Essays on Macroeconomics and Development Georgios N. Manalis Thesis submitted for assessment with a view to obtaining the degree of Doctor of Economics of the European University Institute Florence, 28 May 2021 European University Institute Department of Economics Essays on Macroeconomics and Development Georgios N. Manalis Thesis submitted for assessment with a view to obtaining the degree of Doctor of Economics of the European University Institute Examining Board Prof. Evi Pappa, Universidad Carlos III Madrid, Supervisor Prof. Axelle Ferrière, Paris School of Economics, Co-supervisor Prof. Tasso Adamopoulos, York University Prof. Katheline Schubert, Paris School of Economics © Georgios N. Manalis, 2021 No part of this thesis may be copied, reproduced or transmitted without prior permission of the author Researcher declaration to accompany the submission of written work Department Economics - Doctoral Programme I Georgios Manalis certify that I am the author of the work 'Essays on Macroeconomics and Development' I have presented for examination for the Ph.D. at the European University Institute. I also certify that this is solely my own original work, other than where I have clearly indicated, in this declaration and in the thesis, that it is the work of others. I warrant that I have obtained all the permissions required for using any material from other copyrighted publications. I certify that this work complies with the Code of Ethics in Academic Research issued by the European University Institute (IUE 332/2/10 (CA 297). The copyright of this work rests with its author. Quotation from it is permitted, provided that full acknowledgement is made. This work may not be reproduced without my prior written consent. This authorisation does not, to the best of my knowledge, infringe the rights of any third party. I declare that this work consists of 28,378 words. Statement of inclusion of previous work: I confirm that chapter 'Mutual Insurance and land security in rural Ghana' was jointly co-authored with Mr. Karol Mazur and I contributed 50% of the work. I confirm that chapter 'Contagion as a dealmaker? The effect of financial spillovers on regional lending programs' was jointly co-authored with Mrs. Alica Ida Bonk and Mrs. Alexandra Fotiou and I contributed 33.3% of the work. Signature and date: Abstract Land Rights and risk sharing in rural West Africa: Despite arduous efforts of advancing land rights in Africa, most of the continent experiences low levels of formally recognized property. I propose a novel contextualisation of formal land titling that moti- vates a theoretical model to account for land reforms’ effects when implemented in weak institutional environments with high risk. Village communities have developed informal mechanisms of risk-sharing to provide households with a safety net, while land alloca- tion is centrally decided by traditional leaders. Therefore, when a land reform, aiming at granting individual property rights, takes place, it operates in a highly antagonistic way to the established customary rules. I build a model of risk-sharing with limited com- mitment to explain the competing forces developed between statutory land reform and informal mutual insurance at the community level. The model shows that a land reform increases the share of surplus that a villager can extract from a risk-sharing contract among community members and decreases the size of the pie available to the community. Additionally, it shows a non-monotonic relation between land allocation and productivity revealing a trade-off between output efficiency and size of risk-sharing. Subsequently, I use data from Burkina Faso to validate the theoretical predictions. Mutual insurance and land security in rural Ghana: We study the impact of land rights’ formalization on functioning of informal insurance and land re-allocations in Ghana’s rural communities. First, we provide empirical evidence suggesting that com- munities holding more of formal land titles enjoy higher land security, as measured by number of disputes due to multiple claims over land. Second, we find that land reallo- cations are more intense in those places, leading to increases in agricultural productivity and level of average consumption. Third, we show that communities with higher formal- ity of land rights enjoy improved risk-sharing against idiosyncratic shocks. Motivated by this evidence, we develop a dynamic model of land and risk sharing subject to limited commitment constraints, where the equilibrium degree of co-operation is determined by the degree of formal land rights chosen. We show that the model can rationalize our empirical findings and can serve as a useful quantitative laboratory. Most interestingly, i Essays on Macroeconomics and Development we find that although positive in the data, the effects of increasing land rights may be highly non-linear as at some point they may lead to a complete unraveling of informal co-operation in rural economies. Contagion as a dealmaker? The