzky, and Mauricio Villamizar-Villegas

IIEP Working Paper 2019-5

Abstract: We explore the unintended consequences of anti-money laundering (AML) policies. For identification, we exploit the implementation of the SARLAFT system in Colombia in 2008, aimed at controlling the flow of money from drug trafficking into the financial system. We find that bank deposits in municipalities with high drug trafficking activity decline after the implementation of the new AML policy. More importantly, this negative liquidity shock has consequences for credit in municipalities with little or nil drug trafficking. Banks that source their deposits from areas with high drug trafficking activity cut lending relative to banks that source their deposits from other areas. We show that this credit shortfall negatively impacted the real economy. Using a proprietary database containing data on bank-firm credit relationships, we show that small firms that rely on credit from affected banks experience a negative shock to investment, sales, size, and profitability. Additionally, we observe a reduction in employment in small firms. Our results suggest that the implementation of the AML policy had a negative effect on the real economy.

JEL Classification: K42, G18, G21

Keywords: money laundering; organized crime; financial system; bank lending; liquidity; economic growth

Agricultural extension, intra-household allocation and malaria

March 2019

Yao Pan and Saurabh Singhal

IIEP Working Paper 2019-4

Abstract: Can agricultural development programs improve health-related outcomes? We exploit a spatial discontinuity in the coverage of a large-scale agricultural extension program in Uganda to causally identify its effects on malaria. We find that eligibility for the program reduced the proportion of household members with malaria by 8.9 percentage points, with children and pregnant women experiencing substantial improvements. An examination of the underlying mechanisms indicates that an increase in income and the resulting increase in the ownership and usage of bednets may have played a role. Taken together, these results signify the importance of financial constraints in investments for malaria prevention and the potential role that agricultural development can play in easing it.

Keywords: Malaria, Intra-household Allocation, Agricultural Extension, Regression Discontinuity, Uganda

JEL Classification: I15, I12, D13, O12, Q16.

Do Constraints on Women Worsen Child Deprivations? Framework, Measurement, and Evidence from India

March 2019

Stephen C. Smith, Alberto Posso and Lucia Ferrone

IIEP Working Paper 2019-2

Abstract: This paper provides a framework for analyzing constraints that apply specifically to women, which theory suggests may have negative impacts on child outcomes (as well as on women). We classify women’s constraints into four dimensions: (i) domestic physical and psychological abuse, (ii) low influence on household decisions, (iii) restrictions on mobility, and (iv) limited information access. Each of these constraints are in principle determined within households. We test the impact of women’s constraints on child outcomes using nationally representative household Demographic and Health Survey data from India, including 53,030 mothers and 113,708 children, collected in 2015-16. Outcomes are measured as multidimensional deprivations, utilizing UNICEF’s Multidimensional Overlapping Deprivation Analysis index, incorporating deficiencies in children’s access to water, sanitation, housing, healthcare, nutrition, education and information. Our preferred specification follows Lewbel, constructing internal heteroskedasticity-based instruments; and we present an array of additional econometric strategies and robustness checks. We find that children of women who are subjected to domestic abuse, have low influence in decision making, and limited freedom of mobility are more likely to be deprived. Specifically, our causal analysis uncovers a robust impact of women experiencing constraints in emotional abuse, restrictions on the use of household earnings, and freedom of movement to access health facilities, on child deprivation. We conclude that societal changes that relax constraints on women may have potential complementary benefits for their children. We recommend that analyses showing welfare gains of relaxing constraints on women account for potential additional intra-household benefits, examining other channels through which they operate.

JEL Classifications: I15, I25 I32, O15

Key Words: child deprivations, MODA, child health, child nutrition, education, bargaining, empowerment, domestic abuse, mobility restrictions, information access, gendered constraints, multidimensional measurement, Lewbel estimation, instrumental variables, matching

Works Councils and Workplace Health Promotion in Germany

February 2019

Stephen C. Smith, Uwe Jirjahn and Jens Mohrenweiser

IIEP Working Paper 2019-1

Abstract: From a theoretical viewpoint, there can be market failures resulting in an underprovision of occupational health and safety. Works councils may help mitigate these failures. Using establishment data from Germany, our empirical analysis confirms that the incidence of a works council is significantly associated with an increased likelihood that the establishment provides more workplace health promotion than required by law. This result also holds in a recursive bivariate probit regression accounting for the possible endogeneity of works council incidence. Furthermore, analyzing potentially moderating factors such as collective bargaining coverage, industry, type of ownership, multiestablishment status and product market competition, we find a positive association between works councils and workplace health promotion for the various types of establishments examined. Finally, we go beyond the mere incidence of workplace health promotion and show that works councils are positively associated with a series of different measures of workplace health promotion.

