During the 18th and 19th centuries, medical spending in the United States rose slowly, on average about .25% faster than gross domestic product (GDP), and varied widely between rural and urban regions. Accumulating scientific advances caused spending to accelerate by 1910. From 1930 to 1955, rapid per-capita income growth accommodated major medical expansion while keeping the health share of GDP almost constant. During the 1950s and 1960s, prosperity and investment in research, the workforce, and hospitals caused a rapid surge in spending and consolidated a truly national health system. Excess growth rates (above GDP growth) were above +5% per year from 1966 to 1970, which would have doubled the health-sector share in fifteen years had it not moderated, falling under +3% in the 1980s, +2% in 1990s, and +1.5% since 2005. The question of when national health expenditure growth can be brought into line with GDP and made sustainable for the long run is still open. A review of historical data over three centuries forces confrontation with issues regarding what to include and how long events continue to effect national health accounting and policy. Empirical analysis at a national scale over multiple decades fails to support a position that many of the commonly discussed variables (obesity, aging, mortality rates, coinsurance) do cause significant shifts in expenditure trends. What does become clear is that there are long and variable lags before macroeconomic and technological events affect spending: three to six years for business cycles and multiple decades for major recessions, scientific discoveries, and organizational change. Health-financing mechanisms, such as employer-based health insurance, Medicare, and the Affordable Care Act (Obamacare) are seen to be both cause and effect, taking years to develop and affecting spending for decades to come.
Article
The Growth of Health Spending in the United States From 1776 to 2026
Thomas E. Getzen
Article
The Indian Economy After Independence
Tirthankar Roy
The Indian Union, from the time of independence from British colonial rule, 1947, until now, has undergone shifts in the trajectory of economic change and the political context of economic change. One of these transitions was a ‘green revolution’ in farming that occurred in the 1970s. In the same decade, Indian migration to the Persian Gulf states began to increase. In the 1980s, the government of India seemed to abandon a strategy of economic development that had relied on public investment in heavy industries and encouraged private enterprise in most fields. These shifts did not always follow announced policy, produced deep impact on economic growth and standards of living, and generated new forms of inequality. Therefore, their causes and consequences are matters of discussion and debate. Most discussions and debates form around three larger questions. First, why was there a turnaround in the pace of economic change in the 1980s? The answer lies in a fortuitous rebalancing of the role of openness and private investment in the economy. Second, why did human development lag achievements in income growth after the turnaround? A preoccupation with state-aided industrialization, the essay answers, entailed neglect of infrastructure and human development, and some of that legacy persisted. If the quality of life failed to improve enough, then a third question follows, why did the democratic political system survive at all if it did not equitably distribute the benefits from growth? In answer, the essay discusses studies that question the extent of the failure.
Article
Institutions and Development: An Overview of Case Studies in China and India
Pranab Bardhan
In contrast with the existing cross-country literature on institutions and development the overview in this article focuses instead on case studies of institutions at the disaggregated level that help or hinder productivity growth. It also shows how along with rule-based systems institutional systems based on social relations and networks and community organizations can resolve some issues of collective action in development. At the level of the state, our discussion focuses on incentive issues in the internal organization of government and how the nature of accountability structures at different levels of government can help or hinder development. In view of the breadth of the relevant literature we have deliberately confined ourselves to the available empirical case studies in only the two largest developing countries, China and India.
