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This study examines whether and when political embeddedness affects firms' growth. Using a dataset of Chinese A‐share firms from 2008 to 2017, we find that both organizational and individual political embeddedness in firms draws negative effects on corporate growth. Such effects mainly come from political embeddedness created by current and local political actors, compared with former and central ones. Moreover, the "grabbing effects" of political embeddedness vary contingent on focal firms' financial situation, political uncertainty, and regional economic and legal environment. That is, the "grabbing effects" are stronger for financially healthy firms than for financially distressed firms. Political uncertainty created by government official replacement refrains political actors from tunneling benefits from affiliated firms and mitigates the negative effects of political embeddedness. Both economic development and legal completeness are conducive to alleviating the "grabbing effects" of political embeddedness. Overall, our findings enrich and extend the "grabbing hand" theory. [ABSTRACT FROM AUTHOR]

Summary: The new institutional literature widely acknowledges the benefits of growth‐enhancing institutions but rarely discusses the path of institutional reform. While good institutions stabilize the structure of exchange and decrease uncertainty in market transactions, institutional reform may involve institutional volatility. If institutional volatility increases uncertainty, it can mitigate the benefits of reform. Using a sample of 89 countries from 2000‐2015, this paper empirically examines the effects of institutional volatility on economic growth. We find that institutional volatility decreases economic growth, particularly during liberalization for countries with low quality institutions and low income. In fact, a one standard deviation increase in volatility decreases growth by about 0.50 percentage points. This finding is robust to multiple estimation techniques and omitted variable bias. Evidence is provided suggesting that this effect is partially mediated through volatility's impact on private investment. These results support prior works that policy makers should pursue economic freedom, but our work indicates they should do so along a stable reform path to maximize economic growth. [ABSTRACT FROM AUTHOR]

Summary: We explore whether EU membership has led to faster economic growth. Using different estimation strategies, different time periods, different country samples, and different datasets, we are unable to demonstrate the presence of a membership growth premium. This may reflect that GDP data are too noisy and/or causal identification too complicated, in which case we should remain agnostic about the EU's growth impact. Alternatively, it may reflect that EU membership simply has no effect on economic growth. Either way, these findings urge strong caution about one of EU membership's key alleged benefits: greater economic prosperity. [ABSTRACT FROM AUTHOR]

Summary: We examine the impact of labour productivity growth of small and medium‐sized enterprises (SMEs) on labour productivity growth of large firms in a 19‐year panel of 26 European countries. We apply a dynamic panel data model that allows for macro‐level interdependencies in productivity between small and large firms. Our main finding concerns a sizable positive effect of labour productivity increases of SMEs on the productivity of large firms. This positive effect is especially evident for medium‐sized and small firms (rather than micro firms). Furthermore, the impact of SME productivity on large‐firm productivity is increasing with the size of the SME sector. Our analysis indicates that scale effects play a role in the transmission of productivity effects from SMEs to large firms, both in terms of the size of individual SMEs (medium‐sized and small versus micro) and in terms of the share of the SME sector in the economy. [ABSTRACT FROM AUTHOR]

Summary: A substantial literature exists on the effects of military expenditures on economic growth, yet no study has analyzed the effects of military occupation other than in anecdotal cases. This paper uses a panel of 214 countries from 1950 to 2013 to study how economic growth is impacted by different forms of military occupation. Transformative occupations aim to establish institutions to promote stability once the occupation ends, while subdual occupations are more malevolent in their objectives. Our results show that transformative occupations produce positive growth in occupied countries after the occupation period concludes. Separating these effects into the short run and long run, we find that while countries subject to a subdual occupation experience a short‐run increase in growth at the end of the occupation, countries with transformative occupation experience long‐run increases in growth. These findings are robust to the inclusion of traditional drivers of growth. Policy implications suggest that regional conflicts that are solved using military intervention may have lasting effects on growth as long as the intentions of the occupying force are transformative in nature. [ABSTRACT FROM AUTHOR]

Summary: Bringing together the classic defense of liberty and democracy, the political economy of hierarchy, endogenous growth theory, and the new institutional economics on growth, we propose a new institutional theory that identifies democracy's unique advantage in prompting economic growth. We contend that the channel of liberty‐to‐innovation is the most critical channel in which democracy holds a unique advantage over autocracy in promoting growth, especially during the stage of growth via innovation. Our theory thus predicts that democracy holds a positive but indirect effect upon growth via the channel of liberty‐to‐innovation, conditioned by the level of economic development. We then present quantitative evidence for our theory. To our best knowledge, we are the first to propose such an indirect and conditional effect of democracy upon economic development and provide systematic evidence. Our study promises to integrate and reconcile many seemingly unrelated and often contradictory theories and evidence regarding regime and growth, including providing a possible explanation for the inconclusive results from regressing overall regime score against the rate of economic growth or change in level of GDP per capita. [ABSTRACT FROM AUTHOR]

