Economic Growth Summary Lectures

Concepts
WHY ARE SOME COUNTRIES RICH?
We measure how rich countries are using GDP which measures the ability of a person to get many of the
inputs that makes a life worth while (referring to Kennedy quote).
We really care about things such as:
• Life expectancy: Strong correlation
• Literacy rates: Strong correlation
• Median consumption: Strong correlation
• Life satisfaction: Strong correlation

We have seen that there are big di erences in levels of GDP per capita, however, these di erences in
levels can be greatly erased or ampli ed over time with just small di erences in the growth rate.

GROWTH THEORY
Simple models that contain insights about di erences in growth experiences.
Stylized Facts of Growth – Kaldor's Facts: six stylized facts about economic growth, emphasizing
constant long-term growth of per capita output, constant capital per worker growth, nearly constant
returns on capital, a nearly constant capital-output ratio, constant output shares of capital and labor, and
varying growth rates of output per worker across countries.

SOLOW MODEL
Focuses on role of capital accumulation and
technology as potential drivers for growth.
We have production f(k), depreciation (n+d)k, and
sf(k) investment/savings:
• At the steady state, the economy has no further
capital deepening, and thus the growth rate of
output per worker due to capital accumulation
is zero.
• Any point to the left of k∗ indicates that the
economy is below its steady state and can
grow by accumulating more capital.
• If the economy starts to the right of k∗, it would
mean that there is too much capital per worker,
and the economy would need to reduce capital
per worker over time to reach the steady state.
Capital Accumulation is investment/savings
minus depreciation

Maximizing Consumption: At the Golden Rule level of capital, the economy balances savings and
consumption optimally. If the economy saves too much (more than the Golden Rule level), it would mean
that current consumption is needlessly low because the extra capital isn't contributing to additional
output. If the economy saves too little (less than the Golden Rule level), it would mean future
consumption is needlessly low because the economy isn't maintaining enough capital to maximize
output.

What’s the main message behind the Solow Model?

• Steady State: Economies tend toward a steady state where output per worker, capital per worker, and
consumption per worker are constant, assuming no technological change.

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 • Diminishing Returns: Capital accumulation leads to growth, but due to diminishing returns, its impact
lessens over time, highlighting the importance of technological progress for sustained growth.
• Convergence Hypothesis: Poorer economies with less capital per worker should grow faster than
richer ones, a concept known as "convergence," assuming they have similar savings rates, population
growth, and access to technology.
When compared to actual data, the predictions of the Solow model have mixed support:
• Convergence: The model's prediction of convergence is not uniformly observed. Empirical data show
that while some poor countries have experienced rapid growth and are catching up to richer countries,
many others are not. This lack of uniform convergence led to the concept of "conditional
convergence," where countries converge to their own steady states, which may di er due to factors
like technology, institutions, and human capital.
• Diminishing Returns: The idea of diminishing returns to capital in the long run is generally supported
by data. Economies with very high levels of capital do not tend to have proportionally higher levels of
output.
Adding technology to the Solow model provides a more complete and realistic framework for
understanding economic growth. It explains how countries can experience sustained growth and why
some countries grow faster than others. As technology improves, it can o set diminishing returns to
capital and lead to sustained increases in output per worker.

AK MODEL
The Solow model, while providing insights into the mechanics of growth, does not fully explain the
observed di erences in growth rates across countries. Its predictive power is limited to the role of capital
accumulation and does not extend to the myriad other factors that in uence economic growth.
The AK model is a variant of the exogenous growth models, like the Solow model, but with a critical
di erence: it assumes that there are no diminishing returns to capital:
• Endogenized Growth: The AK model attempts to endogenize growth, meaning it tries to explain the
source of economic growth from within the model itself, rather than relying on external factors.
However, the model does this by assuming that all investment in capital leads to growth without
accounting for the possible diminishing returns to capital. It assumes that the knowledge accumulation
process, which enhances productivity, is external and does not directly reward those who invest in
capital.
• No Conditional Convergence: Unlike the Solow model, which predicts that poorer or less developed
countries will grow faster than richer ones until they converge to a similar level of per capita income
(conditional on having similar savings rates, population growth rates, and access to technology), the
AK model does not predict such convergence. It suggests that di erences in savings rates can
lead to persistent di erences in growth rates between countries. This implies that if a country
increases its savings and investment rates, it should experience a permanent increase in its growth
rate.