Article
International Reserves, Exchange Rates, and Monetary Policy: From the Trilemma to the Quadrilemma
Joshua Aizenman
The links of international reserves, exchange rates, and monetary policy can be understood through the lens of a modern incarnation of the “impossible trinity” (aka the “trilemma”), based on Mundell and Fleming’s hypothesis that a country may simultaneously choose any two, but not all, of the following three policy goals: monetary independence, exchange rate stability, and financial integration. The original economic trilemma was framed in the 1960s, during the Bretton Woods regime, as a binary choice of two out of the possible three policy goals. However, in the 1990s and 2000s, emerging markets and developing countries found that deeper financial integration comes with growing exposure to financial instability and the increased risk of “sudden stop” of capital inflows and capital flight crises. These crises have been characterized by exchange rate instability triggered by countries’ balance sheet exposure to external hard currency debt—exposures that have propagated banking instabilities and crises. Such events have frequently morphed into deep internal and external debt crises, ending with bailouts of systemic banks and powerful macro players. The resultant domestic debt overhang led to fiscal dominance and a reduction of the scope of monetary policy. With varying lags, these crises induced economic and political changes, in which a growing share of emerging markets and developing countries converged to “in-between” regimes in the trilemma middle range—that is, managed exchange rate flexibility, controlled financial integration, and limited but viable monetary autonomy. Emerging research has validated a modern version of the trilemma: that is, countries face a continuous trilemma trade-off in which a higher trilemma policy goal is “traded off” with a drop in the weighted average of the other two trilemma policy goals. The concerns associated with exposure to financial instability have been addressed by varying configurations of managing public buffers (international reserves, sovereign wealth funds), as well as growing application of macro-prudential measures aimed at inducing systemic players to internalize the impact of their balance sheet exposure on a country’s financial stability. Consequently, the original trilemma has morphed into a quadrilemma, wherein financial stability has been added to the trilemma’s original policy goals. Size does matter, and there is no way for smaller countries to insulate themselves fully from exposure to global cycles and shocks. Yet successful navigation of the open-economy quadrilemma helps in reducing the transmission of external shock to the domestic economy, as well as the costs of domestic shocks. These observations explain the relative resilience of emerging markets—especially in countries with more mature institutions—as they have been buffered by deeper precautionary management of reserves, and greater fiscal and monetary space.
We close the discussion noting that the global financial crisis, and the subsequent Eurozone crisis, have shown that no country is immune from exposure to financial instability and from the modern quadrilemma. However, countries with mature institutions, deeper fiscal capabilities, and more fiscal space may substitute the reliance on costly precautionary buffers with bilateral swap lines coordinated among their central banks. While the benefits of such arrangements are clear, they may hinge on the presence and credibility of their fiscal backstop mechanisms, and on curbing the resultant moral hazard. Time will test this credibility, and the degree to which risk-pooling arrangements can be extended to cover the growing share of emerging markets and developing countries.
Article
Knowledge Spillovers, Trade, and Foreign Direct Investment
Wolfgang Keller
This article explores knowledge spillovers, positive externalities that augment the information set of an economic agent, and reviews the evidence on such spillovers in the context of international economic transactions. The entry discusses trade channels of knowledge transfer associated with purchases from abroad (imports) and sales to abroad (exports). Another focus is on the foreign direct investment (FDI) channel through purchases from abroad (inward FDI) and sales to abroad (outward FDI). The entry also distinguishes knowledge flows from foreign to domestic agents and from domestic to foreign agents. The entry underlines the importance of empirical methodology and data characteristics that determine the quality of econometric identification. Even though spillovers are by their very nature—as externalities—difficult to identify, over recent decades a number of advances have produced robust evidence that both trade and foreign direct investment lead to sizable knowledge spillovers. These advances have been both conceptual as well as in the areas of empirical methodology and new data.
Article
Leverage Cycle Theory of Economic Crises and Booms
John Geanakoplos
Traditionally, booms and busts have been attributed to investors’ excessive or insufficient demand, irrational exuberance and panics, or fraud. The leverage cycle begins with the observation that much of demand is facilitated by borrowing and that crashes often occur simultaneously with the withdrawal of lending. Uncertainty scares lenders before investors.
Lenders are worried about default and therefore attach credit terms like collateral or minimum credit ratings to their contracts. The credit surface, depicting interest rates as a function of the credit terms, emerges in leverage cycle equilibrium. The leverage cycle is about booms when credit terms, especially collateral, are chosen to be loose, and busts when they suddenly become tight, in contrast to the traditional fixation on the (riskless) interest rate.
Leverage cycle crashes are triggered at the top of the cycle by scary bad news, which has three effects. The bad news reduces every agent’s valuation of the asset. The increased uncertainty steepens the credit surface, causing leverage to plummet on new loans, explaining the withdrawal of credit. The high valuation leveraged investors holding the asset lose wealth when the price falls; if their debts are due, they lose liquid wealth and face margin calls. Each effect feeds back and exacerbates the others and increases the uncertainty.
The credit surface is steeper for long loans than short loans because uncertainty is higher. Investors respond by borrowing short, creating a maturity mismatch and voluntarily exposing themselves to margin calls. When uncertainty rises, the credit surface steepens more for low credit rating agents than for high rated agents, leading to more inequality..
