This paper investigates the nexus between per capita income convergence and political institutions within the Eurozone. Employing data spanning the years 2002–2019, the research initially identifies multiple convergence clusters and subsequently examines the relationship between the creation of these clusters and different aspects of political institutions. The findings reveal that there are multiple steady states in the Eurozone, and their formation is notably influenced by political institutions alongside other conventional economic determinants derived from the Solow model. Furthermore, the study underscores that improvements in regulatory quality, as well as in aspects such as democracy, government effectiveness, and corruption control, positively impact income convergence across all member countries. These findings carry significant policy implications.

The Economic Freedom of the World report measures five dimensions of economic freedom, one of them being Sound Money. Compared to where it had been in decades for most of the West, inflation skyrocketed in 2021. Yet the indicator which measures inflation in the most recent year barely budged due to how it is specified and parameterized. This paper explores potential improvements on the methodology, although ultimately only modest improvements are achieved over simply changing the value of inflation that corresponds to zero (the lowest index score) in the simplest linear specification.

This paper advances a pre-colonial institutional thesis to explain the variation in the salience of ethnicity in African societies. It posits that pre-colonial political centralization facilitated the accumulation of economic and institutional advantages, positioning descendants of centralized ethnic groups to benefit from these advantages within postcolonial states. Social identity choices are rational; therefore, descendants of centralized ethnic groups, who enjoy greater advantages within the nation, find less incentive to choose their ethnicity over their national identity. Examples from Ethiopia and Ghana as well as the evidence from combining individual-level survey data from the Afrobarometer with historical data on pre-colonial political centralization support the theoretical claim. In particular, the paper presents both theory and evidence indicating that individuals with ancestors from politically centralized pre-colonial societies are less likely to favour their ethnic identity over their national identity . These findings underscore the importance of considering pre-colonial legacies when promoting national unity.

This paper assesses Brazil's real convergence (1822–2019) through unit root tests and Markov Regime-Switching (MS) models in three different scenarios: towards (i) other six Latin American countries (LA6); (ii) Portugal; and (iii) the technological frontier country, the US. The extended unit root test results favour Brazil's very long-run real convergence towards LA6 and Portugal, but not the US. The estimated MS models, involving two different regimes, real convergence and real non-convergence/divergence, capture institutional quality's positive effect in promoting Brazil's real convergence.

A growing strand of literature relates pro-market institutions to business and overall employment creation. However, the effects of pro-market institutions on industry-specific employment creation still need to be better understood. Employment creation in some industries may be more sensitive to pro-market institutions. Moreover, if these industries employ a large proportion of the population, the role of local-level institutions becomes more critical for boosting employment creation across industries. Therefore, we disentangle the effects of local-level pro-market institutions on employment creation across nine major industries by using 5-year balanced panel data of 374 US metropolitan areas from 1972 to 2017. Our fixed-effects results indicate that pro-market institutions boost employment creation only in the manufacturing, retail, and construction sectors. Furthermore, our findings reveal that local public policies can benefit or harm local employment creation, depending on the concentration of industries in the area.

This paper makes the most of the observed actions of bribe takers and givers from the World Bank Enterprise Surveys and studies how a taker's action influences a giver's decision to pay bribes. To motivate our empirical study, we consider Kaufmann and Wei's (1999) Stackelberg game between a tax authority and a firm that undergoes tax inspection. The model predicts that, when the authority can use its action as a credible threat for the firm's profitability, the authority disturbs the firm by inspecting more, and the firm is more likely to pay bribes. Consistent with the theoretical prediction, we find correlational evidence that the propensity to pay bribes increases with the number of inspection visits, particularly for non-democratic countries.

This paper assesses how to quantitatively classify countries as conforming to the ideal of an ‘open access order’ in the spirit of Douglass North, John Joseph Wallis, and Barry Weingast's Violence and Social Orders. It does so by taking the harmonic mean of already existing measures of economic freedom, liberal democracy, and state capacity. Thirty-five countries out of 161 in 2020 were assessed to be open access orders. A main dataset is constructed for the years 1950 to present, and a supplementary dataset for select countries is constructed for years back to 1850. Switzerland has the highest index score for open access orders in 2020, is classified to be an open access order continuously since 1950, and is the first country to be classified as an open access order (in 1875).

This paper examines the effect of frontier academic research on technological development and the way institutional quality influences this impact. Using a dataset that covers 18 OECD countries over the 2003–2017 period, we find that frontier academic research exerts an important influence on total factor productivity. First, frontier academic research induces technological change by directly enhancing production processes and management methods. Second, frontier academic research stimulates industrial innovations, which in turn improves productivity. Regarding the moderating effect of institutional variables on these relationships, we find that positive moderation only exists for some, not all, of the institutional variables. In that case, a higher level of these variables is found to strengthen the way countries reap benefits from frontier academic research and industrial innovation. However, the moderation of institutions is much less clear with the process that turns frontier academic research into industrial innovations.

