Geography, Institutions, and Economic Growth

One of the great debates in economics concerns the determinants of economic development, investment and growth.  Most recently, this literature has focused on whether geography or institutions play the more decisive role in determining economic development.  A major issue in this debate concerns the appropriate treatment of the endogeneity of the economic institutions themselves.  Much of the literature has been concerned with finding valid instruments to control for this endogeneity, or with finding natural experiments in which institutions changed exogenously such as the fall of the Berlin Wall.  It is probably fair to say that explanations centring on key institutions that enforce contractual arrangements and protect property rights from expropriation by the state dominate the literature at the present time.  But recent work has made a persuasive case that both institutions and geography matter by studying the interaction of colonial history and geography to identify the partial effects of institutions and geographical endowments.  An early concern of the growth literature was on how resources move from agriculture to a ‘modern’ manufacturing sector, and another recent theme takes insights on the importance of geography and institutions to return to that earlier issue of how resources move between sectors.  With the importance of ‘clusters’ of institutions now generally accepted, another strand of the literature seeks to identify in greater detail the precise mechanisms through which particular institutions enhance economic activity.

Acemoglu, D., S. Johnson, and J. A. Robinson (2001); “The Colonial Origins of Comparative Development: An Empirical Investigation.” American Economic Review, 91(5): 1369-1401. [Working paper version]

Acemoglu, D., S. Johnson, and J. A. Robinson (2002);  “Reversal of Fortune: Geography and Institutions in the Making of Modern World Income Distribution.” Quarterly Journal of Economics, 117(4): 1231-1294. [Working paper version]

Acemoglu, D., S. Johnson, and J. A. Robinson (2005); “Institutions as the Fundamental Cause of Long Run Growth.” Published in P.M. Aghion and S.N. Durlauf (eds) Handbook of Economic Growth 1A, 385–472. Amsterdam: Elsevier [Working paper version]

Auer, R. (2013); “Geography, Institutions, and the Making of Comparative Development.” Journal of Economic Growth, 18(2), pages 179-215. [Working paper version]

Dort, T., P.-G. Méon and K. Sekkat (2013); “Does Investment Spur Growth Everywhere? Not Where Institutions Are Weak.” CEB Working Paper N° 13/030. [Working paper version]

Eicher, T., and T. Schreiber (2010); “Structural Policies and Growth: Time Series Evidence from a Natural Experiment” Journal of Development Economics, 91(1): 169-179. [Working paper version]

Gallup, J.L., J.D. Sachs, and A.D. Mellinger (1998); “Geography and Economic Development.” In Annual World Bank Conference on Development Economics 1998 (April), The World Bank: Washington, DC. [Working paper version]

Hall, R.E., and C.I. Jones (1999); “Why Do Some Countries Produce So Much More Output per Worker Than Others?Quarterly Journal of Economics, 114(1): 83-116. [Working paper version]

Hibbs, D., and O. Olsson (2004); “Geography, Biogeography, and Why some Countries are Rich and Others are Poor.” Proceedings of the National Academy of Sciences, 101: 3715-3720. [Working paper version]

Lim, J., (2013) “Institutional and Structural Determinants of Investment Worldwide.” World Bank Policy Research Working Paper 6591. [Working paper version]

Klenow, P.J., and A. Rodriguez-Clare (1997); “The Neoclassical Revival in Growth Economics: Has it Gone Too Far?” Published in B. Bernanke and J. J. Rotemberg (eds.), NBER Macroeconomics Annual. Cambridge and London: MIT Press, pp. 73–103.



Welcome new members

We would like to welcome the following new members of the InsTED network

Prof Chad P. Bown (World Bank) His research interests are in the political economy of international trade laws and institutions, trade policy negotiations, and trade disputes.

Dr Qi Zhang (LSE & University of Oxford) His primary research fields are international trade, and industrial organization, with secondary fields in macroeconomics, and monetary economics.



Devaluing to Prosperity: Misaligned Currencies and Their Growth Consequences

Experts have long questioned the effect of currency undervaluation on overall GDP growth. They have viewed the underlying basis for this policy intervention in currency markets to keep the price of the home currency cheap as doomed to failure on both theoretical and empirical grounds. Moreover, the view has been that overvalued currencies hurt economic growth but undervalued currencies cannot help in growth acceleration. A parallel belief has been that the real exchange rate that is, a country’s competitive ranking cannot be affected by merely changing the nominal exchange rate. This view is grounded in the belief, and expectation, that inflation follows any devaluation of currency. Hence, the conclusion that the real exchange rate cannot be affected by policy.

