The NBER Political Economy Program
focuses on the interaction between economic policies and outcomes and political institutions broadly defined. It is by now common for economists to recognize that purely economic forces alone cannot explain complex phenomena such as different degrees of economic development, quality and types of economic policies, income distribution, and quality of government organization such as corruption, protection of property right etc. Political institutions are important determinants of these economic outcomes. In turn, the state of the economy affects political outcomes, both in the long run and in the short. Economic development affects the evolution of institutions and short run economic conditions affect political change and elections. We will interpret "political institutions" in a broad sense and we will also be interested in related issues such as the role and evolution of legal and administrative institutions, and issues concerning social interactions. The group focuses both on developed and developing economies and both on "macroeconomic" and "microeconomic" issues including international trade and international relations.
Alberto F. Alesina, Program Director *
[The following Program Report, the most recent on this program, appeared in the 2013 Number 2 issue of the NBER Reporter.]
The NBER's Political Economy Program was created in 2006 and has flourished and expanded in a variety of directions since then, reflecting the rapidly growing interest of the profession in this area. Early on, this field was focused on issues that could be strictly defined at the connection of politics and economics. For instance, widely studied issues included the effect of elections on the economy and vice versa (political business cycles); the effect of corruption and inefficient bureaucracies; the role of the quality of institutions for long-term development; and the effects of lobbying pressures. Of course, these topics are still at the core of the field, but the most remarkable development in this area is the extension of political economics, broadly defined, to new areas. For example, many authors have studied the role of culture in determining economic choices, and the relationship between culture and institutional development. This topic has been so active that the program now has a group specifically focusing on it, directed by Alberto Bisin of New York University and Paola Giuliano of University of California, Los Angeles. Other "new" or especially active topics include: the role of the press and the determinants of its (lack of) freedom; the effects of ethnic and religious fragmentation with both new measurements and new implications for economic choices; exploration of "behavioral" (that is psychologically driven rather than rationally driven) effects applied to political action; the study of the determinants of wars; and the analysis of potential gender and race discrimination.
Political economy has even expanded methodologically. In addition to "standard" theory and regression analysis, we have seen the use of randomized trials which are common in development economics, as well as experiments in labs; new survey data have been collected; and historical research on original sources has been quite common. The coverage in terms of countries also has been very broad: from Afghanistan to Russia, China, Africa, Europe, and of course the United States. One common theme links this literature together, however: that in order to understand the world around us, we need to go beyond the assumption of "homo economicus" maximizing his welfare in isolation in an institution-free world.
Given the size and diversity of the work produced by this group, it is impossible to review every paper or even every topic touched upon. I therefore select a few of the main themes, with an apology to all the authors whose work I have not mentioned in this report.
Diversity (measured by ethnicity, language, religion, genetic makeup, and birthplace) can have positive or negative effects. On the one hand, diversity may increase productivity because of the complementarity of different skills. On the other hand, it may bring about lack of communication, difficulty in running a polity, conflict, or even civil wars. One may think of a sort of inverted U-curve: too little or too much diversity may be "bad" while an intermediate level may be productive. Research by Quamrul Ashraf and Oded Galor1 , and Johann Harnoss, Hillel Rapoport, and me2 , implies this point. The former authors measure diversity in terms of genetic makeup and argue that more successful countries historically have been those with an intermediate level of diversity. The latter work measures diversity by birthplace and shows that some diversity is positively correlated with development and productivity in a cross-section of countries.
The negative effects of diversity are especially obvious in the case of Africa. In that continent, former colonizers left behind illogical borders, which split or merge various ethnicities in ways that have nothing to do with the aspiration of local populations. The result has been failed states, slow development, civil wars, and more. Many papers have documented various aspects of this phenomenon (Stelios Michalopoulos and Elias Papaioannou3 , and William Easterly, Janina Matuszeski, and me4 ). As Nathan Nunn and Leonard Wantchekon5 point out, slave trade in Africa has increased mistrust among competing ethnic groups. Raphael Franck and Ilia Rainer6 have also studied favoritism and mistrust among African ethnic groups. Patrick Francois, Rainer, and Francesco Trebbi7 study the allocation of political power among ethnic groups, providing a carefully constructed new dataset, while Robin Burgess et al.8 document ethnic-based politics in Kenya.