JEL Classification: I18, J28, J50, J81.

Keywords: Non-union employee representation, works council, occupational health and safety, workplace health promotion.

A mHealth Voice Messaging Intervention to Improve Infant and Young Child Feeding Practices in Senegal

February 2019

Shauna Downs, Jessica Fanzo, Jozefina Kalaj, Joachim Sackey, and Stephen C. Smith

IIEP Working Paper 2019-6

Abstract: Mobile health (mHealth) interventions have the potential to improve infant and young child feeding (IYCF) practices; however, gaps in the literature remain regarding their design, implementation and effectiveness. The aims of this study were to: design a mHealth voice messaging intervention delivered to mothers and fathers targeting IYCF practices and examine its implementation and impact in households with children 6-23 months in three rural villages in Senegal. We conducted focus groups (n=6) to inform the intervention development. We then conducted a pilot study (n=47 households) to examine the impact of the intervention on IYCF practices of children 6-23 months. Voice messages were sent to the children’s mothers and fathers over a period of four weeks (2 messages/week; 8 messages in total), and 24-hour dietary recalls and food frequency questionnaires (FFQs) were conducted before and immediately after the implementation of the mHealth intervention to examine its impact on IYCF practices. Overall, 3 of the 8 behaviors increased and one decreased. There was a significant increase in the number of children that consumed fish (60% vs 94%; p=0.008) as measured by the 24-hour recall after the completion of the intervention. We also found significantly higher frequency of egg (p=0.026), fish (p=0.004) and thick porridge (p=0.002) consumption in the previous 7-days measured by the FFQ. Our findings suggest that voice messaging IYCF interventions in Senegal have the potential to improve IYCF behaviors among young children in the short term. Future research should entail scaling-up the intervention and examining its sustainability over the long-term.

JEL Classification: I15, O15; Q12

Keywords: Infant and young child feeding, mHealth, behavior change communication, nutrition, horticulture, farming groups

Pandemics, Places, and Populations: Evidence from the Black Death

February 2019

Remi Jedwab, Noel D. Johnson, and Mark Koyama

IIEP Working Paper 2019-3

Abstract: The Black Death killed 40% of Europe’s population between 1347-1352, making it one of the largest shocks in the history of mankind. Despite its historical importance, little is known about its spatial effects and the effects of pandemics more generally. Using a novel dataset that provides information on spatial variation in Plague mortality at the city level, as well as various identification strategies, we explore the short-run and long-run impacts of the Black Death on city growth. On average, cities recovered their pre-Plague populations within two centuries. In addition, aggregate convergence masked heterogeneity in urban recovery. We show that both of these facts are consistent with a Malthusian model in which population returns to high-mortality locations endowed with more rural and urban fixed factors of production. Land suitability and natural and historical trade networks played a vital role in urban recovery. Our study highlights the role played by pandemics in determining both the sizes and placements of populations.

JEL: R11; R12; O11; O47; J11; N00; N13

Keywords: Pandemics; Black Death; Mortality; Path Dependence; Cities; Urbanization; Malthusian Theory; Migration; Growth; Europe

What Are We Talking about When We Talk about Digital Protectionism?

December 2018

Susan Ariel Aaronson

IIEP Working Paper 2018-13

Abstract: For almost a decade, executives, scholars, and trade diplomats have argued that filtering, censorship, localization requirements, and domestic regulations are distorting the cross-border information flows that underpin the internet. Herein I use process tracing to examine the state and implications of digital protectionism. I make five points: First, I note that digital protectionism differs from protectionism of goods and other services. Information is intangible, highly tradable, and some information is a public good. Secondly, I argue that it will not be easy to set international rules to limit digital protectionism without shared norms and definitions. Thirdly, the US, EU, and Canada have labeled other countries policies’ protectionist, yet their arguments and actions sometimes appear hypocritical. Fourth, I discuss the challenge of Chinese failure to follow key internet governance norms. China allegedly has used a wide range of cyber strategies, including distributed denial of service (DDoS) attacks (bombarding a web site with service requests) to censor information flows and impede online market access beyond its borders. WTO members have yet to discuss this issue and the threat it poses to trade norms and rules. Finally, I note that digital protectionism may be self-defeating. I then draw conclusions and make policy recommendations.