However, given China’s remarkable performance in recent decades, this traditional view is being reexamined. China devalued its currency by large amounts in the 1980s and early 1990s; instead of inflation, it achieved high growth. Today, there is near-universal demand for China to significantly revalue its currency.

This book examines the veracity of various propositions relating to currency misalignments, and their effect on various items of policy interest. The author subjects more than a century of global exchange rate management and growth outcomes to rigorous empirical analysis and demonstrates convincingly that a country can systematically devalue and yet prosper.

The analysis helps in interpreting several phenomena, especially for the last three decades, which have witnessed high economic growth in developing countries, a widening of global imbalances, and a sharp increase in reserve accumulation, particularly among high-growth Asian economies. The book shows that these events are strongly linked via a consistent policy of currency undervaluation in Asian economies. [Publisher’s book website]

Book review by Michael P. Dooley in Journal of Economic Literature, 51(3): 890-891, September 2013. (Scroll down to Section F International Economics.)

Book review by G. Srinivasan in Frontline, March 2013.

Welcome new members

We would like to welcome the following new members of the InsTED network

Ahmad Lashkaripour (Penn State University) His research interests are in international trade, and industrial organization.

Prof Andrei Levchenko (University of Michigan) His research to date studies the interplay between international trade and economic institutions, the impact of trade on macroeconomic fluctuations, and the consequences of financial integration for growth, volatility, and risk-sharing.

Prof Anna Maria Mayda (Georgetown University) Her research interests are in international trade, political economy, and international migration.

China-UK-Africa trade: joint research and scoping

DFID, the Chinese Academy of International Trade and Economic Cooperation (CAITEC) and the Chinese Ministry of Commerce (MofCom) wish to explore the potential for working together to enhance the trade performance of African countries, and its development impact. They have agreed to jointly conduct a country-specific study on the potential and challenges of African trade relations with China and the UK. The first set of studies will focus on 4 countries: Ethiopia, Kenya, Nigeria and South Africa. The findings of the research will provide a basis for discussions about how the UK and China can most usefully collaborate on this issue.

As part of this joint assessment, DFID wishes to engage a service provider (SP) over a period of 1 year to conduct a research study to assess how trade, and trade-related cooperation with China and the UK can most effectively support growth, structural transformation and poverty reduction in Kenya and South Africa. In addition, the SP will be required to liaise closely with a Chinese research team under CAITEC carrying out equivalent work on Nigeria and Ethiopia, sharing information on methodologies and data sources as appropriate.

The SP will be responsible for: formulating and agreeing with CAITEC a methodology and workplan for the research; conducting the research in Kenya and South Africa; maintaining close contact with the CAITEC-led research on Nigeria and Ethiopia; and packaging and presenting the analysis and recommendations to key policy makers and practitioners representing the UK, China and the African countries.

For the purposes of this call, applicants can be an individual organisation or a consortium of organisations applying through 1 lead organisation. Applicants will need to demonstrate capability and experience in (i) delivering high quality analysis of trade and trade policy issues; (ii) managing and conducting stakeholder consultations including with the private sector as well as policymakers and government entities; (iii) getting research into use, i.e. delivering and effectively communicating well-grounded policy advice so as to achieve impact. They will also need to demonstrate how they will work with CAITEC in order to ensure coherence and quality across the overall research programme.

The contract will be issued for 1 year. The successful SP will be chosen based on technical and commercial proposals for implementation, as described in the terms of reference. (PDF, 48.5KB, 9 pages)

Potential applicants will be invited to fill in a pre-qualification questionnaire (PQQ) which will include 4 technical questions covering experience, approach and process. Up to 5 applicants will be shortlisted and invited to submit full proposals at the invitation to tender (ITT).

Interested parties can register their interest on the DFID Supplier Portal

Please note the following envisaged dates and times for PQQ:

  • PQQ intended for publication on 1 October 2013
  • PQQ envisaged response deadline: 25 October 2013 at 2.00pm

Additional information and timelines will be provided within the PQQ documentation.