Summary: Using a dataset for a panel of 118 countries, this paper shows that changes in the level of education of national populations aged 45 to 64 are positively associated with economic growth. An increase of one percentage point in the share of individuals in this age group who attended secondary education is associated with a 1.2% increase in GDP per capita. In contrast, variation in the level of education in younger cohorts is not positively associated with economic growth. These results suggest that investment in education benefits society, but only in the long‐term. Several possible explanations for this finding are discussed. [ABSTRACT FROM AUTHOR]

It is widely believed that economic institutions such as competitive markets, the banking system, and the structure of property rights are essential for economic development. But why economic institutions vary across countries and what are their deep origins is still a question that is widely debated in the developmental economics literature. In this study, we provide an empirical test for the provocative hypothesis that the prevalence of infectious diseases influenced the formation of personality traits, cultural values, and even morality at the regional level (the so called Parasite- Stress Theory of Values and Sociality), which then shaped economic institutions across countries. Using the prevalence of pathogens as an instrument for cultural traits such as individualism, we show in a two-stage least squares analysis that various economic institutions, measured by different areas of the index of Economic Freedom by the Heritage Foundation, have their deep origins in the historical prevalence of infectious diseases across countries. Our causal identification strategy suggests that cultural values affect economic institutions even after controlling for a number of confounding variables, geographic controls, and for different sub-samples of countries. We further show that the results are robust to four alternative measures of economic and political institutions. [ABSTRACT FROM AUTHOR]

This paper estimates the effect of individual responsibility on economic development using an instrument derived from rainfall data. I argue that a taste for collective responsibility was adaptive in preindustrial societies that were exposed to high levels of agricultural risk, and that these attitudes continue to influence contemporary social norms and economic outcomes. The link between agricultural risk and collective responsibility is formalized in a model of optimal parental socialization effort. Empirically, I find a robust negative correlation between rainfall variation, a measure of exogenous agricultural risk, and a measure of individual responsibility. Using rainfall variation as an instrument, I find that individual responsibility has a large positive effect on economic development. The relationships between rainfall variation, individual responsibility and economic development are robust to the inclusion of variables related to climate and agricultural and institutional development. [ABSTRACT FROM AUTHOR]

This paper investigates the impact of Chinese activities in sub-Saharan African countries with respect to the growth performance of economies in that region. Using a Solow-type growth model and panel data for the period 1991 to 2010, we find that African economies that export natural resources have benefited from positive terms-of-trade effects. In addition, there is evidence for displacement effects of African firms due to competition from China. On the other hand, Chinese foreign investment and aid in Africa does not appear to have a significant impact on African growth. [ABSTRACT FROM AUTHOR]

We use a novel data set within an instrumental variables framework to test whether the presence and language of constitutional environmental rights influence environmental outcomes. The outcome variables include Yale's Environmental Performance Index and its components. We employ two-stage least squares to account for reverse causality, that is, the possibility that a country which takes steps to protect the environment might also be more likely to constitutionalize environmental rights. Our first stage theory combines constitution norms, opposition costs, and generation effects. Our controls include country income, which means that our study is also related to the Environmental Kuznets Curve literature. We find that constitutions do indeed matter for positive environmental outcomes, which suggests that we should not only pay attention to the incentives confronting polluters and resource users, but also to the incentives and constraints confronting those policymakers who initiate, monitor, and enforce environmental policies. [ABSTRACT FROM AUTHOR]

Both Spanish and French colonial education included several features that restricted education. Many of them persisted long after independence. Against this background, this paper econometrically studies whether in the recent past the colonial legacy still affected schooling in the ex-colonies of these two former colonial powers - and, for comparison, in the ex-colonies of Britain, the third of the former big three colonial powers. Using a large sample of countries and numerous controls, it finds substantial negative effects on both secondary enrollment and average years of schooling in former French and, especially, in former Spanish colonies. The negative effects on females are particularly large. By contrast, there are no effects in former British colonies. [ABSTRACT FROM AUTHOR]

Bilateral donors have recognized the need to improve the consistency of donors' policies towards developing countries. However, the impact of policy consistency on economic development has not been documented in the literature to date. Our contribution is twofold: firstly, we use the indices provided by the Center for Global Development (CGD) to construct indicators of overall donors' policies performance and donors' policies consistency at the recipient level. Secondly, we assume that the growth-consistency nexus is dynamic and our results suggest that an increase in consistency by one standard deviation increases growth on average by 1,1 percentage point. This result holds for different instrumentation strategies and robustness checks. We also highlight that the overall policy performance (OPP) increases growth above a sufficient level of donors' policies diversification and level of OPP. [ABSTRACT FROM AUTHOR]