Data is Different: Why the World Needs a New Approach to Governing Cross-border Data Flows

November 2018

Susan Ariel Aaronson

IIEP Working Paper 2018-10

Executive Summary: Companies, governments and individuals are using data to create new services such as apps, artificial intelligence (AI) and the Internet of Things (IoT). These data-driven services rely on large pools of data and a relatively unhindered flow of data across borders (few market access or governance barriers). The current approach to governing cross-border data flows through trade agreements has not led to binding, universal or interoperable rules governing the use of data. Trade diplomats first established principles to govern cross-border data flows, and then drafted e-commerce language in free trade agreements (FTAs), rather than through the World Trade Organization (WTO), the most international trade agreement. Data-driven services will require a different domestic and international regulatory environment than that developed to facilitate e-commerce. Most countries with significant datadriven firms are in the process of debating how to regulate these services and the data that underpins them. But many developing countries are not able to participate in that debate. Policy makers must devise a more effective approach to regulating trade in data for four reasons: the unique nature of data as an item exchanged across borders; the sheer volume of data exchanged; the fact that much of the data exchanged across borders is personal data; and the fact that although data could be a significant source of growth, many developing countries are unprepared to participate in this new data-driven economy and to build new data-driven services. This paper begins with an overview and then describes how trade in data is different from trade in goods or services. It then examines analogies used to describe data as an input, which can help us understand how data could be regulated. Next, the paper discusses how trade policy makers are regulating trade in data and how these efforts have created a patchwork. Finally, it suggests an alternative approach.

Is There a Kuznets Curve for Intra-City Earnings Inequality?

November 2018

Haixiao Wu

IIEP Working Paper 2018-9

Abstract: Many papers have found a positive relation between income inequality and city size in the US and other countries. This literature has assumed that the relation is linear. Tests performed here find that it is concave, resembling the classic Kuznets curve. A theoretical model based on the Income Elasticity Hypothesis (IEH), explains that inequality is a concave function of housing prices that tend to increase with city size. Further tests confirm the concavity of the relation between Gini and housing costs that is predicted by the IEH. Although for most cities, inequality still rises with housing costs, if housing costs continue to grow in large cities, inequality should eventually fall, resembling the Kuznets Curve at the country level

Private Sector Policymaking

October 2018

David Szakonyi

IIEP Working Paper 2018-8

Abstract: Many papers have found a positive relation between income inequality and city size in the US and other countries. This literature has assumed that the relation is linear. Tests performed here find that it is concave, resembling the classic Kuznets curve. A theoretical model based on the Income Elasticity Hypothesis (IEH), explains that inequality is a concave function of housing prices that tend to increase with city size. Further tests confirm the concavity of the relation between Gini and housing costs that is predicted by the IEH. Although for most cities, inequality still rises with housing costs, if housing costs continue to grow in large cities, inequality should eventually fall, resembling the Kuznets Curve at the country level

Development Economics Meets the Challenges of Lagging U.S. Areas Applications to Education, Health and Nutrition, Behavior, and Infrastructure

September 2018

Stephen C. Smith

IIEP Working Paper 2018-7

Abstract: This chapter examines the development economics evidence base for insights into policy reforms that would benefit struggling areas in the United States. My focus is on improving education, physical and mental health, infrastructure, and institutions. First, consistent with findings on education policy effectiveness, I propose raising the legal minimum dropout age (prospectively to 19), providing better information about the benefits of completing high school, supporting targeted paraprofessional tutoring, and providing family financial incentives for attending school and graduating from high school. Second, to improve health outcomes in struggling areas, the focus is using and building on existing effective health and nutrition programs and services, identifying ways to include more families who are eligible for but not participating in these programs. Moreover, the recent development and behavioral economics evidence base has extended our understanding of the psychological, cognitive, and economic behavioral lives of the poor; the literature highlights the ways that poverty can impede cognitive functioning, with implications for policies to uplift lagging U.S. areas. Third, a review of evidence on the benefits of improving lagging rural and urban area transportation infrastructure points to the likely benefits of improved connectivity for lagging U.S. areas: reversing the legacy of past discriminatory policies, encouraging sector-based clusters, and extending access to high-speed internet. Finally, the chapter highlights the relevance of some cross-cutting themes in development economics, including the high returns to reliable household microdata and the importance of improving institutions to enable more inclusive, substantial, and lasting progress.