Ethnic and religious diversity is not unique to Africa. Abhijit Banerjee and Rohini Pande9 , and Kaivan Munshi and Mark Rosenzweig10 document the negative effect of politics based upon ethnic identity in India. Christian Dippel11 discusses the effects of forced cohabitation of different tribes in Native American reservations.
Diversity may have different effects in different scenarios. One additional critical variable is the level of segregation. Ekaterina Zhuravskaya and I12 present a new dataset on segregation in all countries in the world, and show that the latter is negatively related to trust and the quality of institutions. Elizabeth Ananat and Ebonya Washington13 show that in the United States, racial segregation has a negative effect on the efficacy of black representatives.
Another dimension that interacts with ethnic fragmentation is income inequality. Michalopoulos, Papaioannou, and I14 provide a new measure of income differences across ethnicities in all countries and find a strong negative correlation between this variable and development. That is, the negative effects of ethnic diversity are exacerbated when they are correlated with income differences. A case in point is of course the United States, where racial tensions are exacerbated because poverty is higher among minorities.
An important and policy relevant question is what happens when individuals of different ethnic groups are forced to interact more closely than they would normally do. Yann Algan et al.15 use random allocations in Parisian housing complexes to show that more diverse condominiums are more poorly run and show more decay and less concern for public goods. David Clingingsmith, Asim Ijaz Khwaja, and Michael Kremer16 study the Muslim pilgrimage to Mecca, using the fact that in Pakistan some pilgrims are randomly chosen for support for the trips, while others are left out. By means of interviews before and after the pilgrimage, they show striking results: those who go to Mecca show more understanding after the trip and more openness to other cultures which they met there, but no decrease in hostility towards non-Muslims. Eliana La Ferrara et al.17 study random assignment in dorms in a South African University. Bisin et al.18 study how minorities may "fight" integration to preserve their identity. Jon Eguia19 discusses how discrimination may foster or reduce assimilation of minorities.
The NBER's "Economics of Culture and Institutions" meetings began in 2010. Papers presented at these meetings have covered a broad range of topics related to the persistence of culture, its evolution over time, its interaction with institutions, and its macroeconomic implications.
In order to be relevant, cultural traits have to be reasonably persistent over time. Luigi Guiso, Paola Sapienza, and Luigi Zingales20 study the historical origin of differences in social capital in Italy, tracing it back to differences in the culture of independence fostered by the free city-states experience in the North of Italy at the turn of the first millennium. Nico Voigtländer and Hans-Joachim Voth 21 find continuity of Anti-Semitism at the local level over more than half a millennium. Alesina, Giuliano, Nunn, and I 22 link differences in agricultural technologies of pre-industrial societies to actual differences in female labor force participation, and more generally to beliefs about the role of women in the society. David Atkin 23 shows how culture can be relevant in shaping nutrition patterns among Indian immigrants.
Culture is not exogenous; its interaction with institutions is particularly relevant. Differences in cultural organizations (the presence of the clan versus the city) are at the origin of differences in social, moral, and institutional developments in China versus Europe. Avner Greif and Guido Tabellini 24 argue that in China, clans were the locus of cooperation among kin, motivated by limited morality and informal institutions. In Europe, cities became the locus of cooperation among non-kin motivated by generalized morality and formal institutions. The institutional differences in turn reinforced the original organizational forms. These effects persist today. Daron Acemoglu and Matthew Jackson 25 study the interaction between history and "cooperation" in a more general way. The authors first characterize the (extreme) case under which history completely drives equilibrium, leading to social norms of high or low cooperation. In intermediate cases, the impact of history is potentially countered by leaders, whose actions are visible to future agents. Leaders can influence expectations of future agents and overturn social norms of low cooperation. These authors further show that, in equilibrium and not completely driven by history, there is a pattern of "reversion" to the original initial state of low/high cooperation. The interaction between culture and institutions can give rise to different waves of democratization. Davide Ticchi, Thierry Verdier, and Andrea Vindigni 26 develop a model in which parents invest resources in order to transmit their own political values to their children.
