Essays in Development Economics
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Essays in Development Economics The Harvard community has made this article openly available. Please share how this access benefits you. Your story matters Citation Reed, Tristan. 2014. Essays in Development Economics. Doctoral dissertation, Harvard University. Citable link http://nrs.harvard.edu/urn-3:HUL.InstRepos:12274109 Terms of Use This article was downloaded from Harvard University’s DASH repository, and is made available under the terms and conditions applicable to Other Posted Material, as set forth at http:// nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-of- use#LAA Essays in Development Economics A dissertation presented by Tristan Reed to The Department of Economics in partial fulfillment of the requirements for the degree of Doctor of Philosophy in the subject of Economics Harvard University Cambridge, Massachusetts April 2014 c 2014 Tristan Reed All rights reserved. Dissertation Advisor: Author: Professor Andrei Shleifer Tristan Reed Essays in Development Economics Abstract This dissertation comprises three essays in development economics. Chapter One studies how constraints on the political power of elites shape economic and social life. In Sierra Leone, we document that areas in which chiefs face less political competition have significantly worse development outcomes today—in particular, lower rates of educational attainment, child health, non-agricultural employment and asset ownership. Paradoxically, we also show that in chiefdoms with less competition the institutions of chiefs’ authority are more highly respected among villagers, and measured social capital is higher. We argue that these results reflect the capture of civil society organizations by chiefs. Chapter Two develops a new “spatial Lewis model” of industrialization across space in order to study a policy of the Indian government that reallocated capital to less developed regions of the country that nonetheless had large populations. The model emphasizes that even with constant agglomeration economies across space, capital investment may have a higher social return in areas where labor can be brought in to complement it at cheaper rates. In light of the model, such redistributive policies as those of the Indian government can be seen to be welfare improving in the aggregate. Chapter Three studies the cocoa sector of Sierra Leone, where it is common for farmers and traders to engage in interlinked transactions in which output prices are determined jointly with the terms of a credit contract. We study price-pass thorough in the presence of such interlinkages. In response to an increase in a trader’s wholesale price, we find limited pass-through of the price to farmers. However we also find a large increase in the likelihood that traders provide credit to farmers, suggesting that the value of the wholesale price increase was passed to farmers along a different margin. These results, upon which we build a model to provide intuition, suggest that iii the presence of interlinkages is a candidate explanation for low rates of price pass-through that have been observed, but one with substantially different implications for welfare than others. iv Contents Abstract . iii Acknowledgments . xi Introduction 1 1 Chiefs: Economic Development and Elite Control of Civil Society in Sierra Leone 4 1.1 Introduction . 4 1.2 Historical Background . 10 1.2.1 Chiefs and Indirect Rule in Africa . 10 1.2.2 Chiefs in Sierra Leone . 10 1.2.3 Origins of Ruling Families . 14 1.2.4 Ruling Families as Political Competitors . 18 1.3 Data . 19 1.3.1 Documenting Chieftaincy Institutions . 19 1.3.2 Outcomes . 25 1.3.3 Historical and Geographic Correlates of Development . 26 1.4 The Number of Families and the Concentration of Power . 28 1.5 Number of Ruling Families and Pre-Colonial Development . 30 1.6 Main Results . 35 1.6.1 Effects on Development Outcomes . 36 1.6.2 Literacy over Time . 40 1.6.3 Property Rights . 42 1.6.4 Social Attitudes, Bridging and Bonding Social Capital and Collective Action 44 1.6.5 Robustness to Connections to Chieftaincy Elite . 52 1.7 Concluding Remarks and Implications . 52 1.8 References . 55 2 The Allocation of Capital Across Space: Evidence from India 1980-1995 60 2.1 Introduction . 60 2.2 A Spatial Lewis Model of Industrialization Across Space. 62 2.2.1 Model Preliminaries . 64 2.2.2 Spatial Equilibrium . 67 2.3 Industrial Licensing and Place-Based Industrial Policy in India . 69 v 2.3.1 Place-based policy in the model . 70 2.3.2 Industrial Licensing . 71 2.3.3 Reform . 72 2.4 Data and Summary Statistics . 73 2.4.1 Regions . 73 2.4.2 Manufacturing and Delicensing . 77 2.5 Reduced Form Effects of Delicensing Across Regions . 79 2.6 Welfare and Policy Analysis . 83 2.6.1 Aggregate Welfare . 83 2.6.2 The Planner’s Problem and Sufficient Statistics . 84 W K 2.6.3 The properties of gidt and gidt............................ 86 2.6.4 Efficiency of the Spatial Equilibrium . 88 2.7 Structural Estimates of the Spatial Lewis Model . 90 2.7.1 Predictions . 90 2.7.2 The Empirical Problem . 91 2.7.3 Estimation Procedure . 94 2.7.4 Results . 97 2.8 Counterfactual Policy Simulations . 102 2.9 Concluding Remarks . 105 2.10 References . 106 3 Interlinked Transactions and Pass-through: Experimental Evidence from Sierra Leone 109 3.1 Introduction . 109 3.2 An Experiment in the Sierra Leone Cocoa Industry . 113 3.2.1 The Sierra Leone Cocoa Value Chain . 113 3.2.2 Experimental Design . 114 3.2.3 Data and Random Assignment . 116 3.3 Experimental Results . 121 3.3.1 Price Pass-Through . 121 3.3.2 Credit . 126 3.4 A Model of Pass-Through in Interlinked Transactions . 127 3.4.1 The Economy . 129 3.4.2 The Equilibrium Contract . 132 3.4.3 Pass-Through . 135 3.4.4 Welfare Analysis With and Without Interlinkages . 137 3.5 The Substitutability of Price and Credit Pass-Through . 138 3.6 Concluding Remarks . 143 3.7 References . 143 vi Appendix A Appendix to Chapter 1 146 A.1 Chiefdom dataset . 146 A.2 An alternative measure of the concentration of power . 146 A.3 Magnitude of potential bias . 155 A.4 Literacy over time . 156 A.5 Components of asset wealth, housing quality and social capital indicies . 159 A.6 The number of ruling families and rice ecologies . 163 A.7 Placebo tests . 164 A.8 Outcomes matched on chiefdom of residence, outcomes for those residing in the chiefdom in which they were born. 164 A.9 Robustness to researcher fixed effects and illegitimate ruling families. 169 A.10 Robustness to connections to chieftaincy elite . 172 Appendix B Appendix to Chapter 2 176 B.1 Proofs of Propositions . 176 B.2 Data Appendix . 178 Appendix C Appendix to Chapter 3 182 C.1 Cocoa Quality . 182 vii List of Tables 1.1 Descriptive statistics . 21 1.2 The number of ruling families and the concentration of power over time. 30 1.3 Number of ruling families and correlates of early development . 32 1.4 Educational outcomes, results . 37 1.5 Health outcomes for children under five, results . 39 1.6 Economic outcomes, results . 41 1.7 Property rights, results . 43 1.8 Attitudes, results . 46 1.9 Social capital activities, results . 50 2.1 Correlation coefficients and means of baseline region characteristics . 76 2.2 Region industry summary statistics, by year. 78 2.3 Delicensing and the.