This paper argues that democracy enhances technological change, the most important determinant of long-term economic growth. It first presents an argument on how and why dictators restrict civil liberties and diffusion of information to survive in office, even if this reduces their personal consumption. The argument predicts that autocracies have slower technological change than democracies, which in turn impairs GDP per capita growth rates. These and other implications from the argument are tested empirically, and so are implications from alternative explanations on the association between democracy and technological change. Drawing on an extensive global dataset, with some time series going back to the early 19th century, the paper reports robust evidence that democracy increases not only technology-induced growth but also net economic growth rates. Notably, the results hold when accounting for the endogeneity of democracy, country-fixed effects, and sample-selection bias. [ABSTRACT FROM AUTHOR]

Generalized morality reflects ethical norms in society about the inappropriateness of behaviors that can cause harm to others. Generalized morality may be an important factor affecting the economic performance of countries. An indicator of generalized morality is constructed from data from the World Values Survey. One question examined is whether generalized morality is correlated with economic growth rates in per capita GDP across a sample of countries, controlling for institutions and other factors expected to affect economic performance. A second question examined is whether the path by which generalized morality affects growth is direct or indirect through generalized trust. The findings reveal that generalized morality is moderately correlated with economic growth, but its effect appears to be manifested through generalized trust when economic institutions are weak. [ABSTRACT FROM AUTHOR]

Based on probit estimates, this paper analyzes the effects of fiscal consolidation on the probability of sovereign default in the short run. Using a panel of 104 developing countries from 1980 to 2009 and controlling for various economic, fiscal and political factors, we find that fiscal adjustments in general do not significantly reduce the probability of default even if they are large. Instead, the composition of budget consolidation is decisive in reducing default risk. Expenditure based adjustments are not successful while revenue based adjustments lower the probability of default in the following year by 36 to 55 percent. This finding also holds when economic growth is low or government debt is high as well as when IMF lending is taken into account. [ABSTRACT FROM AUTHOR]

Recent years have seen a significant focus in the literature on growth and development on the idea that legal and political institutions are the key determinant of economic development. The main finding of this paper is that the focus on the primacy of legal and political institutions may be misplaced and that business-friendly economic policies (proxied for here by the World Bank's Doing Business indicator) are the key determinant of the level of income per capita. We find that a country's Doing Business rank dominates a range of measures of legal and political institutional quality as an explanatory variable for income per capita. We also find the Doing Business rank to be a key explanatory variable for economic growth and that previous findings assigning a significant role to educational attainment are not robust to the inclusion of this new indicator in growth regressions. [ABSTRACT FROM AUTHOR]

This paper presents a novel analysis about the capabilities of academic researchers and academic poverty. Adopting the capability approach, which Amartya Sen developed to address concerns such as poverty, inequality and development, we shift the focus of analysis and discussion around evaluating academic research and academics in the social sciences from measures of so-called 'quality', 'impact' or 'excellence' to the capabilities of academics. For us, the conceptualization and evaluation of academic research is a question about what academics have reasons to value, and about their ability to achieve valuable beings and doings. It is also about determining what might constitute academic poverty, and what academics are required to do in order to avoid that poverty. Relating our analysis to debates around universities, in particular about quasi-market pressures, we identify the possibility of basic capabilities in academic research, namely: the capabilities that are necessary to fulfill basic academic needs. Our proposition is that there is academic poverty when an academic researcher is not capable of fulfilling basic academic needs, such as: adhering to standards of coherence, robustness and rigour; searching for and disseminating the spirit of the truth. Moreover, if the academic has the capabilities to fulfill those basic academic needs and yet chooses not to do so, she renders herself in a state akin to academic poverty. [ABSTRACT FROM AUTHOR]

This paper examines the tax administrative burden and its effect on new firm formation. It is well recognized that entrepreneurship and new firm formation are critical factors in determining economic growth and development. New firm entry into the marketplace enhances welfare in two distinct ways: 1) by promoting innovation, productivity and economic growth and 2) by increasing competition, which lowers prices and expands output. It is also well documented that barriers to entry reduce the likelihood that new firms will enter various sectors. We argue that the burden imposed by tax codes and tax compliance constitutes a barrier to entry that has been neglected in the previous literature. We use data from the World Bank to measure the administrative burden that the complexity of tax policy imposes on new firms. Additionally, we use a measure of new firm formation - entry density. Our data cover 118 countries over a period of six years. We find that the entry rate is significantly reduced by the tax administrative burden and that this effect is unrelated to general taxes on corporate profits and is robust to the inclusion of several important control variables. [ABSTRACT FROM AUTHOR]