IV
What IV Does:
• Address Endogeneity: IV is used when an explanatory variable in a regression model is correlated
with the error term, violating the assumption of exogeneity. This correlation often arises due to omitted
variable bias, measurement error, or reverse causality.
• Isolate Variation: IV isolates the exogenous variation in the explanatory variable that is independent of
the error term. This is achieved by using instruments that are correlated with the endogenous
explanatory variable but uncorrelated with the error term.

How IV Works:
• Selection of Instruments: Identify a variable (or variables) that in uences the endogenous explanatory
variable but does not directly a ect the dependent variable except through the endogenous variable.
• Two-Step Process:

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 • First Stage: Regress the endogenous explanatory variable on the instrument(s) to get the predicted
values of the endogenous variable.
• Second Stage: Use these predicted values in the regression equation to estimate the e ect on the
dependent variable.

2SLS
What 2SLS Does:
• A Form of IV: 2SLS is a speci c method of applying IV
estimation. It's particularly useful in linear regression
models with multiple endogenous explanatory variables.
• Handle Multiple Endogenous Variables: It allows for
the estimation of models where more than one
explanatory variable is endogenous.

DIAMOND GEOGRAPHY HYPOTHESIS

Vast di erences in prosperity across countries today. Why?
• Physical capital di erences (poor countries don’t save enough)
• Human capital di erences (poor countries don’t invest enough in education and skills)
• Technology di erences (poor countries don’t invest enough in R&D and technology adoption)
But why don’t they do these things?The answer to these questions is related to the fundamental causes
of di erences in prosperity.
• Geography (exogenous di erences of environment)
• Institutions (humanly-devised rules shaping incentives)
• Culture (di erences in beliefs, attitudes and preferences)

Diamond’s geography hypothesis states that in regions of the world (Eurasia) where they had more
domesticable animals and crops, led to food surpluses and so people could work on things that are not
agriculture which led to advancements in technology. They also lived with animal species making them
be in contact with diseases which made them more resistant to them and they had horses which were a
huge advantage.

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 Papers
THE RISE OF THE STATE: CEREALS AND APPROPRIABILITY
Addresses two key research questions following the Neolithic Revolution:
1. How did farming trigger the emergence of complex hierarchies and civilizations?
2. Why did some regions remain with only simple hierarchy despite adopting farming?

Introduction:
• Existing Theories Critique: The conventional view links the Neolithic Revolution to increased
productivity, food surplus, and the emergence of a non-food-producing elite, ultimately leading to state
formation. This theory posits that agricultural productivity di erences across regions generate surplus
and hierarchical complexit .
• New Explanation: The authors propose a novel theory focusing on the increased "appropriability" of
cereals versus roots/tubers. This theory posits that the ability to tax or steal cereals in regions suitable
for their cultivation led to the development of an elite class and the state. They argue that geographical
di erences in land suitability for cereals versus roots/tubers create di erences in appropriability,
in uencing the complexity of hierarchical structure .

The Model:
• Agents and Organizations: The model includes farmers choosing between cereals and tubers, and
non-farmers who can be foragers, bandits, or tax collectors. Organizations range from anarchy, roving
bandits, to hierarchy with a monopoly of violence.
• Key Dynamics: The model highlights the expropriability of cereals and the xed costs of organizing a
state, including employing tax collectors. The main parameter is the relative productivity of cereals
versus tubers. Equilibrium is de ned by the land allocation to cereals by farmers, expropriation rates in
anarchy, and tax rates in a hierarch .

2SLS Estimation:
• Objective of the Analysis: The primary goal is to determine if the main crop type (cereals vs. roots/
tubers) in uences the level of societal hierarchy.
Conclusions from the 2SLS Model
• Cereal Advantage (CerAdv): The positive and signi cant coe cients for CerAdv across di erent
speci cations in the second stage suggest that societies with a greater advantage in cereal
cultivation tend to develop higher levels of hierarchy.
• Control for Land Productivity (LandProd): When controlling for land productivity, the signi cance
of the cereal advantage in in uencing hierarchy persists, reinforcing the idea that the nature of the
crop, not just the fertility of the land, plays a crucial role in the development of complex social
structures.
• Importance of Appropriability: The model underscores the importance of the appropriability of
cereals — their ability to be stored, taxed, and stolen — as a critical factor driving the demand for
state structures. This is because cereals' appropriability creates a demand for protection, which in
turn facilitates the nance of an elite class and the provision of protection, thereby supporting the
emergence of the state.

Supportive Evidence:
• In Egypt, state hierarchy evolved rapidly following the adoption of farming in the Nile valley, facilitating
the construction of the great pyramids as early as the third millennium BCE.
• Farming was initiated in New Guinea at about the same time as in Egypt, but there it did not lead to the
emergence of states.
• The only regions that did not generate complex hierarchical organizations were those that did not
domesticate cereals (but rather roots/tubers/fruits).

