Acemoglu, García-Jimeno, Robinson - State Capacity and Economic Development: A Network Approach (AER 2015)

Transcription

1 Acemoglu, García-Jimeno, Robinson - State Capacity and Economic Development: A Network Approach (AER 2015) Introduction and discussion Central European University, Economic and Social Networks November 17, 2016

2 Motivation and summary Main question: effect of state capacity on prosperity State capacity necessary to economic development, providing: law and order, economic regulation, public goods Third World vs. East Asian Miracle: having great state capacity matters What they do in this paper: modelling prosperity production by national level and local level state capacity modelling how state capacity nationally and locally are created as a best response (network: cross effects and spillovers) state capacity := number of state functionaries and agencies in a municipality, prosperity := life quality outcomes use exogenous variation from historical variables to estimate parameters with IV and GMM methods for Colombia Findings: local state decisions are strategic complements large own and spillover effects of expanding local state capacity on prosperity network and equilibrium responses greatly amplify effect

3 Setting: Colombia Colombian state capacity relatively absent and had large variability Historical roots: colony, small amount of settlers from Spain, lack of proper taxation, topography, war Mid-1980s decentralization of public services to municipalities: relevant national state vs. local state Around 1103 municipalities organized into 32 departments, data about 1017 municipalities (islands excluded)

4 Outline

5 Network structure Nodes: municipalities Links: shared border geographically Weights: depending on geodesic distance of centroids (d ij ) and altitude variability along the geodesic (e ij ) f ij = 1 + δ 1 d ij (1 + δ 2 e ij ) 1 Network { is denoted by N(δ), general element is 0 if j / N(i) n ij = if j N(i) f ij

6 Game setup One-stage, simultanous move game between municipality players and national state player Complete information: all observe what econometrician does not (ɛ, ξ) Each municipality solves (taking others choices as given): max U i = 1 l i J j p j i θ 2 l 2 i National state solves (ζ-s are weights, determined by political economy factors): max b 1...b I W = i (U i ζ i η 2 b2 i )

7 Model of prosperity and state capacity

8 Equilibrium I. Best response for municipalities: [ ] 1 { si σ 0 if l i = 0 α [κi + φn i (δ)s] θl i = = 0 if l i > 0 l i φ : determines whether neighbors state capacities are strategic complements (> 0) or substitutes (< 0) of own which is stronger: easier to build with nearby experience (or voters demand) vs. free-riding Best response for national state: [ ] 1 si σ (1 α) {ζi [κ i + φn i (δ)s] + φn i (δ)(s ζ)+ b i { + 1 γ j 0 if b i = 0 N i (δ)ζ} ηb i J = 0 if b i > 0 j

9 Equilibrium II. Interior solution for national state: if spillovers are positive ( γ > 0) and game is strategic complements ( φ > 0) and at least i s or one neighbor s weights are positive (ζ > 0) Nash equilibrium s uniqueness is implied by network normality (Allouch 2015), which is for every player: 1 + ( ) 1 1 λ min (N(δ)) < li < 1 N i (δ)s In a public goods setting with nonlinear relationships puts bounds on an Engel curve s slope (product demand by consumer s income) suggests: LHS: strong normality of public good, RHS: normality of private good bounds how spillovers spread through the municipalities They only focus on interior equilibria as data and later estimated parameters suggest that it is not restrictive they check at every result whether it is consistent

10 Data I cross-sectional data of Colombia: local state presence: notary office, Telecom office, schools, libraries, fire stations etc. l i is proxied by: 1 log of #local bureaucrats excluding nationally delegated ones 2 log of #municipality state agencies national state presence: police, courts and public hospitals (Law 60 of 1993), b i is proxied by: 1 log of #national public employees in munic. Relevant descriptive statistics:

11 Data II. Prosperity (p j i ) from various data sources: they create standardized z-scores, so we measure them in standard deviations historical data for colonial variables, c i proxied by: 1 #crown employees 2 #agencies 3 distance to closest royal road contemporary covariates (x i ): distance to current highway, geographical variables, average annual rainfall, log(population) in 1995 in some specifications also: density of rivers, land quality

12 Identification, α = 1 case α = 1, national state has no role in state capacity s i = φ θ N i(δ)s + κ i θ p j i = θs 2 i + γ j N i (δ)s + u j i Problem: κ and φ not identifiable from regression of prosperity on state capacity! We can only get cost (θ) and the spillover (γ) Combining the model equations we intend to estimate the following two equations: Best response: s i = φ θ N i(δ)s + 1 θ g(c iρ + x i β) + ζ D i + ξ j Prosperity: p j i = θs 2 i + γ j N i (δ)s + x i β + ζ jd is We can suspect correlated unobserables: cov(s i, ɛ) 0, cov(n i (δ)s, ɛ) 0 and also cov(n i (δ)s, ξ) 0 + ɛ j i