Tolerance has the potential to affect both economic growth and wellbeing. It is therefore important to discern its determinants. We contribute to the literature by investigating whether the degree to which economic institutions and policies are market-oriented is related to different measures of tolerance. Cross-sectional and first-difference regression analysis of up to 69 countries reveals that economic freedom is positively related to tolerance towards homosexuals, especially in the longer run, while tolerance towards people of a different race and a willingness to teach kids tolerance are not strongly affected by how free markets are. Stable monetary policy and outcomes is the area of economic freedom most consistently associated with greater tolerance, but the quality of the legal system seems to matter as well. Through instrumental variables and first-difference results we find indications of a causal relationship. [ABSTRACT FROM AUTHOR]

This paper shows evidence of strong heterogeneity in the relationship between government size and growth, depending on the quality of public sector institutions. Focusing on a wide sample of developed and developing countries over the period 1981-2005, we find that government size reduces growth when bureaucracy quality is low, whereas no significant effect is observed for sufficiently high levels of bureaucracy quality. The results hold both in cross-section and panel data analyses and are robust to a large number of robustness checks. These findings have important implications for assessing the role of government size in economic growth. [ABSTRACT FROM AUTHOR]

This paper offers an integrated analysis of the forces shaping the emergence of the African slave trade over the early modern period. We focus our attention on two questions. First, why most of the increase in the demand for slaves during this period came exclusively from western Europeans. Second, and of most relevance for present-day development outcomes, why was the overwhelming majority of slaves of African origin. Technological differences in manufacturing technology, the specificities of sugar (and other crops') production, and the cultural fragmentation of the African continent all play a role in the analysis. Supporting evidence for each of our claims is provided from a broad corpus of relevant literature. [ABSTRACT FROM AUTHOR]

In this paper we concentrate on FDI and argue that the contrasting FDI policies in Brazil and India can be traced back to differences in the respective colonial (or semi-colonial) experiences of the two nations during the 19th century. Our comparative analysis of FDI in Brazil and India shows the importance of historical and institutional awareness in gaining an understanding of the manner in which each society perceived the role of foreign investments in their societies. By doing this, we gain an understanding of the reasons these countries adopted different attitudes and policies towards foreign capital. [ABSTRACT FROM AUTHOR]

Institutional quality has been increasingly identified as crucial for economic development. In line with previous work which has explored the determinants of good institutions, this paper examines the impact of economic and social inequalities between ethnic groups on government quality. I hypothesize that greater inequalities between groups will tend to undermine institutions both because they tend to legitimize corruption in the eyes of disadvantaged groups and because of the efforts of better-off groups to maintain their privileges. Based on a panel of 29 developing countries, I find that socio-economic ethnic group inequalities reduce government quality, something which suggests the convenience of policies that can level the playing field in ethnically heterogeneous societies. [ABSTRACT FROM AUTHOR]

While the incidence of education on the determination of personal income has been well documented by scholars, the same is not true when it comes to the effects of education on economic growth, where different data sets and models have yielded contradictory results. This paper shows that a democratic environment is favourable to the impact of education on economic growth, even if democracy itself may not have a direct effect. This can be at least part of the explanation for why education alone, when observed in a cross section of countries, has shown mixed effects on growth. [ABSTRACT FROM AUTHOR]

This article examines the interrelationships between democracy, economic freedoms, and economic growth. We study 24 post-communist economies over the period 1990-2007, and find that strong democratic institutions are associated with greater economic freedoms and larger public sectors and public deficits. Stronger economic freedoms lead to more rapid growth, but large public sectors and public deficits have adverse effects on growth. We identify trade freedom, monetary freedom and freedom from corruption as the most important indicators of economic freedom for growth in transition countries over the period 1994-2007. Some of the factors associated with faster growth prior to the crisis were associated with greater declines in growth during the first years of the financial crisis (2008-2009). [ABSTRACT FROM AUTHOR]

Summary The objective of this paper is to improve our understanding on how the former Italian prime minister formed and kept his exceptional political consensus despite the never-ending series of scandals in which he has been involved. Specifically, we carry out an empirical assessment of the relationship between trust in television and trust towards the prime minister. Many Italian commentators argue that television does not exert any particular bias on public opinion. If the assumption of television's irrelevance were true, one could reasonably expect to find no significant relationship between trust in TV and trust in Mr Berlusconi as prime minister. Contrary to this hypothesis, our empirical analysis shows that trust in television was the strongest predictor of trust in the Italian prime minister in Spring 2011, thus suggesting that Mr Berlusconi's media empire played a key role in the building of his political consensus. This result is based on probit and ordered logit estimates and is robust to different specifications. However, there are three reasons for which this finding could be interpreted as the fruit of a spurious correlation. First, it is difficult to distinguish the effect of trust in television from that of other phenomena that potentially influence trust in the prime minister. To deal with this problem, we include in the main equation a wide set of individual and household control variables. Second, individual effects, such as individuals' exogenous shocks, may be correlated with trust both towards television and the prime minister, thus creating a common bias. Third, as we explain in the paper, it is reasonable to assume the existence of reverse causality. To deal with the last two problems, we turn to instrumental variables ( IV) estimates. When we address endogeneity in IV estimates, trust in television remains the best (most significant and strongest) predictor of trust in the prime minister. By contrast, we find that the dependent variable is significantly and negatively correlated with educational qualification, trust in the judicial system and with a measure of tolerance towards immigrants. Even if these results pass robustness checks and hold in IV estimates, it must be remarked that the cross-sectional design of the research dictates extreme caution in the interpretation of correlations as causal relationships. Nonetheless, the paper contributes to the literature by carrying out the first econometric investigation into the role of television in individuals' political opinions, with a focus on trust towards the Italian prime minister. The relationship between television and political attitudes and beliefs is an important topic for economics, in view of the unquestionable role that political institutions, particularly the government and the prime minister, play in a country's economic performance. [ABSTRACT FROM AUTHOR]