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 ON THE ORIGINS OF THE STATE: STATIONARY BANDITS AND TAXATION IN EASTERN CONGO
The paper provides empirical evidence on how economic opportunities, speci cally from natural
resources, can in uence the behavior of armed groups and lead to the emergence of state-like
structures in the form of stationary bandits.

Introduction:
• Research Question: The paper asks how and why the transformation from banditry to a rule under a
monopoly of violence occurs in the context of Eastern Congo, where there's a continuum of armed
organizations from autonomous bandits to proto-state .
• Background: The study is set during and after the Second Congo War (1998-2003). After a failed coup
in 1998, armed groups took control of much of Eastern Congo. These groups, initially politically
motivated, found pro tability in the mineral trade, especially gold and coltan, the latter being easier to
tax due to its bulkines .

The Model:
• Stationary Bandits: The paper examines the Nduma Defense of Congo, an armed group controlling
93 villages. This group behaves like a proto-state, conducting censuses, imposing taxes, running
intelligence and propaganda agencies, and enforcing a legal cod .
• Typical Municipality Structure: The region consists of approximately 2500 municipalities, each with a
support village that plays a crucial role in the mineral trade, housing large roads, infrastructure, and
often being the residence for mining familie .

Findings and Evidence:

• Impact of Coltan Price Shocks: High coltan prices lead to more attacks on coltan mines and their
support villages, with evidence of taxation and security services by bandits. These e ects are more
pronounced in municipalities near airports, where coltan can be easily shippe .
• Gold Price Shocks: Unlike coltan, gold price changes do not signi cantly impact the mining sites but
do a ect support villages, particularly those near rivers where gold output is harder to tax. This leads
to the emergence of stationary bandits who develop complex taxation systems and scal/legal
administrations in these area .
•
• Pro tability of Taxation: Armed groups discover that it's more pro table to provide security and
establish a monopoly of violence in exchange for regular taxation, as opposed to engaging in sporadic
looting. This transformation aligns with the theory of the "stationary bandit," a concept in political
economy which postulates that it is in the self-interest of a monopolist of violence (the 'bandit') to
provide public goods in the territory it controls to maximize its own revenue over the long term.
• Appropriability of Resources: The paper nds that economic shocks, like the increase in the
price of coltan, make the appropriation (and therefore taxation) of this resource more lucrative, thereby
attracting armed groups to consolidate control and organize more stable governance structures
around these resources.
• Visibility and Control of Resources: Coltan's bulkiness and the infrastructure around its trade
make it more visible and easier to control, tax, and protect by these armed groups. Gold, on the other
hand, is more easily concealed and transported, making it harder to tax at the mining site. However, in
support villages where gold revenues are concentrated, armed groups can still tax the wealth
generated from gold indirectly.

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 DYNAMICS AND STAGNATION IN THE MALTHUSIAN EPOCH

Research Question: The study examines the impact of technological advancements and land
productivity on population density and income per capita during the Malthusian epoch (1-1500 CE).

Malthusian theory: The consequence of rapid

population growth would be that any increase in
income per capita or living standards would be
temporary. As the population increases, the
bene ts of any technological progress or
additional resources are diluted, and living
standards fall back to subsistence levels, where
people have just enough to survive.

Importance: Understanding the Malthusian

dynamics is crucial for insights into historical
economic development patterns and their
in uence on contemporary economies. It was
the rst time the Malthusian theory was tested
empirically.

Data Used: The analysis utilizes cross-country data on land productivity, technological sophistication,
and historical estimates of population and income per capita from sources like McEvedy and Jones
(1978) and Maddison (2003).

Identi cation Strategy: Employing an instrumental variables approach, the study uses the number of
prehistoric domesticable plant and animal species as exogenous variables to identify the causal e ect of
Neolithic Revolution timing on population density.

Findings: The research nds signi cant positive e ects of land productivity and technological
advancement on population density, but these factors did not signi cantly alter income per capita,
aligning with Malthusian predictions.
• The analysis reveals that land productivity and technological advancement have a statistically
signi cant positive e ect on population density in 1 CE, 1000 CE, and 1500 CE, aligning with
Malthusian predictions.
• However, these factors do not have a signi cant impact on income per capita during these periods,
suggesting that gains in productivity and technology were absorbed by population increases rather
than increases in living standards.

Limitations and Criticism: The study's reliance on historical data, which might be subject to
measurement errors, and the assumptions underlying its instrumental variable approach could be areas
of potential critique.