Many papers have investigated the relevance of the family in the transmission of culture (as in the paper by Bisin and Verdier 27 ). Recent developments in the literature show how differences in teaching practices can help and reinforce the transmission of cultural values. Algan, Pierre Cahuc, and Andrei Shleifer 28 show that teaching practices (such as teachers lecturing versus students working on projects together) exert a substantial influence on student's beliefs about cooperation, both with each other and with teachers. In developing countries, institutions like microfinance are relevant in building up social capital. Benjamin Feigenberg, Erica Marie Field, and Pande 29 exploit random variation in the meeting frequency of microfinance groups during their first loan cycle to show that more frequent meeting is associated with long-run increases in social contact and lower default.
Cultural differences broadly defined can have important macroeconomic impacts: intergenerational differences in the transmission of risk preferences influence the probability of the younger generation to become entrepreneurial. Matthias Doepke and Fabrizio Zilibotti 30 show that this has strong implications for economic growth because risk-taking entrepreneurs are essential for endogenous technological innovation. Ashraf and Galor 31 argue that variations in the interplay between cultural assimilation and cultural diffusion have played a significant role in giving rise to differential patterns of economic development across the globe. Societies that were geographically vulnerable to cultural diffusion benefited from enhanced assimilation, lower cultural diversity, and thus more intense accumulation of society-specific human capital, becoming competitive during the agricultural stage of development.
Culture, as measured by differences in social capital, also can improve aggregate productivity through facilitating greater firm decentralization. Nicholas Bloom and Raffaella Sadun 32 show that firms located in high trust regions are more likely to decentralize, even after controlling for country dummies.
Institutions, Institutional Change, and Human Capital
The discussion about cultural and institutional development is related in part to an active debate regarding whether "institutions" cause long-term development or whether human capital and culture (as we saw above) are the true driving forces, so that "good" institutions could not have a significant effect without human capital. In the last several years, Acemoglu and James Robinson (alone and with coauthors) have made a strong argument in favor on the institutionalism view. For example, their paper (with Davide Cantoni and Simon Johnson 33) describes the effects of the institutional reform imposed by Napoleonic invasions in central Europe. By comparing regions that were or were not invaded by Napoleon, they are able to study the effects of exogenously imposed institutional change. They find that the new and improved institutions for commerce and economic freedom created a positive effect, although after a long delay. Torsten Persson and Tabellini 34 argue that the weak result linking democracy to growth is due to a poor definition of the former. They show that a measure of "democratic capital", that is how long in the past a country has been a democracy, is positively correlated with growth.
On the human capital side, Edward Glaeser, Giacomo Ponzetto, and Shleifer 35 argue that for a democracy to function, it needs participation of its citizens. The latter can come about only with a certain level of human capital. Thus democracy needs education. Nicola Gennaioli et al.36 argue that different regional development is explained most strongly by different levels of human capital, holding constant national institutions. Wantchekon, Natalijia Novta, and Marko Klansja 37 suggest that what led to development in certain parts of colonial Africa were not initial institutions brought by colonialists, but the diffusion of human capital. Using data on China, Gerard Padro-i-Miquel, Nancy Qian, and Yang Yao 38 argue that some minimum level of ethnic homogeneity is necessary for democratic institutions to work properly. The importance of information to make democracy work is emphasized by a field experiment in India by Banerjee et al.39 Filipe Campante and Davin Chor 40 show that when human capital and education become inconsistent with the level of political freedom, insurgencies erupt, as the Arab Spring has shown. On the other hand, Leonardo Bursztyn and Lucas Coffman 41 document the difficulty of building human capital via public policies in poor regions of Brazil.
Obviously, neither institutions nor human capital are fundamentally exogenous: something else has to explain why certain countries acquired good institutions and/or good human capital. So, a different and perhaps better way of posing the question is, which one moves more slowly: institutional change, human capital accumulation, or to refer to the previous discussion cultural traits? And, what forces explain such slower or faster evolutions?