effect of financial spillovers on regional lend- ing programs: The recent European sovereign debt crisis highlighted the critical role of regional lending arrangements. For the first time, European mechanisms were called to design financing programmes for member countries in trouble. This paper analyses how the risk of contagion, an essential characteristic of interlinked economies, shapes borrow- ing conditions. We focus on the role of spillovers as a channel of bargaining power that a country might have when asking for financial support from regional lending institutions. We build and present a new database that records both the dates on which official meet- ings took place, relevant statements were released and the timing of the announcements regarding loan disbursements. This database allows us to assess the defining role that announcements of future actions have in mitigating spillover costs. In addition, we study the design of lending arrangements within a recursive contract between a lender and a sovereign country. When accounting for spillover costs, arising from the borrower to the creditor, we find that it is in the lender’s best interest to back-load consumption by giv- ing more weight to future transfers in order to reduce contagion cost. Subsequently, we test and validate our theoretical predictions by assessing the effect of spillovers on loan disbursements to programme-countries and by juxtaposing lending conditions imposed by the IMF and the European mechanisms. ii Acknowledgements I am indebted to Evi and Axelle who are bright examples of supervisors. Always available for meetings, guided my research, advised my steps and were always willing to give their opinion on my research attempts. I was lucky enough to meet more people that greatly assisted my research. Arpad Abraham, even though not my supervisor, plenty of times gave me precious advice, and last but not least, the two academics in my thesis committee, Tasso Adamopoulos and Katheline Schubert. Even though not knowing my work, they were more than willing to read through it and provide helpful insight that will push this research further. I would also like to thank Dimitris Xefteris, an academic I met during the late stages of my graduate studies, but who supported me substantially. Special thanks are owed to my co-authors, Alica and Karol who not only contributed in building what constitutes this thesis, but became lasting friends on the way. Alexandra holds a special place, as a friend that was always there in need and never stopped advising me on what is best for me. I am indebted to Gelly, my lifetime companion, who put up with me for all this time, rough and lovely as she has always been, during difficult times, she found the strength to support both of us. Amalia and Nicos never challenged my choices - always challenged my methods and I am deeply grateful for that. Pantelis, my older brother who never stopped taking care of me since day one and keeps on doing so. A bunch of good friends, whining for not visiting Firenze once during my studies, but always justifying my absence over holidays and never stopped believing in me. During my time in Florence, I was surrounded by a beautiful cohort and managed to make long-lasting friends. I have shared great memories with every single one of them, Essi, Chiara, Alica, Agnes, Oliko, Chiara, Ana, Carolina, Rafa, Gergo, Simon, Matteo, Brian, Adamos, Christoph, Giannis and Alejandro, and I am expecting to share many more. Outside my cohort, Alessandro, the remaining half of the dynamic duet, should be thankful for our meeting - and I am grateful that I crossed land borders for the first time in his car and for all the academic insight provided on the way. iii Essays on Macroeconomics and Development Lastly, I need to give my special thanks to the greek community in Firenze with a special reference to two prominent figures, Georgios - the man who at our very first meeting was counting how many greeks have failed the first year at the economics department and Stavros who was always there to have a drink after him scoring in Coppa. This list does not do justice to the people that in one way or another helped me go through those years. iv Contents Introduction5 1 Land rights and risk sharing in rural West Africa6 1.1 Introduction...................................7 1.2 Literature Review................................ 10 1.3 Background on the land reform in Burkina Faso............... 12 1.3.1 Loi 034/2009.............................. 12 1.3.2 Rural Land Certificate of Possession (APFR)............. 13 1.3.3 Assessment of the results of the RLG................. 13 1.4 One-Sided Limited Commitment with land re-allocation........... 15 1.5 Data from Burkina Faso............................ 22 1.5.1 Rural Land Governance Project.................... 22 1.5.2 Monitoring the progress of RLG project............... 23 1.5.3 Empirical Regularities in Burkina Faso................ 23 1.6 Evidence from the RLG programme in Burkina Faso...........