Summary We exploit differences in the number and distribution of natural resources to estimate the presence of a curse of natural resources on economic growth. Building on a sample of 93 developing and developed countries covering the years 1980 to 2007, we show that, given the value of the resource endowment, the higher the number of resources is, the higher is a country's per-capita growth. This finding is robust to the addition of all usual controls and to the splitting of the dataset into subsamples such as non- OECD or non-African countries only. [ABSTRACT FROM AUTHOR]

SUMMARY The observation that some immigrants choose not to integrate into the host society has caused political controversies across European states. This paper hypothesizes that immigrants can exploit social networks of different scales in order to substitute for costly integration. Using a novel dataset of Turkish households in Berlin, which was specifically collected for this analysis, we investigate the determinants of integration as well as the impact of integration and networks on households' economic success. We find evidence that integration promotes income even after accounting for potential endogeneity bias. Using endogenous switching regression model, we test whether local ethnic networks can be successfully used to generate household income. In line with the view that there is a trade-off between integration and the establishment of ethnic contacts, we find that local ethnic and familial networks increase the income of unintegrated migrants, while transnational networks decrease it. Moreover, education is more income improving for integrated than non-integrated immigrants and remaining closely integrated within their own ethnic group is more economically advantageous for poorer households. These results provide evidence that integration is the rational strategy for better-off immigrants while it may be too costly for poorer immigrants. [ABSTRACT FROM AUTHOR]

SUMMARY While previous research has looked at the determinants of the quality of institutions, not much research has been done that looks at the determinants of institutional change. This paper examines what determines the probability of an improvement in political freedoms. Several path-dependent variables, such as the history of political freedom, are clearly influential. In addition to that, economic openness and improvements in ethnolinguistically similar neighbouring countries turn out to significantly influence the probability of improvement. In Africa, an improvement of political freedom is associated with a 20.1% increase in the probability of improvement in neighbouring countries, keeping everything else constant. This result is robust to the inclusion of different variables, as well as different estimation techniques. [ABSTRACT FROM AUTHOR]

Institutions, and more specifically private property rights, have come to be seen as a major determinant of long-run economic development. We evaluate the case for property rights as an explanatory factor of the Industrial Revolution and derive some lessons for the analysis of developing countries today. We pay particular attention to the role of property rights in the accumulation of physical capital and the production of new ideas. The evidence that we review from the economic history literature does not support the institutional thesis. [ABSTRACT FROM AUTHOR]

Does capitalism perform better when embedded in certain cultures? Given the wide range of economic outcomes, we address potential causes for the effectiveness or ineffectiveness of institutional constraints. This paper argues that culture matters for the success of capitalist institutions, specifically economic freedom. We claim that different cultures may raise or lower the productivity of economic institutions by either constraining or supporting these rules. We analyze this relationship empirically by examining how the interaction between economic freedom and culture affects economic growth. Our results suggest that culture does, indeed, enhance the effectiveness of capitalism and its subsequent impact on growth. [ABSTRACT FROM AUTHOR]

Despite the fact that large welfare states are vulnerable to free-riding, the idea that universal welfare states lead to higher trust levels in the population has received some attention and support among political scientists recently. This paper argues that the opposite direction of causality is more plausible, i.e. that populations with higher trust levels are more prone to creating and successfully maintaining universal welfare states with high levels of taxation where publicly financed social insurance schemes. The hypothesis is tested using instrumental variable techniques to infer variations in trust levels that pre-date current welfare states, and then using the variation in historical trust levels to explain the current size and design of the welfare state, and finally comparing the explanatory power of trust to other potential explanatory factors such as left-right ideology and economic openness. To infer variation about historical trust levels, we use three instruments, all used previously in the trust literature: the grammatical rule allowing pronoun-drop, average temperature in the coldest month and a dummy for constitutional monarchies. Using cross-sectional data for 77 countries, we show that these instruments are valid and that countries with higher historical trust levels have significantly higher public expenditure as a share of GDP and also have more regulatory freedom. This finding is robust to controlling for several other potential explanations of welfare state size. [ABSTRACT FROM AUTHOR]