13 Implies also no spillovers : cov(n k i (δ)c, ɛ j i ) = 0 = e.g.: my distance from colonial roads should not affect neighbors prosperity Concern: if there was spatial correlation between colonial variables, exclusion restriction is not plausible Here correlation is weak, Spanish gov t had heterogeneous goals Exclusion restrictions Proposed IV-s are c i, historical sources of variation: unrelated to current prosperity directly, cov(c, ɛ j i ) = 0 (same for ξ) Effect is only via their impact on state capacity build up: less costly to improve on initial state capacities Old roads abandoned: old state capacities did not translate into modern state capacities directly Colonial state had many goals (gold mining, pilgrimage, military), not focusing on prosperity (so not persistent prosperity)

14 Estimation strategies α = 1, no national state case Linear IV: fixing δ = (1, 1), g(.) linear set of IV-s are always: neighbors and neighbors 2 colonial state variables System GMM: corrects for joint dependence on δ, θ, φ (more efficient) + flexible g(.) use semi-parametric GMM, moment conditions same as in IV: E[(Ni k (δ)c)ξ i ] = 0, E[(Ni k (δ)c)ɛ j i ] = 0, k {1, 2} National state case (moments are given by best response functions): First model: setting is that national state moves first, municipalities take b i as given uses system GMM, estimates α, σ from municipalities best responses, then impose CES functional form for other parameters Second setting: full model with SMM: national state s weights of municipalities (ζ) explicitely modelled with betweenness, Bonacich, local clustering and political competitiveness of municipalities (π : ζ i = exp(v i π + ω i ) )

15 for best response (α = 1) Equation is: s i = φ θ N i(δ)s + 1 θ g(c iρ + x i β) + ζi D marginal effects reported: + ξ j, average as θ > 0, we get that φ > 0, meaning strategic complementarity partial effect of neighbors ( ˆφ θ N i(δ)): moving one neighbor from median to mean (10 21) leads to around 1.5% increase in own state capacities

16 for prosperity (α = 1) Equation: p j i = θs 2 i + γ j N i (δ)s + x i β + ζ jd is + ɛ j i : partial effect of own (2θs) is one order greater than partial effect of neighbor (γn i (δ)) Large own effect, remarkable spillover

17 Falsification, robustness and different specifications Placebo regressions: 1 Run primary enrollment and vaccination on local state presence: we expect and get non-significant results due to universal primary school and national state level vaccination 2 Run current and past prosperity (1918 literacy and schooling rate) on neighbors historical variables want to rule out: historical variables past prosperity present prosperity: strong correlation with present prosperity and weak or bad sign with past prosperity Specifications: 1 Naive regression: regressing p j i on s i linearly, yields almost same 2 Regressing residuals on centralities to exclude misspecification: no correlation Robustness: 1 If there was spatial correlation between historical instruments, we would find that IV: neighbors 3 yields consistent estimates 2 Subsets of data, different controls: seems robust

18 from general model System GMM: similar φ, high σ, SMM: ζ highly skewed (π 1!)

19 Moving all municipalities below median to median (α = 1) Partial equilibrium: means no adjustment for other municipalities (models if local states initiate) only spillovers have extra effects: around half-half General equilibrium: everybody adjusts much greater effect (models if social planner initiates) most of the effect comes from the network effects, caused by φ > 0: Local state building here ignores network effects, so under-provision of state capacity

20 Moving all municipalities below median to median (general model) Here it is national state capacity: much smaller changes in local reaction, due to lower dispersion of national state effect (ζ is skewed)

21 Optimal policy So skewed preferences seem to hurt total welfare Imagine costless reallocation of state capacities across municipalities to maximize pop. weighted prosperity: max ei =0 i w i 1 J p j i (s) s.t. s = (I φ θ N(δ)) 1 ( 1 θ κ + e) j

22 Discussion Municipalities care about prosperity items similarly here What if a municipality only have pensioners, why would they want secondary education? α = 0.9 vs. big fraction of national state employees in descriptive statistics so they are not very important in describing relative differences between municipalities Cost function is convex: so an having an additional unit of local state capacity is more costly vs. they argue that this drives IV (historic state present state)

23 Conclusion Authors build a network game model of prosperity being created by state capacity of own municipality, neighbors and the national state Account for cross effects and spillovers explicitely Estimate model with different methods using exogenous variation by historical variables Findings: large direct and spillover effects of local state capacity local state capacity is of first order importance initiative from national state is needed to avoid under-provision of state capacity (network effects)

24 Thank you for your attention

25 I.: Proof for uniqueness Proof for uniqueness Implicit differentiation:

26 Full descriptive statistics

27 Histograms of prosperity variables

28 Exclusion restrictions II. Concern: spatial correlation between colonial variables could endanger for best response equation cov(ni k (δ)c, ξ i ) = 0, In this given case: colonial state presence is not really correlated with neighbors colonial state presence i corr(1 D, 2 D ) = (c id 1 c D 1 )(c id 2 c D 2 ) σ 1σ 2 Spanish state had very heterogeneous goals with municipalities

29 System GMM estimation α = 1 case GMM estimation:

30 GMM case with α free best responses give the moment conditions: system is:

31 Full model SMM general case Estimates SMM:

32 System GMM fit Fit of System GMM:

33 Falsification exercise II.