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Solutions to the Lucas Paradox

The Lucas Paradox draws attention to the fact that capital should flow from rich to poor countries, but that on average the flow is in the other direction.  Lucas’ original (1990) illustration of this phenomenon was couched in terms of a neoclassical model in which two identical countries produce identical goods from a common constant returns to scale production technology.  With all else equal, differences in income per capita reflect differences in capital per capita.  Incomes are lower in the country where capital is more scarce, and returns to capital there are higher to reflect this scarcity.  If capital is allowed to flow freely between the two countries, then the higher returns in the poorer country should bring about a net capital inflow.  So why do we not tend to observe this in the data?  The theoretical literature has identified two main reasons.  The first is due to differences in features of the economy that affect production, including differences in technology, differences in the availability of human capital, differences in the stability of government and differences in the quality of underlying institutions.  The second is due to differences in the functioning of capital markets; even though the expected returns to capital in a given country may be high, a high level of uncertainty associated with the returns may dissuade capital from flowing there.  Recent empirical work has begun to substantiate these theoretical explanations.

Alfaro, L., S. Kalemli-Ozcan, and V. Volosovych, (2008); “Why Doesn’t Capital Flow from Rich to Poor Countries? An Empirical Investigation.” Review of Economics and Statistics 90(2): 347–368. [Working paper version]

Gertler, M., and K. Rogoff, (1990); “North-South Lending and Endogeneous Domestic Capital Market Inefficiencies,” Journal of Monetary Economics 26: 245–266.

Gordon, Roger H., and A. Lans Bovenberg, “Why Is Capital so Immobile Internationally? Possible Explanations and Implications for Capital Income Taxation?” American Economic Review 86: 1057–1075. [Working paper version]

King, R., and S. Rebelo, (1993); “Transitional Dynamics and Economic Growth in the Neoclassical Model.American Economic Review, 83 (1993), 908–931. [Working paper version]

Lucas, Robert E., (1990); “Why Doesn’t Capital Flow from Rich to Poor Countries?” American Economic Review 80: 92–96.

Tornell, A., and A. Velasco, (1992); “Why Does Capital Flow from Poor to Rich Countries? The Tragedy of the Commons and Economic Growth.Journal of Political Economy 100: 1208–1231. [Working paper version]

Postdoctoral Fellowships at UC Berkeley

The S.V. Ciriacy-Wantrup Postdoctoral Fellowships in Natural Resource Economics and Political Economy will be awarded for the 2014-15 academic year to support advanced research at the University of California, Berkeley.

For the purposes of this fellowship, natural resources are defined broadly to include environmental resources. The fellowship encourages, but is not limited to, policy- oriented research. Applications are open to scholars from any social science discipline and related professional fields such as law and planning, who will make significant contributions to research on natural resource economics broadly defined. Preference will be given to proposals whose orientation is broadly institutional and/or historical, and which are conceptually and theoretically innovative. Proposals with a primarily statistical or econometric purpose are not eligible for consideration.

Application deadline is December 9, 2013.

For more information, please visit:

Applicants must have received their doctorate or equivalent within the last five years. The total duration of an individual’s postdoctoral service may not exceed five years, including postdoctoral service at other institutions.

The University of California is an Equal Opportunity/Affirmative Action Employer

See here for the original posting of this advertisement.

The TRIPS Agreement and Access to Medicine

The Trade Related Aspects of Intellectual Property (TRIPS) agreement is an undertaking by members of the World Trade Organisation (WTO) to respect each others’ property rights.  At its inception, its main purpose was to protect the intellectual property rights (IPRs) of Northern firms, who have historically tended to be the main innovators, in Southern markets where imitation was prevalent.  It was granted as a quid pro quo for easier entry of Southern products into Northern markets.  Two main issues have arisen as a result of the introduction of TRIPS.  One concerns the effect on Southern industrial development, and whether this is made more difficult in the face of more stringent intellectual property protection.  The other is the effect on Southern consumers, particularly with regard to their access to medicine.  In both cases, the policy interactions can be quite intricate.  For example, even with the TRIPS agreement in place, Northern governments still have control over whether exhaustion of IPR protection is national or international, essentially governing whether Northern retailers can sell goods on in other markets that they have bought at home.  Under an amendment to the TRIPS agreement, Southern governments can license products to local producers on a compulsory basis.  And firms can decide which markets they serve.  The interaction of these policies and entry decisions has a critical bearing on the welfare implications.