Estimation of the effects of institutions on long-term growth is severely limited by the endogeneity of institutions to the choices of governments. I thus approach the model from the household level and estimate the effects of aggregate institutions on household wealth. Under the benign assumption that institutions are exogenous to household choices this model gives unbiased estimates of multiple institutional variables. Issues then arise of the basic concepts and measurements of institutional variables. I revisit these issues and present new regional level institutional variables that are representative of 151 regions in thirteen African countries and measure clear concepts of institutions. I find that regional level institutions have significant effects on household wealth in a nonlinear fashion. Fear of crime, expectations of law enforcement and corruption at multiple levels are all estimated to have significant nonlinear effects on household wealth. [ABSTRACT FROM AUTHOR]

Panel data studies typically 'average out' the error terms to be five calendar years apart such that they are less influenced by business cycle fluctuations. Using dynamic growth equations over the 'globalization years' of 1986-2004, we provide an examination of the role of government expenditures to GDP (G/Y) in long-run growth. While the yearly time span is actually not prone to serious serial correlation problems, more powerful implications follow: We do observe strong negative long-run effects of G/Y on output growth in yearly time spans, while the averaged-out 5-year panels suggest the long-run economic impact of G/Y is muted. [ABSTRACT FROM AUTHOR]

This paper first analyzes the question why did Czarist Russia and Ottoman Turkey fall behind the West? It is argued that interstate rivalry forced West European rulers to respect the private property rights of producers and subjects earlier and to a greater degree than czars or sultans ruling over huge contiguous territories ever had to. Incentives to work were better in Europe than elsewhere. The mobilization of available knowledge for productive purposes was easier than elsewhere. Limited government implied less political obstacles to innovation. Comparatively secure private property ownership in the means of production made the establishment of scarcity prices and the rational allocation of resources easier than elsewhere. Whereas the Western past was feudal, the Russian or Turkish past was patrimonial or even sultanistic. Feudalism is a much better starting point for establishing the rule of law and safe property rights than patrimonialism. The second issue has been the question why Czarist Russia could outperform Ottoman Turkey. Here the political consequences of the Muslim tolerance of slavery and polygyny matter. Being slaves, many members of Ottoman ruling elites were at the mercy of their owner, the sultan. Therefore, they became tools of arbitrary rule. Moreover, the practice of polygyny generated downward social mobility and political instability and thereby added another obstacle to the establishment of safe property rights for producers or merchants. The final issue is the economic prospects of Russia or Turkey. Economic freedom is better in Turkey than in Russia. Moreover, Russia is graying, whereas Turkey may look forward to a growing labor force. Although a rich endowment in natural resources seems to favor Russia, the resource curse has prevented other resource rich countries from developing. Therefore, the Turkish prospect looks much brighter than the Russian one. [ABSTRACT FROM AUTHOR]

Merging the impacts of interest groups on economic growth with governments' interest in unemployment and inflation, there should be a link between political business cycles and interest group formation. Interpreting Olson's Law in a short-run perspective and integrating it with political business cycles, this contribution examines the link. We illustrate how such a model could look like, before investigating the relationship of lobbies, governments and voters empirically. As the time-series-analysis based on the German lobby-list shows, lobbies strategically organize their activity to foster reelection of the governments: It takes two to tango. [ABSTRACT FROM AUTHOR]

Previous literature stresses the importance of free media for economic development. By its nature TV, radio, and newspapers cross borders, allowing citizens to easily sample media from neighboring countries. This creates pressure for domestic reform and spreads media freedom between countries. Using spatial econometric techniques, and a sample of 102 countries, we test for the presence of geographic spillovers in media freedom. We find that a country's level of media freedom significantly depends on its neighbors. Countries ‘catch’ approximately 20 percent of their media freedom from neighboring countries. Our results are robust to alternative specifications and measures of press freedom. [ABSTRACT FROM AUTHOR]