The leverage cycle also applies to banks, leading to a theory of insolvency runs rather than panic runs. The leverage cycle policy implication for banks is that there should be transparency, which will induce depositors or regulators to hold down bank leverage before insolvency is reached. This is contrary to the view that opaqueness is a virtue of banks because it lessens panic.
Article
Living Standards in the USSR During the Interwar Period
Ilya B. Voskoboynikov
How was life in the Soviet Union in the interwar period? The two interwar decades fall into the years of relative prosperity of the mid-1920s; the years of tumult and disaster (1929–1938) with the famines of 1932–1933, mass exiles, and repressions; and the initial years of the Second World War (WW2). These decades fall into the middle of a demographic transition and the formation of internal administrative borders between the Union republics.
Despite some ongoing debates on data quality, there is a general understanding that annual growth rate of real Gross Domestic Product (GDP) per capita was outstanding in the mid-1920s and in the second half of the 1930s. The literature is divided, however, on the conversion of this growth into improved living standards. A number of studies have postulated that after 1928 real consumption never achieved this level. Studies, published since 1990s, show that the second half of the 1930s was relatively prosperous so that the living standards of the urban population improved.
An alternative approach is looking at biological indicators, such as life expectancy at birth, child mortality, and child and adult stature as they do not have the biases peculiar to economic indices. In the case of the Soviet Union, they are of special interest because of the nonuniform quality of official statistics and, specifically, the fact that nonmarket prices did not reflect product scarcity. In terms of life expectancy, child mortality, and stature, the second half of the 1930s was accompanied by growing living standards, and remarkable progress was achieved in public education and healthcare. However, the mass terror of 1937–1938 with one million excess deaths was also part of the “high living standards” of the late 1930s.
The conventional view on living standards mostly considers the Soviet Union as a whole, neglecting differences across the Union republics. Some of these differences, however, are represented in demographic statistics.
Article
Machine Learning in Policy Evaluation: New Tools for Causal Inference
Noémi Kreif and Karla DiazOrdaz
While machine learning (ML) methods have received a lot of attention in recent years, these methods are primarily for prediction. Empirical researchers conducting policy evaluations are, on the other hand, preoccupied with causal problems, trying to answer counterfactual questions: what would have happened in the absence of a policy? Because these counterfactuals can never be directly observed (described as the “fundamental problem of causal inference”) prediction tools from the ML literature cannot be readily used for causal inference. In the last decade, major innovations have taken place incorporating supervised ML tools into estimators for causal parameters such as the average treatment effect (ATE). This holds the promise of attenuating model misspecification issues, and increasing of transparency in model selection. One particularly mature strand of the literature include approaches that incorporate supervised ML approaches in the estimation of the ATE of a binary treatment, under the unconfoundedness and positivity assumptions (also known as exchangeability and overlap assumptions).
This article begins by reviewing popular supervised machine learning algorithms, including trees-based methods and the lasso, as well as ensembles, with a focus on the Super Learner. Then, some specific uses of machine learning for treatment effect estimation are introduced and illustrated, namely (1) to create balance among treated and control groups, (2) to estimate so-called nuisance models (e.g., the propensity score, or conditional expectations of the outcome) in semi-parametric estimators that target causal parameters (e.g., targeted maximum likelihood estimation or the double ML estimator), and (3) the use of machine learning for variable selection in situations with a high number of covariates.
Since there is no universal best estimator, whether parametric or data-adaptive, it is best practice to incorporate a semi-automated approach than can select the models best supported by the observed data, thus attenuating the reliance on subjective choices.
