We study the direct and spillover effects of local state capacity using the network of Colombian municipalities. We model the determination of local and national state capacity as a network game in which each municipality, anticipating the choices and spillovers created by other municipalities and the decisions of the national government, invests in local state capacity and the national government chooses the presence of the national state across municipalities to maximize its own payoff. We then estimate the parameters of this model using reduced-form instrumental variables techniques and structurally (using GMM, simulated GMM or maximum likelihood). To do so we exploit both the structure of the network of municipalities, which determines which municipalities create spillovers on others, and the historical roots of local state capacity as the source of exogenous variation. These historical instruments are related to the presence of colonial royal roads and local presence of the colonial state in the 18th century, factors which we argue are unrelated to current provision of public goods and prosperity except through their impact on own and neighbors' local state capacity. Our estimates of the effects of state presence on prosperity are large and also indicate that state capacity decisions are strategic complements across municipalities. As a result, we find that bringing all municipalities below median to median state capacity, without taking into account equilibrium responses of other municipalities, would increase the median fraction of the population above poverty from 57% to 60%. Approximately 57% of this is due to direct effects and 43% to spillovers. However, if we take the equilibrium response of other municipalities into account, the median would instead increase to 68%, a sizable change driven by equilibrium network effects.
In this paper we revisit the relationship between democracy, redistribution and inequality. We first explain the theoretical reasons why democracy is expected to increase redistribution and reduce inequality, and why this expectation may fail to be realized when democracy is captured by the richer segments of the population; when it caters to the preferences of the middle class; or when it opens up disequalizing opportunities to segments of the population previously excluded from such activities, thus exacerbating inequality among a large part of the population. We then survey the existing empirical literature, which is both voluminous and full of contradictory results. We provide new and systematic reduced-form evidence on the dynamic impact of democracy on various outcomes. Our findings indicate that there is a significant and robust effect of democracy on tax revenues as a fraction of GDP, but no robust impact on inequality. We also find that democracy is associated with an increase in secondary schooling and a more rapid structural transformation. Finally, we provide some evidence suggesting that inequality tends to increase after democrati- zation when the economy has already undergone significant structural transformation, when land inequality is high, and when the gap between the middle class and the poor is small. All of these are broadly consistent with a view that is different from the traditional median voter model of democratic redistribution: democracy does not lead to a uniform decline in post-tax inequality, but can result in changes in fiscal redistribution and economic structure that have ambiguous effects on inequality.
We develop a model to understand the incidence of presidential and parliamentary institutions. Our analysis is predicated on two ideas: first, that minorities are relatively powerful in a parliamentary system compared to a presidential system, and second, that presidents have more power with respect to their own coalition than prime ministers do. These assumptions imply that while presidentialism has separation of powers, it does not necessarily have more checks and balances than parliamentarism. We show that presidentialism implies greater rent extraction and lower provision of public goods than parliamentarism. Moreover, political leaders prefer presidentialism and they may be supported by their own coalition if they fear losing agenda setting power to another group. We argue that the model is consistent with a great deal of qualitative information about presidentialism in Africa and Latin America.
The French Revolution of 1789 had a momentous impact on neighboring countries. The French Revolutionary armies during the 1790s and later under Napoleon invaded and controlled large parts of Europe. Together with invasion came various radical institutional changes. French invasion removed the legal and economic barriers that had protected the nobility, clergy, guilds, and urban oligarchies and established the principle of equality before the law. The evidence suggests that areas that were occupied by the French and that underwent radical institutional reform experienced more rapid urbanization and economic growth, especially after 1850. There is no evidence of a negative effect of French invasion. Our interpretation is that the Revolution destroyed (the institutional underpinnings of) the power of oligarchies and elites opposed to economic change; combined with the arrival of new economic and industrial opportunities in the second half of the 19th century, this helped pave the way for future economic growth. The evidence does not provide any support for several other views, most notably, that evolved institutions are inherently superior to those 'designed'; that institutions must be 'appropriate' and cannot be 'transplanted'; and that the civil code and other French institutions have adverse economic effects.
In a recent comment, David Albouy claims that the data series we constructed for European settler mortality in Acemoglu, Johnson and Robinson (2001) suffers from "inconsistencies, questionable judgements, and errors." He proposes two series, for "barracks" and "campaigns," that he claims are better measures of settler mortality, and shows his recodings weaken or eliminate the first-stage relationship between settler mortality and institutions today. In this note we show that his claims are without foundation. Our original coding of the data was not inconsistent, questionable, or erroneous. Instead, Albouy's results are entirely driven by inconsistent, incorrect, selective, and/or unreasonable revisions to our original data, particularly, but not exclusively, for Africa.
Colombian economic development in the 20th century poses some salient puzzles. In some dimensions Colombia looks strikingly different from other Latin American countries. Colombian economic performance has exhibited very low volatility and macroeconomic management has been excellent. However, in other dimensions Colombia looks entirely normal. Specifically, overall growth in income per-capita is remarkably close to the Latin American average, as are other socio-economic outcomes,such as inequality. In this paper I propose a simple political economy framework for explaining this paradox. I argue that political elites can adopt different strategies for maintaining power, making a distinction between clientelism and populism. I argue that the distinct features of Colombia come from the dominance of clientelism over populism, but this substitution of one instrument for another has little effect on income per-capita or inequality. Rather, underperformance in these dimensions is driven by historical processess of institution creation common to Latin American countries. The reason that in Colombian clientelism substitutes for populism are mostly to do with the continuity of the traditional political parties and governing elites.