The effectiveness of EU Structural Funds on the economic performance of the receiving countries has been extensively investigated in the last twenty years. The results indicate that the impact of these funds on economic growth is conditional on the quality of the institutions of the receiving countries. In the case of countries with poor institutional quality, the effect of Structural Funds on economic growth will be negative. The reason being, that Structural Funds do affect the allocation of recourses and in countries with poor institutional quality the misallocation of resources might worsen. For example, corruption might divert funds from productive activities; increased opportunities for rent seeking might absorb resources and so on. To the extent that EU Structural Funds have a negative impact on the allocation of resources and growth this might affect the attractiveness of the country as a location for FDI. In this research we investigate the impact of EU Structural Funds on the volume of FDI inflows in EU-15 countries. The econometric analysis is based on a panel analysis of EU-15 countries for the period 1970 – 2005. We utilize a variety of econometric techniques appropriate for this kind of panel data (fixed effects, random effects, OLS and GMM estimators). The results are extremely robust to these alternative specifications. The empirical findings are consistent with the findings of previous studies regarding the determinants of FDI and indicate that the impact of EU Structural Funds on FDI inflows critically depends on the institutional quality of the receiving countries. For countries with high quality institutions the EU Structural Funds have a positive impact on FDI, for countries with low quality institutions the impact will be negative. [ABSTRACT FROM AUTHOR]

The effect of aggregate foreign direct investment (FDI) on economic growth remains uncertain in the literature. We revisit this FDI–Growth relation by analyzing the components of FDI – greenfield investment and cross-border mergers and acquisitions (M&As). Our analysis contributes to the existing literature by focusing on potentially heterogeneous growth effects of different FDI entry modes. Using a sample of 84 countries from 1987 to 2001, we separately examine the growth effects of greenfield investment and M&As. We find that greenfield investment and M&As have different impacts on economic growth. Greenfield investment promotes economic growth while M&As can be beneficial only when the host country has an adequate level of human capital. Our results provide support for receiving M&As when policymakers allocate more resources for human capital accumulation. [ABSTRACT FROM AUTHOR]

This paper examines the relationship between trust and economic growth. Taking panel data and using a fixed-effects estimation for a 41-country sample over the time period from 1980 to 2004 and with a total of 129 observations, the paper points out that economic growth is negatively related to an increase in trust. This negative finding is in contrast to most empirical findings using a cross-sectional design. The common knowledge which has governed the nature of discussions in social science and economics for the last ten years, that trust is generally positively related to economic performance, must be seriously questioned. From a policy point of view an increase in trust is crucial for countries with low levels of trust, but can likely be neglected by countries with sufficient levels of trust and may even hamper economic performance in countries with high levels of trust. The relationship is tested in the context of EU countries, OECD countries and developing countries. Interpersonal trust and systemic trust is differentiated. [ABSTRACT FROM AUTHOR]

Individual country experience with trade liberalisation has been mixed. This paper examines the relationship between liberalisation and growth for a sample of 75 liberalising countries. To consider the importance of heterogeneity in the growth response to liberalisation this paper employs quantile regression methods which allow the coefficient on liberalisation to vary across the conditional growth distribution. The results suggest that countries experiencing the lowest rates of growth benefit most from liberalisation. The results also suggest that while such countries benefit most in the long-run they are the most likely to suffer from short-run negative effects of liberalisation. [ABSTRACT FROM AUTHOR]

This paper presents panel estimates for 18 Western Europe countries to ascertain the separate impacts of domestic and transnational terrorism on income per capita growth for 1971–2004. The paper merges domestic and transnational terrorist events in order to attribute growth impacts to the two broad categories of terrorism. Each additional transnational terrorist incident per million persons reduces economic growth by about 0.4 percentage points. Domestic terrorism has a much smaller effect on growth that is about half this size. Terrorism's negative impact on growth is related to the scale of terrorism in the sample countries in order to give a better idea of what is the average consequence in most sample countries. These negative impacts are shown to stem from domestic and transnational terrorism's adverse influence on investment shares. Counterterrorism efforts also augment government spending, which crowds out growth-promoting investment. We show that the pathway by which domestic and transnational terrorism influences growth differs. For example, transnational terrorism works more through the crowding out of investment, while domestic terrorism works more through the increase in government expenditure increases. A host of sensitivity tests are performed to support our empirical model. Policy recommendations conclude the paper – e.g., measures to curb transnational terrorist attacks have a higher economic payoff than similar measures to reduce domestic terrorist events. Since transnational terrorism has a larger impact on income per capita growth than does domestic terrorism, West European efforts to curb transnational terrorism will have a greater economic dividend than efforts to limit domestic terrorism. [ABSTRACT FROM AUTHOR]

There is a surprising gap in the economic literature on social capital. First, we lack studies addressing the effects of social capital on those facets of development that can contribute in making growth more sustainable in the long run, like, for example, human development and social cohesion. Second, it is still unclear what type of networks may exert a positive effect on the different dimensions of development. In particular, the literature has not yet provided a rigorous assessment of the role of strong family ties, that are generally referred to as a form of bonding social capital causing backwardness. This paper investigates the relationship between the three types of social capital so far identified by the literature (i.e. bonding, bridging and linking), and the “quality” of economic development, as expressed by human development and an index of social well-being summarizing the state of health of urban ecosystems, public services, gender equality, and labour markets. The empirical analysis is articulated in two stages carried out by means of a multivariate analysis and of a structural equations models analysis. The results suggest that the linking social capital shaped by voluntary organizations has significantly positive effect on human development, but is irrelevant for social well-being. The bonding social capital shaped by strong family ties negatively affects human development, but significantly fosters the quality of life, mainly through a reduction of workers' precariousness. The bridging social capital of weak ties connecting friends and acquaintances follows the pattern of bonding social capital: it is reinforced by strong family ties and has significantly negative effect on human development. [ABSTRACT FROM AUTHOR]