Article
Making Institutions Work From the Bottom Up in Africa
Moussa P. Blimpo, Admasu Asfaw Maruta, and Josephine Ofori Adofo
Well-functioning institutions are essential for stable and prosperous societies. Despite significant improvement during the past three decades, the consolidation of coherent and stable institutions remains a challenge in many African countries. There is a persistent wedge between the de jure rules, the observance of the rules, and practices at many levels. The wedge largely stems from the fact that the analysis and design of institutions have focused mainly on a top-down approach, which gives more prominence to written laws. During the past two decades, however, a new strand of literature has emerged, focusing on accountability from the bottom up and making institutions more responsive to citizens’ needs. It designs and evaluates a mix of interventions, including information provision to local communities, training, or outright decentralization of decision-making at the local level. In theory, accountability from the bottom up may pave the way in shaping the institutions’ nature at the top—driven by superior localized knowledge. The empirical findings, however, have yielded a limited positive impact or remained mixed at best. Some of the early emerging regularities showed that information and transparency alone are not enough to generate accountability. The reasons include the lack of local ownership and the power asymmetry between the local elites and the people. Some of the studies have addressed many of these constraints at varying degrees without much improvement in the outcomes. A simple theoretical framework with multiple equilibria helps better understand this literature. In this framework, the literature consists of attempts to mobilize, gradually or at once, a critical mass to shift from existing norms and practices (inferior equilibrium) into another set of norms and practices (superior equilibrium). Shifting an equilibrium requires large and/or sustained shocks, whereas most interventions tend to be smaller in scope and short-lived. In addition, accountability at the bottom is often neglected relative to rights. If norms and practices within families and communities carry similar features as those observed at the top (e.g., abuse of one’s power), then the core of the problem is beyond just a wedge between the ruling elite and the citizens.
Article
Mergers and Acquisitions: Long-Run Performance and Success Factors
Luc Renneboog and Cara Vansteenkiste
Despite the aggregate value of M&A market transactions amounting to several trillions dollars on an annual basis, acquiring firms often underperform relative to non-acquiring firms, especially in public takeovers. Although hundreds of academic studies have investigated the deal- and firm-level factors associated with M&A announcement returns, many factors that increase M&A performance in the short run fail to relate to sustained long-run returns. In order to understand value creation in M&As, it is key to identify the firm and deal characteristics that can reliably predict long-run performance.
Broadly speaking, long-run underperformance in M&A deals results from poor acquirer governance (reflected by CEO overconfidence and a lack of (institutional) shareholder monitoring) as well as from poor merger execution and integration (as captured by the degree of acquirer-target relatedness in the post-merger integration process). Although many more dimensions affect immediate deal transaction success, their effect on long-run performance is non-existent, or mixed at best.
Article
Missing Women: A Review of Underlying Causes and Policy Responses
Aparajita Dasgupta and Anisha Sharma
One of the most egregious manifestations of gender bias is the phenomenon of “missing women.” The number of missing women is projected to increase to 150 million by 2035, as a result of prenatal sex selection and excess female mortality relative to men, and is reflected in male-biased sex ratios at all ages. The economics literature identifies several proximate causes of the deficit of females, including the widespread use of prenatal sex selection in many Asian countries, which has been fueled by the diffusion of ultrasound and other fetal sex-detection technology. The use of prenatal sex selection has become even more expansive with a decline in fertility, as parents with a preference for sons are less likely to achieve their desired sex composition of children at lower levels of fertility. Gender discrimination in investments in health and nutrition also leads to excess female mortality among children through multiple channels.
The deeper causes of son preference lie in the socioeconomic and cultural norms embedded in patriarchal societies, and recent literature in economics seeks to quantify the impact of these norms and customs on the sex ratio. Particularly important are the norms of patrilineality, in which property and assets are passed through the male line, and patrilocality, in which elderly parents coreside with their sons, whereas their daughters move to live with their husbands’ families after marriage. Another strand of the literature explores the hypothesis that the devaluing of women has roots in historical agricultural systems: Societies that have made little use of women’s labor are today the ones with the largest female deficits. Finally, economic development is often associated with a decline in son preference, but, in practice, many correlates of development, such as women’s education, income, and work status, have little impact on the sex ratio unless accompanied by more extensive social transformations.
A number of policies have been implemented by governments throughout the world to tackle this issue, including legislative bans on different forms of gender discrimination, financial incentives for families to compensate them for the perceived additional costs of having a daughter, and media and advocacy campaigns that seek to increase the inherent demand for daughters by shifting the norm of son preference. Quantitative evaluations of some of these policies find mixed results. Where policies are unable to address the root causes of son preference, they often simply deflect discrimination from the targeted margin to another margin, and in some cases, they even fail in their core objectives. On the other hand, the expansion of social safety nets has had a considerable impact in reducing the reliance of parents on their sons. Similarly, media and advocacy campaigns that aim to increase the perceived value of women have also shown promise, even if their progress appears slow. Analysis of the welfare consequences of such interventions suggests that governments must pay close attention to underlying sociocultural norms when designing policy.