How ETFs Amplify the Global Financial Cycle in Emerging Markets

January 2018

Updated: September 2018

Tomas Williams, Nathan Converse, and Eduardo Levy-Yeyati.

IIEP Working Paper 2018-1

Abstract: Since the early 2000s exchange-traded funds (ETFs) have grown to become an important investment vehicle worldwide. In this paper, we study how their growth affects the sensitivity of international capital flows to the global financial cycle. We combine comprehensive fundlevel data on investor flows with a novel identification strategy that controls for unobservable time-varying economic conditions at the investment destination. For dedicated emerging market funds, we find that the sensitivity of investor flows to global financial conditions for equity (bond) ETFs is 2.5 (2.25) times higher than for equity (bond) mutual funds. In turn, we show that in countries where ETFs hold a larger share of financial assets, total cross-border equity flows and prices are significantly more sensitive to global financial conditions. We conclude that the growing role of ETFs as a channel for international capital flows amplifies the incidence of the global financial cycle in emerging markets.

JEL Classification: F32, G11, G15, G23

Keywords: exchange-traded funds; mutual funds; global financial cycle; global risk; push and pull factors; capital flows; emerging markets

An Examination of the Link between Urban Planning Policies and the High Cost of Housing and Labor

September 2018

Anthony Yezer, William Larson, Weihua Zhao 

IIEP Working Paper 2018-6

Abstract: Past research has established positive empirical relation between city-level land use regulations and housing costs. One interpretation of these findings is that building restrictions raise the cost of producing housing. Alternatively, these price effects could reflect greater willingness to pay for quality urban design. Disentangling and identifying cost versus amenity factors empirically is an unresolved challenge. This paper presents an alternative to empirical tests, relying instead on the predictions of neoclassical urban theory. Simulations of an open city model demonstrate that theoretical predictions differ substantially from those obtained from empirical testing in two main ways. First, restrictions on land use and housing density influence the price level but not the elasticity of housing supply. Second, the effects of land use restrictions on average house prices are ambiguous and depend on the precise location of the planning restriction. Furthermore, the model generates direct estimates of effects on wages and demonstrates that transportation impediments are more consequential for housing prices than land use restrictions. This indicates a potentially fruitful path for future empirical work, and the possibility of omitted variable bias if transportation impediments are correlated with land use regulation.

JEL Codes: R30, R31, R38

Keywords: monocentric city model, price gradient, zoning, standard urban model

Modelling Economic Development: The Lewis Model Updated

September 2018

Carmel Chiswick 

IIEP Working Paper 2018-5

Abstract: This analysis updates the dual-economy model of economic development suggested by W. Arthur Lewis in 1954. The updated aggregate model incorporates advances since then in modern labor economics and the findings of empirical studies of LDC economies and it removes Lewis’ implicit assumption that capital-formation is costless to the host LDC country. Specifying investment in human capital for both sectors refocuses attention on workers’ well-being as the ultimate measure of development. Specifying the cost of capital formation permits the distinction between earnings that recover investment costs and the “surplus” available to workers for consumption. Policy implications include resolution of tradeoffs between “trickle-down” vs. “grass roots” development policies.

Keywords: Economic development, growth, human capital, dual-economy model

Do Fed Forecast Errors Matter?

August 2018

Tara Sinclair, Pao-Lin Tien, & Edward N. Gamber 

IIEP Working Paper 2016-14

Abstract: In order to make forward-looking policy decisions, the Fed relies on imperfect forecasts of future macroeconomic conditions. If the Fed’s forecasts are rational, then the difference between the actual outcome and the Fed’s forecast can be treated as an exogenous shock. We investigate the effect of the Fed’s forecast errors on output and price movements under the assumption that the Fed intends to implement policy through a forward-looking Taylor rule with perfect foresight. Our results suggest that although the absolute magnitude of the Fed’s forecast error shock is large, the impact of the shock on the macroeconomy is reassuringly small.