While economic policy liberalization is a key to higher overall growth, reforms are often not implemented due to a fierce opposition from politically powerful prospective losers from reforms. In this respect, it is frequently claimed that economic crises can help overcome resistance to policy liberalization. Furthermore, political authorities not constrained by democratic checks and balances are supposed to be more decisive and are thus expected to carry out market-friendly policy change in times of crises more easily. Rules of democratic participation and checks and balances may however also be good for policy reform, as they can serve as an institutional mechanism for peaceful conflict resolution. The paper investigates empirically the interaction between economic growth performance and political institutions in producing free-market reform. We explore whether political regime types shape systematically government policy responses to good or bad growth performance, employing panel econometric techniques and using recently updated data for economic reform and political institutions. Contrary to conventional wisdom we find that a bad growth performance is conducive to reforms in democracies, but not in autocracies. Democracies not only carry out more liberal economic policies in general, but they are also more responsive to economic growth crises. Democratic rule seems to be favorable for policy liberalization, but a very good growth performance weakens liberalization incentives considerably. [ABSTRACT FROM AUTHOR]

The Grand Transition (GT) view claims that economic development is causal to institutional development, and that many institutional changes can be understood as transitions occurring at roughly the same level (zone) of development. The Primacy of Institutions (PoI) view claims that economic development is a consequence of an exogenous selection of institutions. Our survey of the empirical evidence and our own estimates reveal that it is easy to find convincing evidence supporting either of the two views. Property rights do affect development as suggested by the PoI view. However, democracy is mainly an effect of development as suggested by the GT view. We conclude that the empirical results are far too mixed to allow for a robust assessment that one of the two views is true and the other false. This finding implies that focusing on institutional development is unlikely to be successful as the key strategy for the economic development of poor countries. [ABSTRACT FROM AUTHOR]

There are three positions concerning the economic effects of human rights discussed among economists. Some economists argue that only property rights matter for economic growth and basic human rights can even make the legal system less efficient. Others argue that negative rights are generally welfare increasing while positive rights tend to reduce income and growth over time. Yet a third group of economists argues that elements of all groups of human rights are a precondition for making productive use of one's resources and are thus efficiency-enhancing. Based on a cross-country analysis, the effects of different groups of human rights on economic growth are estimated in this paper. The transmission channels through which the different rights affect growth are identified by estimating their effects on investment and overall productivity. Basic human rights have indeed a positive effect on investment, but do not seem to contribute to productivity. Social rights, in turn, are not conducive to investment in physical capital but do contribute to productivity improvements. None of the four groups of rights covered in this analysis ever has a significant negative effect on any of the economic variables included. [ABSTRACT FROM AUTHOR]

This paper uses a game theoretic model to explain empirical research which has revealed higher relational satisfaction among married couples than cohabiting couples, as well as among married couples who did not cohabit before marriage. Despite these findings, in recent decades cohabitation rates have dramatically increased in both Europe and the United States. Instrumental variables estimations on data from 28 industrialized countries and 50 U.S. states show cohabitation strongly correlated with increases in women's labor force participation, where a 10 percent increase in women's labor force participation results in a 6.4 to 14.6 percent increase in cohabitation. [ABSTRACT FROM AUTHOR]

The paper applies an alternative approach to assess whether foreign aid promotes economic growth in developing countries, based on the concept of temporary growth accelerations suggested by Hausmann, Pritchett and Rodrik. In addition to aggregate aid, we differentiate between major aid categories, including grants, loans and so-called short-impact aid. It turns out that aid flows have a small but significantly positive effect on the conditional probability of growth accelerations. This result holds across different estimation methods. However, the significance of results crucially depends on the criteria applied to identify growth accelerations. [ABSTRACT FROM AUTHOR]

This paper explores whether the probability of being punished after losing power leads dictators to restrain their level of predation and, thus, increase economic growth. To do so, a simple model of predatory rule is developed, and the consequences of an increasing probability of punishment after loosing power explored. New data on dictators' post-exit fate have permitted to estimate the predicted probability of punishment taking place by using multinomial logit. Outgoing dictators' strength and the international context are shown to be the main determinants of post-exit scenarios. The probability of punishment is proven to have a positive and significant effect on the rate of growth of GDP under alternative specifications of growth regressions. [ABSTRACT FROM AUTHOR]