Politics and Elections in the United States
Obviously a central topic in the area of political economics remains the study of elections, their determinants and consequences. Most, but not all, of the papers in this area have been about U.S. elections.
David Rothschild and Justin Wolfers 42 examine the prediction of the outcomes of Presidential elections in the United States. Normally, forecasts are based on the answers to the question: "Who will you vote for?" These authors show that a better predictor of elections is the answer to the question: "Who do you think is going to win the election?" The reason is simple but powerful: the second question prompts the respondent to think about how other voters besides him will vote. Brian Knight and Nathan Schiff 43 document the effect of "momentum" in the dynamics of primary election in the United States a point also raised in a different context by Yosh Halberstam and Pablo Montagnes 44. Adam Merovitz and Kenneth Shotts 45 study the role of signaling in elections.
Seth Stephens-Davidowitz 46 measures the role of "racism" in the share of votes received by President Obama. He proposes a new measure of "racism" based upon a Google search for racial slurs in different voting districts, and finds a significant effect on President Obama's share of votes. Thus, race appears to matter in American elections. The effect of race on U.S. elections also is documented by Ananat and Washington 47, and Elizabeth Cascio and Washington study the effect of the Voting Rights Act on state funds. 48
Paola Conconi et al. 49 study the effect of votes on gun control regulation in cases of close elections, showing that congressmen are more likely to vote pro-gun when they face close races. In terms of their efficacy, state-based gun laws are evaluated by Knight 50 , who shows that the traffic of guns circumvents state prohibitions. Conconi, Giovanni Facchini, and Maurizio Zanardi 51 study electoral incentives on voting for-or-against Trade Reforms in the U.S. Congress. Marianne Bertrand, Matilde Bombardini, and Trebbi 52 investigate the function of lobbying in the United States, and Gergely Ujhelyi 53 studies the working of state bureaucracies.
The recent financial crisis has revived interest in the political economy of financial markets. For instance, Sumit Agarwal et al. 54 study the inconsistent behavior of regulators, which has increased confusion in markets because state-versus-federal regulations have not been well coordinated. Deniz Igan, Prachi Mishra, and Thierry Tressel 55 also investigate lobbying during the financial crisis.
Other topics covered in the Political Economy Program include the role of the press in determining political outcomes and the determination of press freedom 56 ; the determinants of international and civil wars 57 ; the effect of corruption and public procurements 58 ; and the political economy of fiscal policy in the context of the European crisis 59 ; gender issues 60 . In summary, the field of Political Economy, and the NBER Program in this field, are both thriving
* Alesina directs the NBER's Program on Political Economy and is a professor of economics at Harvard University.
1. Q. Ashraf and O. Galor, "The 'Out of Africa' Hypothesis, Human Genetic Diversity, and Comparative Economic Development," NBER Working Paper No. 17216, July 2011, and American Economic Review, vol. 103(1) (2013), pp. 1-46.
6. R. Franck and I. Rainer, "Does the Leader's Ethnicity Matter? Ethnic Favoritism, Education and Health in Sub-Saharan Africa," Working Papers 2012-06, Department of Economics, Bar-Ilan University, 2012.
8. R. Burgess, R. Jedwab, E. Miguel, A. Morjaria, and G. Padro-i-Miquel, "Ethnic favoritism", unpublished ms., 2011.
9. A. V. Banerjee and R. Pande, "Parochial Politics: Ethnic Preferences and Politician Corruption," Working Paper Series rwp07-031, Harvard University, John F. Kennedy School of Government, 2007.
11. C. Dippel, "Forced Coexistence and Economic Development: Evidence from Native American Reservations," mimeo, UCLA, January 2010.
12. A. F. Alesina and E. Zhuravskaya, "Segregation and the Quality of Government in a Cross Section of Countries," NBER Working Paper No. 14316, September 2008, and American Economic Review, vol. 101(5), pp. 1872-1911.
15. Y. Algan, C. Hémet, and D. Laitin, "Diversity and Local Public Goods: a Natural Experiment with Exogenous Residential Allocation," Working Papers 2012/24, Institut d'Economia de Barcelona (IEB), 2012.