Keywords: Federal Reserve, Taylor rule, forecast evaluation, monetary policy shocks

JEL Classification: E32; E31; E52; E58

Data Minefield: How AI is Prodding Governments to Rethink Trade in Data

April 2018

Susan Ariel Aaronson

IIEP Working Paper 2018-11

Key Points: No nation alone can regulate artificial intelligence (AI) because it is built on crossborder data flows; countries are just beginning to figure out how best to use and to protect various types of data that are used in AI, whether proprietary, personal, public or metadata; countries could alter comparative advantage in data through various approaches to regulating data — for example, requiring companies to pay for personal data; and Canada should carefully monitor and integrate its domestic regulatory and trade strategies related to data utilized in AI.

Opening Up Argentina to the World: Some Strategic Observations

May 2018

Danny Leipziger

IIEP Working Paper 2018-4

Introduction: Argentina is at a decisive point with respect to economic policy, and nowhere is this more apparent than in its external outlook. Exports have never been the main economic driver for economic growth, although, at times, due to domestic issues, they have played an incredibly important role. The Macri Administration has rightly identified trade and investment policies as crucial stepping-stones in the rebuilding of the economy and the repositioning of Argentina to be a competitive international player. Major domestic reforms in the areas of tax and pensions, as well as prudent macro-policies to both gradually reduce fiscal deficits and inflation, will be prerequisites for sustained positive results. These efforts need to be complemented by microeconomic reforms to improve the productivity and efficiency of the economy. This note aims to examine how Argentina, as a late mover into the global economy and as an economy that has experienced serious prior setbacks, can now position itself in a world that that requires the utmost in efficiency and innovation, and in which distance is an increasingly less important constraint to economic activity. We take as given the fact that Argentina has been somewhat isolated from global value chains, that it has not benefited as much as it should have from regional trade agreements, and that it now faces an international economy that is both less robust in terms of commercial trade and also more open to disruptive forces. In other words, Argentina faces internal as well as external obstacles in its announced desire to better integrate into the world economy

Migration and Online Job Search: A Gravity Model Approach

April 2018

Tara Sinclair and Mariano Mamertino

IIEP Working Paper 2018-3

Abstract: Most studies of migration focus on realized migration. Data on realized migration take substantial time to collect and are available to researchers and policymakers only at a significant delay. In this study we consider a new potential data source in the form of tracking the patterns of online job seekers actively searching for a job in a country other than their current home. The advance of internet job search allows job seekers to explore international employment options before making a decision to move. We characterize job seeker interest across national borders by looking at user behavior on a major job search website. We investigate the determinants of cross-border job search using a standard gravity model and find that both the determinants and the relative importance of the determinants for job search are strikingly similar to those for past realized migration. This suggests both that job seekers are likely to act on their international job search and that these data may be useful for predicting future migration patterns. We use our results to explore the labor market mobility implications of a country, such as the UK, leaving the EU and find that leaving the EU may have international immigration impacts similar to increasing the distance between the leaver and the other EU countries by over one third.

JEL Codes: J6, J4, F22, O15

Keywords: international migration, labor mobility, online labor markets, European Union, Brexit

The Rise of Patient Capital: The Political Economy of Chinese Global Finance

July 2018

Stephen Kaplan

IIEP Working Paper 2018-2

Abstract: As the United States has retreated from its lead role in globalization – first because of the 2008 financial crisis, and now under President Donald Trump’s leadership – China has become a major global financial player. China, as the world’s largest saver, has rapidly expanded its cross-border lending since the crisis, more than doubling its overseas banking presence. What are the implications? I contend that China’s state-led capitalism is an important form of patient capital, characterized by a longerterm horizon. While technically classified as mobile capital, its higher risk tolerance and geopolitical shrewdness make state-owned capital less likely to swiftly exit debtor countries. Compared to traditional mobile capital, debtor governments thus gain more policy freedom, particularly during hard times when Western creditors might otherwise impose austerity and other onerous policy conditions. Employing an originally constructed dataset, the China Global Financial Index, I conduct an econometric test across 15 Latin American countries from 1990-2015. I find that left governments are more likely to borrow from China. However, notwithstanding this initial creditor choice, Chinese state-to-state lending then uniformly leads to higher budget deficits. It endows governments with more fiscal space to intervene in their economies by reducing their reliance on conditionality-linked Western financing. These results suggest that Chinese financing could be a development opportunity, but only if governments invest wisely. Otherwise, by lending without policy conditions, China may be encouraging developing country governments to spend without bounds, sowing the seeds for future debt problems.