Article
Modern Finnish Economic History
Jari Eloranta and Jari Ojala
The Finnish economy has experienced a relative late growth and catch-up process in relation to many other advanced Western economies. During this growth period, Finland also experienced a rapid structural change from an agrarian society to a developed service society. In a small open economy, the export industries have played a vital role in this development. Over several centuries, the forest industries have had a dominating impact in exports, along with the metal industries; however, the latter, as well as the electronics industry, with Nokia as the flagship company, gained more importance in the late 20th century in aggregate exports. The egalitarian educational system has to a large extent been pivotal respective of this change in the industrial structure and also in the growth of services. The demographic changes underlying these processes have been focal in these development processes, namely, the steady population growth in the 19th and early 20th centuries, followed by migration to urban centers, especially during the latter part of the 20th century; and, from the turn of the millennium, the emerging challenges of the welfare society followed by the aging of the population.
Article
Modern Norwegian Economic History
Ola Honningdal Grytten
Since Norway’s formation as an independent sovereign state in 1814, its small open economy has, like its neighboring countries, experienced significant economic growth. During the last several decades petroleum has made the country one of the wealthiest in the world. The main reason for the long-term growth seems to have been the ability to meet international demand by utilizing rich natural resources, adopting efficient technology, and drawing on the labor force in order to gain high productivity.
Historical national accounts reveal that Norway’s wealth was close to the Western European average during the early 19th century. From the 1840s to the mid-1870s, Norwegian growth rates were clearly better than average. This period was followed by relative stagnation until the 1890s, when the country saw rapid industrialization based on hydroelectricity.
After the two World Wars Norway adopted a social democratic rule, with a high degree of economic planning, called the Nordic model. This has contributed to a large public sector and evenly distributed wealth and resources. The discovery of oil and gas on the Norwegian continental shelf marked a new era, when Norway experienced higher growth rates than most Western economies. This has made it the country with the highest score in the United Nations Human Development Index (HDI) during the two first decades of the 21st century, despite a slowdown in growth after the financial crisis in 2008.
Article
New Economic Geography
Ching-mu Chen and Shin-Kun Peng
For research attempting to investigate why economic activities are distributed unevenly across geographic space, new economic geography (NEG) provides a general equilibrium-based and microfounded approach to modeling a spatial economy characterized by a large variety of economic agglomerations. NEG emphasizes how agglomeration (centripetal) and dispersion (centrifugal) forces interact to generate observed spatial configurations and uneven distributions of economic activity. However, numerous economic geographers prefer to refer to the term new economic geographies as vigorous and diversified academic outputs that are inspired by the institutional-cultural turn of economic geography. Accordingly, the term geographical economics has been suggested as an alternative to NEG.
Approaches for modeling a spatial economy through the use of a general equilibrium framework have not only rendered existing concepts amenable to empirical scrutiny and policy analysis but also drawn economic geography and location theories from the periphery to the center of mainstream economic theory. Reduced-form empirical studies have attempted to test certain implications of NEG. However, due to NEG’s simplified geographic settings, the developed NEG models cannot be easily applied to observed data. The recent development of quantitative spatial models based on the mechanisms formalized by previous NEG theories has been a breakthrough in building an empirically relevant framework for implementing counterfactual policy exercises. If quantitative spatial models can connect with observed data in an empirically meaningful manner, they can enable the decomposition of key theoretical mechanisms and afford specificity in the evaluation of the general equilibrium effects of policy interventions in particular settings.
Several decades since its proposal, NEG has been criticized for its parsimonious assumptions about the economy across space and time. Therefore, existing challenges still require theoretical and quantitative models on new microfoundations pertaining to the interactions between economic agents across geographical space and the relationship between geography and economic development.
Article
Political Economy of Reform
Stuti Khemani
“Reform” in the economics literature refers to changes in government policies or institutional rules because status-quo policies and institutions are not working well to achieve the goals of economic wellbeing and development. Further, reform refers to alternative policies and institutions that are available which would most likely perform better than the status quo. The main question examined in the “political economy of reform” literature has been why reforms are not undertaken when they are needed for the good of society. The succinct answer from the first generation of research is that conflict of interest between organized socio-political groups is responsible for some groups being able to stall reforms to extract greater private rents from status-quo policies. The next generation of research is tackling more fundamental and enduring questions: Why does conflict of interest persist? How are some interest groups able to exert influence against reforms if there are indeed large gains to be had for society? What institutions are needed to overcome the problem of credible commitment so that interest groups can be compensated or persuaded to support reforms?
