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Yiyang Luo - Research Summary

University of Namur

Time varying impacts of informal institution on economics development

This paper studies time varying impacts of inequality between informal institutions on economic development across countries. It explores the inequality between informal institutions that are constructed using Gini index of nighttime luminosity across homelands of ethnolinguistic groups (Alesina et al. 2016). 

First, we find that the strong negative relationship between ethnic inequality and economic development is persistent over the time period 1950-2010, irrespective of the included control variables. The correlation between ethnic Gini coefficients with the baseline measures of ethnic areas varies between 0.74 and 1.21.  Second, by using economic growth as the outcome variable, it confirms the stable relationship between ethnic inequality and development across countries. Third, we extend the project to explore the evolution of the relationship between formal institution and economic performance. 

Based on Acemoglu et al. (2001), differences in European mortality rates are used to estimate time varying impacts of institution on economic development.  The measurement of institution is based on average protecting against expropriation risks, ranging from 0 to 10, with a higher score indicates more protection against expropriation. The positive relationship is increasing over time period 1960 to 2000 with relative stable effects during 2000 to 2010. Conditional on geographic differences, legal origin and ethnic fragmentation across counties, the magnitude of point estimates increases, staring from 0.45 in 1960 to 0.70 in 2010.

We also investigate whether slave trades profoundly affect Africa’s underdevelopment over the past 6 decades (Nunn, 2008). A simple OLS shows that the negative correlation becomes stronger over time, starting at 2.7 percent in 1950 and reaching 10 percent in 2008. By using the distance from each country to the location of slave demand as instruments for slave exports(Nunn, 2008), the magnitude of the estimated coefficient increases to 9 percent in 1950 and 20 percent in 2008. Conditional on the origin of the colonizer prior to independence and differences in countries’ endowments of natural resources, the adverse effects raise from 10 percent in 1950 to 27 percent in 2008. 

Overall, we find that the effect of both formal and informal institutions on economic development is persistent over a relatively long time span, with negligible changes in magnitude conditional on country’s endowments, geographic and climate characteristics.