16. D. Clingingsmith, A. I. Khwaja, and M. Kremer, "Estimating the Impact of the Hajj: Religion and Tolerance in Islam's Global Gathering," Working Paper Series rwp08-022, Harvard University, John F. Kennedy School of Government, 2008.
17. J. Burns, L. Corno, and E. La Ferrara, "Does Interaction Affect Racial Prejudice and Cooperation? Evidence from Randomly Assigned Peers in South Africa," unpublished ms., 2013.
19. J. Eguia, "Discrimination and Assimilation," Available at SSRN 1657144, 2012.
21. N. Voigtländer and H. J. Voth, "Persecution Perpetuated: The Medieval Origins of Anti-Semitic Violence in Nazi Germany," NBER Working Paper No. 17113, June 2011, and The Quarterly Journal of Economics, vol. 127(3) (2012), pp. 1339-92.
23. D. Atkin, "The Caloric Cost of Culture: Evidence from Indian Migrants", mimeo, Yale, 2013.
24. A. Greif and G. Tabellini, "The Clan and the City: Sustaining Cooperation in China and Europe," Working Papers 445, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University, 2012.
26. D. Ticchi, T. Verdier, and A. Vindigni, "Democracy, Dictatorship and the Cultural Transmission of Political Values," unpublished ms.
29. B. Feigenberg, E. M. Field, and R. Pande, "Building Social Capital through Microfinance," Scholarly Articles 4449105, Harvard Kennedy School of Government, 2010.
30. F. Zilibotti and M. Doepke, "Intergenerational Transmission of Risk Preferences, Entrepreneurship, and Growth," 2012 Meeting Papers 246, Society for Economic Dynamics, 2012.
31. O. Galor and Q. Ashraf, "Cultural Assimilation, Cultural Diffusion and the Origin of the Wealth of Nations," Working Papers 2007-3, Brown University, Department of Economics, 2007.
32. N. Bloom and R. Sadun, "The Organization of Firms across Countries," The Quarterly Journal of Economics, vol. 127(4) (2012), pp. 1663-1705.
33. D. Acemoglu, D. Cantoni, S. Johnson, and J. A. Robinson, "The Consequences of Radical Reform: The French Revolution," American Economic Review, vol. 101(7) (2011), pp. 3286-3307.
34. T. Persson and G. Tabellini, "Democratic Capital: The Nexus of Political and Economic Change," American Economic Journal: Macroeconomics, vol. 1(2) (2009), pp. 88-126.
35. E. Glaeser, G. Ponzetto, and A. Shleifer, "Why Does Democracy Need Education?," Journal of Economic Growth, vol. 12(2) (2007), pp. 77-99.
37. L. Wantchekon, N. Novta, and M. Klanja, "Education and Human Capital Externalities: Evidence from Colonial Benin," unpublished ms., 2012.
38. G. Padro-i-Miquel, N. Qian, and Y. Yao, "Homogeneity as a Pre-Condition for Democracy: The Influence of Religious Fragmentation on the Effect of Electoral Reforms on Public Goods in China," unpublished ms., 2012.
39. A. Banerjee, S. Kumar, R. Pande, and F. Su, "Do Informed Voters Make Better Choices? Experimental Evidence from Urban India," unpublished ms, 2010.
40. F. R. Campante and D. Chor, "The People Want the Fall of the Regime: Schooling, Political Protest, and the Economy," Working Papers 08-2012, Singapore Management University, School of Economics, 2012.
41. L. Bursztyn and L. C. Coffman, "The Schooling Decision: Family Preferences, Intergenerational Conflict, and Moral Hazard in the Brazilian Favelas," Journal of Political Economy, vol. 120(3) (2012), pp. 359 - 97.
42. D. Rothschild and J. Wolfers, "Forecasting Elections: Voter Intentions versus Expectations," Available at SSRN 1884644, 2011.
43. B. Knight and N. Schiff, "Momentum and Social Learning in Presidential Primaries," Journal of Political Economy, vol. 118(6) (2010), pp. 1110 - 1150.