Can Differences Deceive? The Case of “Foreclosure Externalities”

July 2017

Anthony Yezer and Yishen Liu

IIEP Working Paper 2017-29

Abstract: Foreclosure externalities, in which recent foreclosures proximate to a housing unit depress its sales price, are well accepted in the literature. These papers use a geographic differencing strategy to eliminate the problem of selection into treatment. They also assume that the partial and total derivatives of the outcome (house value) with respect to the treatment (foreclosure) are constant and equal. This paper relaxes these assumptions producing very different results. These findings likely generalize to a larger body of research where differencing often in the form of regression discontinuity, propensity score matching, or synthetic controls is used to achieve identification while assuming total and partial derivatives of the outcome with respect to the treatment are constant and equal.

JEL: R23, R30, R31.

Keywords: Foreclosure; Specification error; Loan-to-value ratio; Externalities.

Unilateral and Multilateral Sanctions: A Network Approach

November 2017

Sumit Joshi and Ahmed Saber Mahmud 

IIEP Working Paper 2017-28 

Abstract: The extensive literature on efficacy of sanctions has been mainly focused on a dyadic interaction between sender and target. In contrast, this paper examines sanctions when the sender and target are embedded in a network of linkages to other agents and each agent’s utility is a function of the size of the agent’s component. Efficacy of sanctions is then a function of two factors: the network structure binding the sender and target, and the concavity/convexity of utility in the component size. We consider both unilateral sanctions and multilateral sanctions. We demonstrate how the network architecture, together with the specification of utility, qualifies and sometimes reverses the main tenets of the dyadic approach. We add to the recent work on identifying network architectures that sustain cooperation via the threat of exclusion by showing that the utility specification matters. Thus the same network can be efficacious for sanctions if utility is convex in component size but not if it is concave.

JEL: C72, D74, D85

Keywords: Unilateral sanctions, Multilateral sanction,  Sender, Target, Networks, Spanning trees, Cutsets

Network Formation with Multigraphs and Strategic Complementarities

November 2017

Sumit Joshi, Ahmed Saber Mahmud and Sudipta Sarangi

IIEP Working Paper 2017-27

Abstract: Economic agents are typically connected to others in multiple network relationships, and the architecture of one network could be shaped by connections in other networks. This paper examines the formation of one network when connections in a second network are inherited under two scenarios: (i) the inherited network is asymmetric allowing for a wide range of graphs called nested split graphs, and (ii) the inherited network is a symmetric type of network belonging to a subclass of regular graphs. Both the inherited and endogenously formed networks are interdependent because the respective actions in each are (weak) strategic complements. This property is su¢ cient to show that those who inherit high centrality will continue to have high centrality. Additionally, the network formed by the agents induces a coarser partition than the inherited network, suggesting the possibility of being able to improve network centrality, but only in a limited manner. Thus, our analysis explains preferential attachment and why inequality is often entrenched in society, how asymmetries in one network may be magnified or diminished in another, and what determines the identity of players occupying the various vertices of asymmetric equilibrium networks.

JEL: C72, D85

Keywords: Network formation, multigraphs, strategic complementarities, Katz-Bonacich centrality, nested split graphs.

Migration Networks and Location Decisions: Evidence from U.S. Mass Migration

September 2017

Bryan Stuart and Evan Taylor 

IIEP Working Paper 2017-26

Abstract: This paper examines the effects of birth town migration networks on location decisions. We study over one million long-run location decisions made during two landmark migration episodes by African Americans from the U.S. South and whites from the Great Plains. We develop a new method to estimate the strength of migration networks for each receiving and sending location. Our estimates imply that when one randomly chosen African American moves from a birth town to a destination county, then 1.9 additional black migrants make the same move on average. For white migrants from the Great Plains, the average is only 0.4. Networks were particularly important in connecting black migrants with attractive employment opportunities and played a larger role in less costly moves.