This article deals with the rehabilitation of economies in post-conflict states, paying particular attention to the role played by the state in this process. Using the example of Cambodia and its policies on rice production and export, the article shows the prominent role that may be played by the state in prioritised areas of economic development where there has been market failure. In the Cambodian case, the government targeted rice production and export as these had great potential for promoting the major aims of national development policy – economic growth and poverty alleviation. Using a whole-of-government approach and a combination of direct involvement and the creation of an enabling environment, the government appears to have contributed to vastly increased rice production and export.

After the publication of the Government’s ‘Levelling Up’ White Paper, this paper reviews the role of institutions and governance structures across English regions in tackling spatial inequality and low productivity. It considers the recent history and changing roles of local and regional organisations and the overarching policy frameworks that oversee them as a key element of tackling spatial inequality and low productivity. Specifically, the paper looks at the frequent changes to institutional arrangements supporting economic development and the process of allocating competitive funds to local and regional bodies.

This paper quantitatively examines the macroeconomic effects of size-dependent financial frictions on capital misallocation and aggregate total factor productivity. Based on panel data from China’s manufacturing sector, I find that among non-state-owned enterprises, (i) the dispersion of the marginal product of capital is large and persistent and (ii) large firms tend to have higher leverage, and lower mean and dispersion of the marginal product of capital than their small counterparts. This paper analyzes a dynamic stochastic general equilibrium model with heterogeneous agents and size-dependent financial frictions. By calibrating the model to a Chinese firm-level dataset, I show that in addition to matching the aforementioned stylized facts, the economy with a size-dependent borrowing constraint is able to reproduce the observed negative correlation between firm size and the marginal product of capital, as well as generate quantitatively modest TFP loss. Furthermore, ignoring firms’ size-dependent financing patterns may lead to an overstatement of TFP loss due to financial frictions.

This article analyzes the impact of Augusto Pinochet’s autocracy on the Chilean economy. The study compares outcomes under Pinochet’s leadership with those in a synthetic counterfactual made of a weighted average of countries with similar characteristics. It finds that, relative to the control, Chilean income per capita greatly underperformed for at least the first fifteen years after Pinochet’s coup. The results are robust to extending the pool of donor countries and expanding the pretreatment period by switching data sets to capture potential heterogeneity of effects. The evidence suggests that Chile’s remarkable economic growth during the period 1985–1997 did not depend on Pinochet’s autocracy. These results further bring into question the effectiveness of the regime to enhance economic growth and the narrative of the Chilean miracle.

Populist responses to matters of social concern are considered in a framework like that of Acemoglu and Robinson’s ‘narrow corridor’ that supports liberty and justice. We discuss the risk that such responses could result in a country being pushed out of this narrow corridor—and, if so, with what long-run consequences. We conclude that a political system of ‘checks and balances’ can play a key role in keeping the society within the narrow corridor; but it is incumbent on the existing political system to confront the issues of populist concern so as to come up with creative solutions.

This scoping paper addresses the role of financial institutions in empowering the British Industrial Revolution. Prominent economic historians have argued that investment was largely funded out of savings or profits, or by borrowing from family or friends: hence financial institutions played a minor role. But this claim sits uneasily with later evidence from other countries that effective financial institutions have mattered a great deal for economic development. How can this mismatch be explained? Despite numerous technological innovations, from 1760 to 1820 industrial growth was surprisingly low. Could the underdevelopment of financial institutions have held back growth? There is relatively little data to help evaluate this hypothesis. More research is required on the historical development of institutions that enabled finance to be raised. This would include the use of property as collateral. This paper sketches the evolution of British financial institutions before 1820 and makes suggestions for further empirical research. Research in this direction should enhance our understanding of the British Industrial Revolution and of the preconditions of economic development in other countries.

Does inequality affect outcomes? To answer, we use the microcosm of Olympic competitions by asking whether a country's level of inequality diminishes its performance. If it does, is it conditional on institutional factors? We argue that the ability of economically free societies to win medals will not be affected by inequality. In these societies, institutions generate incentives to invest in the talents of individuals at the bottom of the income distribution (potential athletes otherwise constrained in the ability to expend resources on training). These effects mitigate those of inequality. The incentives that promote investments in skills across the income distribution are weaker in unfree societies and they cannot mitigate the effects of inequality. Using the Olympics of 2016 in combination with the Economic Freedom data, we find that inequality only matters in determining medal numbers for unfree countries. We link these results to inequality and its effects on economic outcomes.