Game theory—or the analysis of strategic interactions among individuals and groups—is being used more extensively, going beyond the first generation of research which focused on the interaction between “winners” and “losers” from reforms. Widespread expectations, or norms, in society at large, not just within organized interest groups, about how others are behaving in the political sphere of making demands upon government; and, beliefs about the role of public policies, or preferences for public goods, shape these strategic interactions and hence reform outcomes. Examining where these norms and preferences for public goods come from, and how they evolve, are key to understanding why conflict of interest persists and how reformers can commit to finding common ground for socially beneficial reforms. Political markets and institutions, through which the leaders who wield power over public policy are selected and sanctioned, shape norms and preferences for public goods. Leaders who want to pursue reforms need to use the evidence in favor of reforms to build broad-based support in political markets. Contrary to the first generation view of reforms by stealth, the next generation of research suggests that public communication in political markets is needed to develop a shared understanding of policies for the public good.
Concomitantly, the areas of reform have circled from market liberalization, which dominated the 20th century, back to strengthening governments to address problems of market failure and public goods in the 21st century. Reforms involve anti-corruption and public sector management in developing countries; improving health, education, and social protection to address persistent inequality in developed countries; and regulation to preserve competition and to price externalities (such as pollution and environmental depletion) in markets around the world. Understanding the functioning of politics is more important than ever before in determining whether governments are able to pursue reforms for public goods or fall prey to corruption and populism.
Article
Population Issues in Welfare Economics, Ethics, and Policy Evaluation
Kevin Kuruc, Mark Budolfson, and Dean Spears
Nearly all large policy decisions influence not only the quality of life for existing individuals but also the number—and even identities—of yet-to-exist individuals. Accounting for these effects in a policy evaluation framework requires taking difficult stances on concepts such as the value of existence. These issues are at the heart of a literature that sits between welfare economics and philosophical population ethics. Despite the inherent challenges of these questions, this literature has produced theoretical insights and subsequent progress on variable-population welfare criteria. A surprisingly bounded set of coherent alternatives exists for practitioners once a set of uncontroversial axioms is adopted from the better-studied welfare criteria for cases where populations are assumed to be fixed. Although consensus has not yet been reached among these remaining alternatives, their recommendations often agree. The space has been sufficiently restricted and well explored that applications of the theoretical insights are possible and underway in earnest.
For reasons both theoretical and empirical, the applied literature studying optimal policy and its robustness to welfare criteria has documented a surprising degree of convergence between recommendations under quite different ethical stances on existence value. This convergence has appeared even in cases where population size itself is the choice variable. Although it may not always be the case that policy recommendations are invariant to population welfare criteria, tools have been developed that allow researchers to easily and transparently move between such criteria to study the robustness in their context of interest. The broader point is that the remaining theoretical uncertainties need not prevent population ethics from playing a role in policy evaluation—the tools are available for determining whether and which policies are broadly supported among a range of ethical views.
Article
Religiosity and Development
Jeanet Sinding Bentzen
Economics of religion is the application of economic methods to the study of causes and consequences of religion. Ever since Max Weber set forth his theory of the Protestant ethic, social scientists have compared socioeconomic differences across Protestants and Catholics, Muslims, and Christians, and more recently across different intensities of religiosity. Religiosity refers to an individual’s degree of religious attendance and strength of beliefs. Religiosity rises with a growing demand for religion resulting from adversity and insecurity or a surging supply of religion stemming from increasing numbers of religious organizations, for instance. Religiosity has fallen in some Western countries since the mid-20th century, but has strengthened in several other societies around the world. Religion is a multidimensional concept, and religiosity has multiple impacts on socioeconomic outcomes, depending on the dimension observed. Religion covers public religious activities such as church attendance, which involves exposure to religious doctrines and to fellow believers, potentially strengthening social capital and trust among believers. Religious doctrines teach belief in supernatural beings, but also social views on hard work, refraining from deviant activities, and adherence to traditional norms. These norms and social views are sometimes orthogonal to the general tendency of modernization, and religion may contribute to the rising polarization on social issues regarding abortion, LGBT rights, women, and immigration. These norms and social views are again potentially in conflict with science and innovation, incentivizing some religious authorities to curb scientific progress. Further, religion encompasses private religious activities such as prayer and the particular religious beliefs, which may provide comfort and buffering against stressful events. At the same time, rulers may exploit the existence of belief in higher powers for political purposes. Empirical research supports these predictions. Consequences of higher religiosity include more emphasis on traditional values such as traditional gender norms and attitudes against homosexuality, lower rates of technical education, restrictions on science and democracy, rising polarization and conflict, and lower average incomes. Positive consequences of religiosity include improved health and depression rates, crime reduction, increased happiness, higher prosociality among believers, and consumption and well-being levels that are less sensitive to shocks.