JEL: J61, N32, O15, R23, Z13

Keywords: migration networks, location decisions, social interactions, Great Migration

The Long-Run Effects of Recessions on Education and Income

August 2017

Bryan Stuart

IIEP Working Paper 2017-25

Abstract: This paper examines the long-run effects of the 1980-1982 recession on education and income. Using confidential Census data, I estimate difference-in-differences regressions that exploit variation across counties in recession severity and across cohorts in age at the time of the recession. For individuals age 0-10 in 1979, a 10 percent decrease in earnings per capita in their county of birth reduces four-year college degree attainment by 9 percent and income in adulthood by 3 percent. Simple calculations suggest that, in aggregate, the 1980-1982 recession led to 1-3 million fewer college graduates and $64-$145 billion less earned income per year.

JEL Classification Codes: E32, I20, I30, J13, J24

Keywords: human capital, education, income, recessions

The Effect of Social Connectedness on Crime: Evidence from the Great Migration

August 2017

Bryan Stuart and Evan Taylor

IIEP Working Paper 2017-24

Abstract: This paper estimates the effect of social connectedness on crime across U.S. cities from 1960- 2009. Migration networks among African Americans from the South generated variation across destinations in the concentration of migrants from the same birth town. Using this novel source of variation, we find that social connectedness considerably reduces murders, robberies, assaults, burglaries, larcenies, and motor vehicle thefts, with a one standard deviation increase in social connectedness reducing murders by 13 percent and motor vehicle thefts by 9 percent. Our results appear to be driven by stronger relationships among older generations reducing crime committed by youth.

JEL Classification Codes: K42, N32, R23, Z13

Keywords: crime, social connectedness, Great Migration

Governance Spillovers of Labour Provisions in Free Trade Agreements

by Susan Ariel Aaronson (George Washington University)

IIEP Working Paper 2017-2

Most people know that governments such as the US, EU, and Canada use labour rights provisions in trade agreements to improve labour rights. They believe that policymakers in the developing world will be willing to improve labour rights governance with the incentive of the trade agreement. But in this paper, Aaronson argues that these provisions have broader and equally important spillover effects upon governance. These provisions:

  • empower workers and other citizens;
  • facilitate a feedback loop between the developing country government and its citizens on a broad range of issues affecting trade;
  • promote wage and income equality, which is conducive to development, social stability and democracy;
  • help policy-makers to better integrate labour rights with other public policies (such as fiscal policy, anti-corruption policies, or criminal laws); and
  • can help citizens and policy-makers gradually improve governance, increase productivity and advance social cohesion in the community.

Aaronson used a comparative case study approach, examining both the language and studies of the effects of the provisions. For example, she finds that since 2005, U.S. agreements have included provisions in the labour rights chapter related to procedural guarantees and public awareness. The provisions require parties to encourage public participation in the development of labour rights policies. They also require that all persons have “appropriate access to tribunals”, that the “proceedings are fair, equitable, and transparent … open to the public”, give all parties the right to seek review, and educate their public about the law. Taken in sum, these provisions could empower workers (on the demand side of labour rights) through rules on public awareness, public participation, and due process rights. The EU and Canada have begun to adopt similar policies.

Aaronson provides several examples of improved governance. In Guatemala, policymakers learned to coordinate labour rights and fiscal policy so that companies could not get subsidies or avoid taxes if they were found to violate labor rights. Mexican officials learned to protect the rights of Mexican guest workers in the U.S. In 2013, with help from U.S. and Mexican civil society groups, guest workers came together to form the Sinaloa Temporary Workers’ Coalition to defend the rights of guest workers in Mexico and abroad. In 2014, the group complained to the Mexican Ministry of Labor regarding recruitment fees. The Ministry investigated and found 27 violations of the law, resulting in fines. In this example, Mexicans held their government accountable for violations of the law at home.

Aaronson notes that no one has yet done a study as to whether these provisions and consultative bodies actually empower workers. Nonetheless, in a 2016 study of trade and labour rights, the ILO noted that “the impact of labor provisions depends crucially on, first, the extent to which they involve stakeholders, notably social partners such as unions and NGOs.” Workers who are aware of their rights and able to challenge executives and government officials’ decisions are empowered. Over time, empowered workers can promote greater income equality through improved productivity and better share in profits through wage increases. Some analysts argue that this process can advance development, social cohesion and democracy, and can ensure that more people meet their potential. Moreover, these provisions may help to legitimize trade agreements and help them to gain a base of public support.