Corruption is widely believed to have an adverse effect on the economic performance of a country. However, many East-and-Southeast-Asian countries either achieved or currently are achieving impressively rapid economic growth despite widespread corruption – the so-called East-Asian-Paradox. A common feature of these countries was that they were autocracies. We re-examine the corruption-growth relationship, in light of the East-Asian-Paradox. We examine the role of political regimes, in mediating corruption–growth relationship using panel data over 100 countries for the period 1984–2016. We find clear evidence that corruption–growth relationship differs by the type of political regime, and the growth-enhancing effect of corruption is more likely in autocracies than in democracies. The marginal effect analysis shows that in strongly autocratic countries, higher corruption may lead to significantly higher growth, while this is not the case in democracies. Alternatively, democracy is not good for growth if there is a high level of perceived corruption. We provide suggestive evidence that the mechanism by which corruption is growth-enhancing in autocracies is through the perceived credibility of the commitment of ruling political elites to economic freedom, thereby providing confidence to the firms to invest, leading to long-term growth.

This is the second of two papers that generate and analyze quantitative estimates of the development of English caselaw and associated legal ideas before the Industrial Revolution. In the first paper, we estimated a 100-topic structural topic model, named the topics, and showed how to interpret topic-prevalence timelines. Here, we provide examples of new insights that can be gained from these estimates. We first provide a bird's-eye view, aggregating the topics into 15 themes. Procedure is the highest-prevalence theme, but by the mid-18th century attention to procedure decreases sharply, indicating solidification of court institutions. Important ideas on real-property were substantially settled by the mid-17th century and on contracts and torts by the mid-18th century. Thus, crucial elements of caselaw developed before the Industrial Revolution. We then examine the legal ideas associated with England's financial revolution. Many new legal ideas relevant to finance were well accepted before the Glorious Revolution. Finally, we examine the sources of law used in the courts. Emphasis on precedent-based reasoning increases by 1650, but diffusion was gradual, with pertinent ideas solidifying only after 1700. Ideas on statute applicability were accepted by the mid-16th century but debates on legislative intent were still occurring in 1750.

In this paper, we examine the bi-directional relationship between financial globalization (proxied by foreign direct investment (FDI) flows) and economic institutions (proxied by central bank independence (CBI)) taking into consideration the role of political institutions. We test our argument on a sample of 48 African countries (1970–2012) using a two-step System Generalized Methods of Moments, with collapsed instruments and Windmeijer robust standard errors. Using two proxies for CBI, the study finds that while legal CBI does not have a significant impact on FDI, high central bank governor turnover rates have a significantly negative impact on FDI inflows. However, higher levels of political institutions significantly enhance the impact of legal CBI on FDI inflows, and dampen the impact of high central bank governor turnover rates on FDI inflows. The study also shows that, higher FDI inflows have a significantly positive impact on both legal and de facto CBI. This impact is accelerated in countries characterized by higher levels of political institutions.

This paper examines two potential mechanisms – access to credit and reduction in relational risks – through which social trust can affect R&D investments. Social trust can increase R&D investments by expanding firms' access to external finance with which they can use to fund promising R&D projects. It can also increase R&D investments by reducing relational risks that expose firms to ex-ante and ex-post holdups or expropriation risks. Using industry-level data on R&D investment intensities in 20 OECD countries, I test these mechanisms by evaluating whether more external finance dependent and relational risk vulnerable industries exhibit disproportional higher R&D investment intensities in trust intensive countries. The results indicate that external finance dependent industries and relational risks vulnerable industries experience relatively higher R&D investment intensities in trust-intensive countries. Therefore, the results underline access to external finance and reduction in relational risks as causal pathways linking social trust and R&D investments.

In order to credibly “sell” legitimate children to their spouse, women must forego more attractive mating opportunities. This paper derives the implications of this observation for the pattern of matching in marriage markets, the dynamics of human capital accumulation, and the evolution of the gene pool. A key consequence of the trade-off faced by women is that marriage markets will naturally tend to be hypergamous – that is, a marriage is more likely to be beneficial to both parties relative to remaining single, the greater the man’s human capital, and the lower the woman’s human capital. As a consequence, it is shown that the equilibrium can only be of two types. In the “Victorian” type, all agents marry somebody of the same rank in the distribution of income. In the “Sex and the City” (SATC) type, women marry men who are better ranked than themselves. There is a mass of unmarried men at the bottom of the distribution of human capital, and a mass of single women at the top of that distribution. It is shown that the economy switches from a Victorian to an SATC equilibrium as inequality goes up.

The model sheds light on how marriage affects the returns to human capital for men and women. Absent marriage, these returns are larger for women than for men but the opposite may occur if marriage prevails. Finally, it is shown that the institution of marriage may or may not favour human capital accumulation depending on how genes affect one’s productivity at accumulating human capital.