Article
Shared Prosperity: Concepts, Data, and Some Policy Examples
Francisco H. G. Ferreira, Emanuela Galasso, and Mario Negre
“Shared prosperity” is a common phrase in current development policy discourse. Its most widely used operational definition—the growth rate in the average income of the poorest 40% of a country’s population—is a truncated measure of change in social welfare. A related concept, the shared prosperity premium—the difference between the growth rate of the mean for the bottom 40% and the growth rate in the overall mean—is similarly analogous to a measure of change in inequality. This article reviews the relationship between these concepts and the more established ideas of social welfare, poverty, inequality, and mobility.
Household survey data can be used to shed light on recent progress in terms of this indicator globally. During 2008–2013, mean incomes for the poorest 40% rose in 60 of the 83 countries for which we have data. In 49 of them, accounting for 65% of the sampled population, it rose faster than overall average incomes, thus narrowing the income gap.
In the policy space, there are examples both of “pre-distribution” policies (which promote human capital investment among the poor) and “re-distribution” policies (such as targeted safety nets), which when well-designed have a sound empirical track record of both raising productivity and improving well-being among the poor.
Article
Studying Long-Term Changes in the Economy and Society Using the HISCO Family of Occupational Measures
Marco H.D. van Leeuwen
Occupations are a key characteristic for analyzing momentous changes in economy and society. Classical economists rooted their analyses in occupational divisions, emphasizing the division of work and its continuous evolution. Modern economists and economic historians also debate the wealth of nations by looking at the global changes in the labor force, at changing labor force participation rates, at winners and losers in the class structure, and in variations in this across the globe—stressing the importance of human capital for work and of changes therein for economic growth. To study such momentous changes over past centuries, historical occupational data are needed as well as measures and procedures to work with these data systematically and comparatively. The Historical International Standard Classification of Occupations (HISCO) maps occupational titles into a common coding scheme across the globe. HISCO-based measures of economic sector and economic specialization have been derived. To answer a number of interesting questions, the HISCO family has been extended to include HISCO-based measures of social status (HISCAM) and social classes (HISCLASS). Armed with his toolbox, scholars are able to study the development of the economy and society over past centuries.
Article
The Behavioral Consequences of Conflict Exposure on Risk Preferences
Enrique Fatas, Nathaly Jiménez, Lina Restrepo-Plaza, and Gustavo Rincón
Violent conflict is a polyhedric phenomenon. Beyond the destruction of physical and human capital and the economic, political, and social costs war generates, there is an additional burden carried by victims: persistent changes in the way they make decisions. Exposure to violence generates changes in how individuals perceive other individuals from their group and other groups, how they discount the future, and how they assess and tolerate risk. The behavioral consequences of violence exposure can be documented using experiments in which participants make decisions in a controlled, incentive-compatible scenario. The external validity of experiments is reinforced when the studies are run in postconflict scenarios, for example, in Colombia, with real victims of conflict. The experimental tasks, therefore, may map risk attitudes among victims and nonvictims of the conflict who share a common background, and distinguish between different types of exposure (direct versus indirect) and different sources of violence (conflict-related versus criminal violence). The experimental evidence collected in Colombia is consistent with a long-lasting and substantial effect of conflict exposure on risk attitudes. Victims are more likely to take risks and less likely to make safe choices than nonvictims, controlling for demographic, socioeconomic, and attitudinal factors. The effect is significant only when the source of violence is conflict (exerted by guerrilla or paramilitary militias) and when violence is experienced directly by individuals. Indirect conflict exposure (suffered by close relatives) and criminal violence leave no significant mark on participants’ risk attitudes in the study.