44. Y. Halberstam and B. P. Montagnes, "Information Contagion in Coelection Environments: Theory and Evidence from Entry and Exit of Senators," unpublished ms., 2009.
45. A. Meirowitz and K. W. Shotts, "Pivots versus Signals in Elections," Journal of Economic Theory 144.2 (2009), p. 744-71.
46. S. Stephens-Davidowitz, "The Effects of Racial Animus on A Black Presidential Candidate: Using Google search Data to Find What Surveys Miss", unpublished paper, Department of Economics, Harvard University, 2012.
47. E. O. Ananat and E. Washington, "Segregation and Black Political Efficacy," op.cit.
49. L. Bouton, P. Conconi, F. J. Pino and M. Zanardi, "Guns and Votes," mimeo, Université Libre de Bruxelles, 2012.
51. P. Conconi, G. Facchini, and M. Zanardi, "Policymakers' Horizon and Trade Reforms," CEPR Discussion Papers 8561, C.E.P.R. Discussion Papers, 2011.
53. G. Ujhelyi, "Civil Service Rules and Policy Choices: Evidence from US State Governments," Working Papers 201303249, Department of Economics, University of Houston, 2013.
56. See for instance: J. M. Snyder and D. Strömberg, "Press Coverage and Political Accountability," Journal of Political Economy, vol. 118(2) 04 (2010), pp. 355-408; N. Qian and D. Yanagizawa, "The Power of Propaganda: The Effect of U.S. Government Bias on Media Coverage of Human Rights during the Cold War," Working paper, Brown University, 2008; S. DellaVigna, R. Enikolopov, V. Mironova, M. Petrova and E. Zhuravskaya, "Unintended Media Effects in a Conflict Environment: Serbian Radio and Croatian Nationalism," NBER Working Paper No. 16989, May 2011; M. Gentzkow, J. M. Shapiro, and M. Sinkinson, "Competition and Ideological Diversity: Historical Evidence from US Newspapers," NBER Working Paper No. 18234, July 2012.
57. See for instance: D. Acemoglu, M. Golosov, A. Tsyvinski, and P. Yared, "A Dynamic Theory of Resource Wars," The Quarterly Journal of Economics, vol. 127(1) (2012), pp. 283-331; D. Acemoglu and A. Wolitzky, "Cycles of Distrust: An Economic Model," NBER Working Paper No. 18257, July 2012; E. Spolaore and R. Wacziarg, "War and Relatedness," NBER Working Paper No. 15095, June 2009; N. Gennaioli and J. Voth, "State Capacity and Military Conflict," Economics Working Papers 1294, Department of Economics and Business, Universitat Pompeu Fabra, 2012.
58. See for instance: F. Cingano and P. Pinotti, "Politicians at Work. The Private Returns and Social Costs of Political Connections," Temi di discussione (Economic working papers) 709, Bank of Italy, Economic Research and International Relations Area, 2009; R. Fisman and W. Yongxiang, "The Mortality Cost of Political Connections," Working paper, Columbia University and University of Southern California, 2012; G. Egorov and B. Harstad, "Private Politics and Public Regulation", unpublished ms., 2012.
59. See for instance: F. Passarelli and G. Tabellini, "Emotions and Political Unrest," Working Papers 474, IGIER, Bocconi University, 2013; M. Battaglini and S. Coate, "Fiscal Policy over the Real Business Cycle: A Positive Theory," NBER Working Paper No. 14047, May 2008; V. Grembi, T. Nannicini and U. Troiano, "Do Fiscal Rules Matter? A Difference-in-Discontinuities Design," unpublished ms., 2011.
60. See for instance: R. Fernández, "Women's Rights and Development," NBER Working Paper No. 15355, September 2009; G. Tate and Y. Liu, "Female Leadership and Gender Equity: Evidence from Plant Closure," Available at SSRN 1905100, 2012; A. F. Alesina, P. Giuliano, and N. Nunn, "On the Origins of Gender Roles: Women and the Plough," NBER Working Paper No. 17098, May 2011.