Bond R. and K. Saggi, (2012); “Compulsory licensing, price controls, and access to patented foreign products.” Vanderbilt University typescript.

Branstetter L., R. Fisman and F. Foley, (2006); “Do stronger intellectual property rights increase international technology transfer? Empirical evidence from U.S. firm-level data.” Quarterly Journal of Economics, 121(1): 321–349. [Earlier version]

Branstetter L., R. Fisman, F. Foley and K. Saggi, (2011); “Does intellectual property rights reform spur industrial development?” Journal of International Economics, 83(1): 27–36. [Earlier version]

Chaudhuri, S., P .Goldberg and P. Jia, (2006); “Estimating the effects of global patent protection in pharmaceuticals: a case study of quinolones in India.” American Economic Review, 96(5): 1477–514. [Earlier version]

Goldberg P.K., (2010); “Intellectual property rights protection in developing countries: the case of pharmaceuticals.” Journal of the European Economic Association, 8(2-3): 326-353. [Earlier version]

Grossman G.M. and E. Lai, (2008); “Parallel imports and price controls.” Rand Journal of Economics, 39(2): 378–402. [Earlier version]

Ivus, O., (2010); “Do stronger patent rights raise high-tech exports to the developing world? ” Journal of International Economics, 81(1): 38–47. [Earlier version]

Javorcik B., (2004); The composition of foreign direct investment and protection of intellectual property rights in transition economiesEuropean Economic Review, 48(1):39–62. [Earlier version]

Richardson M., (2002); “An elementary proposition concerning parallel imports.” Journal of International Economics, 56(1): 233–245.

Saggi, K., (2013); “Market power in the global economy: The exhaustion and protection of intellectual property.” The Economic Journal, 123 (567): 131–161. [Earlier version]

Valletti T.M., (2006); “Differential pricing, parallel trade, and the incentive to invest.” Journal of International Economics, 70(1): 314–24.

Valletti T.M. and S. Szymanski, (2006); “Parallel trade, international exhaustion and intellectual property rights: a welfare analysis.” Journal of Industrial Economics, 54(4): 499–526. [Earlier version]

Self-Enforcing Trade: Developing Countries and WTO Dispute Settlement

The World Trade Organization — backbone of today’s international commercial relations — requires member countries to self-enforce exporters’ access to foreign markets. Its dispute settlement system is the crown jewel of the international trading system, but its benefits still fall disproportionately to wealthy nations. Could the system be doing more on behalf of developing countries? In Self-Enforcing Trade, Chad P. Bown explains why the answer is an emphatic “yes.”

Bown argues that as poor countries look to the benefits promised by globalization as part of their overall development strategy, they increasingly require access to the WTO dispute settlement process to protect their trading interests. Unfortunately, the practical realities of WTO dispute settlement as it currently stands create a number of hurdles that prevent developing countries from enjoying the trading system’s full benefits. This book confronts these challenges.

Self-Enforcing Trade examines the WTO’s “extended litigation process,” highlighting the tangle of international economics, law, and politics that participants must master. He identifies the costs that prevent developing countries from disentangling the self-enforcement process and fully using the WTO system as part of their growth strategies. Bown assesses recent efforts to help developing countries overcome those costs, including the role of the Advisory Centre on WTO Law and development focused NGOs. Bown’s proposed Institute for Assessing WTO Commitments tackles the largest remaining obstacle currently limiting developing country engagement in the WTO’s selfenforcement process — a problematic lack of information, monitoring, and surveillance. [Publisher’s book website]

Book review by Kent Jones in The Review of International Economics, 19 (4): 789-790, September 2011.

Book review by Soo Yeon Kim in The Review of International Organizations, 5 (4): 497-499, December 2010.

Book review by John Whalley in Governance, 23(4): 700-702, October 2010.

Book review by Bashar H. Malkawi in Political Studies Review, 9(3): 392, September 2011. (Scroll down to International Relations.)

Book review by Elimma C. Ezeani in Journal of International Trade Law and Policy, 9(2): 213 – 215, 2010.

Book review by Diane A. Desierto in Yale Journal of International Law, 35: 538-541, January 2010

Book review by Anastasios Gourgourinis in International Community Law Review, 12(3): 391-393, July 2010