Redefining Protectionism: The New Challenge in the Digital Age

by Susan Ariel Aaronson (George Washington University)

IIEP Working Paper 2016-30

Twenty-first century protectionism is a slippery concept. With the introduction of digital trade, it is important for scholars and policymakers to rethink how they define, measure, and address protectionism. This is most clear in the United States where attitudes towards digital trade and digital protectionism have been murky at best.

While the digital is important to all countries, it is particularly important to the United States, where digital trade represents nearly 55 percent of U.S. service exports and has generated an annual trade surplus of over $150 billion. In a principal effort to limit digital protectionism and maintain an open internet for the advancement of the free flow of information, the United States made the move to create binding rules to govern trade in the Trans-Pacific Partnership and was the first country to call out digital protectionism in other nations. Policymakers now understand that information, whether it is created or altered within their county, is an asset. Therefore, measures that restrict content, limit the flow of data, or impose standards that keep out foreign competition could threaten the generativity of the internet as a whole.

However, many governments disagree with the scope and breadth of U.S. claims about digital protectionism. For example, Canadian and Australian policymakers are determined to protect the privacy of their citizens’ health records and require such information to be stored on local servers to an extent that tends to outpace U.S. standards. Adding to the confusion, U.S. arguments against digital protectionism are often inconsistent. For example, in a 2013 report on foreign trade barriers, U.S. officials complained about Japan’s uneven, and Vietnam’s unclear, approach to consumer privacy. At the same time, the United States has argued that China’s failure to enforce its privacy laws is harmful to digital trade.

Despite the importance of digital trade and digital protectionism, the United States has not thought out its stance on questions like: Is a policy truly protectionist? How harmful are these policies to U.S. interests? Are trade sanctions an appropriate response, and which agency should be responsible for making these decisions? As digital trade takes up a bigger portion of the global economy, policymakers and companies will need clarity. Given the stakes, it is important that the United States takes a leading role in defining digital protectionism.

Negative Shocks and Mass Persecutions: Evidence from the Black Death

March 2017

by Remi Jedwab (George Washington University), Mark Koyama (George Mason University) & Noel Johnson (George Mason University)

IIEP Working Paper 2017-4

The authors of this paper examine the Black Death persecutions committed against the Jewish people to demonstrate the factors that determine when a minority group will face persecution. A theoretical framework is developed that predicts that there is an increased probability that minorities are scapegoated and persecuted when negative shocks occur. However, if the shocks become more severe, the probability of persecution may decrease when economic complementarities exist between the majority and minority groups. To accomplish this, the authors gathered data on a city-level on Black Death mortality and Jewish persecution. An aggregate level showed that scapegoating led to an increase in the baseline probability of persecution. On the city-level, high plague mortality rates did not align with increased persecutions. Persecutions were found to be more likely in cities with a history of antisemitism and less likely in locations where Jews were featured in important economic roles.

The Black Death had wide-ranging social effects, and historians and economists often look to the Black Death as a direct cause of scapegoating and persecution of Jewish communities. The authors contradict this view using city-level Black Death mortality rates and Jewish persecution, demonstrating that the higher the mortality in a city, the less likely persecution would occur. This was accentuated in cities where Jews played important economic roles. They show that, while the Black Death shock was the initial impetus for antisemitic persecution in Europe, it was mainly patterns of differences in economic standing between minority and majority groups that explain local variation in persecution.

Their work contributes to several literatures, such as recent work on the economics of mass killings. They also add to literature on the relationship between shocks and the persecution of minorities, which emphasizes the role played by economic complementarities between groups, and literature on antisemitism. Their study provides a unique perspective, as well, as the Black Death provides a very well suited setting to examine the causes of mass killings.

In their framework, negative shocks can increase both the incentive to persecute a minority and to raise that minority’s economic value. The authors conclude that the decision to persecute the minority is dependent upon how the intensity of the shock interacts with the benefit one gains from persecution and the economic benefits gained from the presence of the minority. While their research suggested there are underlying biases against minorities, it also demonstrated that complementary economic activities between minority groups and majority groups could reduce inter-group aggression.

How Sustainable Are Benefits from Extension for Smallholder Farmers? Evidence from a Randomised Phase-Out of the BRAC Program in Uganda

January 2017

by Stephen C. Smith (George Washington University), Vida Bobić (George Washington University), Ram Fishman (Tel Aviv University), & Munshi Sulaiman (Save the Children)

IIEP Working Paper 2017-1