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 REVERSAL OF FORTUNE ACEMOGLU, JOHNSON AND ROBINSON, QJE 2002

Introduction:
Geography cannot be the key to economic development:
• The European intervention appears to have created an "institutional reversal" among colonized
societies (among countries colonized by European powers those that were relatively rich in 1500 are
now relatively poor - think for instance about Mughals in India and the Aztecs and Incas in the
Americas).
• Its institutions what really matter.

Evidence shows that former colonies with high urbanization and population density in 1500 now have
relatively low GDP per capita, while those with low initial urbanization and population density have
generally prospered. This reversal was not equally bene cial to all; for instance, Native Indians and
aborigines in the New World have largely vanishe .

Data and Measurement:

Data on urbanization came from sources like Bairoch (1988), population density from McEvedy and
Jones (1978), and income and institutional quality from the World Bank and Polity IV. Urbanization rates
were used as a proxy for income in 1500 since direct income data from that period are unavailabl .

A simple OLS estimation is used to analyze the relationship between GDP in 1995 and urbanization rates
in 1500.

Results:
• Urbanization in 1500 is inversely related to income today, implying that countries less urbanized back
then are wealthier now. The statistical analysis suggests that this is not simply a reversion to the mean
but an actual reversal of fortun .
• Higher population density in 1500 is associated with lower income today. This relationship holds
across various speci cations of the mode .
• The reversal of fortunes occurred primarily in the late eighteenth and early nineteenth centuries and is
closely related to industrializatio .
The research concludes that institutions played a signi cant role in the economic growth process and
the surge of industrialization in former colonies, and they account for a substantial portion of the current
income di erences between countrie .

Interpretation:
• The institutional hypothesis argues that Europeans introduced either institutions of private property,
which emphasized a broad cross-section of society, or extractive institutions, which were more
oppressive and focused on resource extraction. The type of institutions introduced was determined by
factors such as economic pro tability, the ability to tax, and the feasibility of European settlemen .

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 THE COLONIAL ORIGINS OF COMPARATIVE DEVELOPMENT AER 2001

Historical Context: During the colonization era, European settlers faced various health risks in di erent
parts of the world. In some regions, they encountered diseases to which they had no immunity, such as
malaria or yellow fever. In other areas, the climate was more temperate and disease risks were lower.

Indicator of Institutional Development: The authors argue that high settler mortality rates in uenced
the type of institutions established by colonial powers. In regions where European settlers faced high
mortality risks, they were less likely to settle permanently. This led to the establishment of extractive
institutions, where the primary goal was to extract resources and wealth from the colony with little regard
for the welfare of the local population.

Link to Modern Economic Outcomes: The paper posits that these extractive institutions, created in
response to high settler mortality, have had long-lasting e ects. They hindered the development of
inclusive economic systems that promote growth and prosperity. Conversely, in regions with lower settler
mortality, Europeans were more likely to settle permanently, leading to the development of institutions
that were more inclusive and conducive to long-term economic growth.

Instrumental Variable in Econometric Analysis: Settler mortality rates are used as an instrumental
variable in the authors' analysis to establish a causal link between the nature of colonial institutions and
current economic performance. The idea is that settler mortality rates in uenced the type of institutions
established, which in turn a ected modern economic outcomes.

Results:
• Signi cant coe cient for institutional quality, indicating a strong relationship between historical
institutions and modern economic performanc .
• Checks for reverse causality and validity, con rming the reliability of their approac .
• Institutions have a signi cant long-term e ect on economic growth. Historical institutional di erences
account for a substantial part of current income variations globall .

DELL ECONOMETRICA 2010

Background and Focus:

Examines the long-term e ects of the Mita system, a forced labor mining system in Peru and Bolivia, on
current developmen .

Data and Design:

• Utilizes household and district-level data, including household consumption and child stunting, to
measure living standard .
• Employs a regression discontinuity design around the Mita boundary to isolate the impact of the Mita
syste . The strategy is to compare border areas with similar conditions, with one side subjected to the
Mita system and the other not, and to analyze the di erential outcomes while controlling for various
variables.

Main Findings:
• Signi cant long-term negative e ects of the Mita on household consumption and child health in
a ected district .

Channels of Persistence:
• Three main channels through which the Mita's impact persisted:
• Land Tenure: The Mita in uenced the formation of haciendas, rural estates with a labor force, leading
to higher inequality level .
• Public Goods: The Mita system lowered historical access to education and impacted regional road
qualit .

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 • Sectoral Composition: The Mita increased the prevalence of subsistence agriculture in a ected areas

Summary of Dell's Findings:

• The Mita system's in uence is evident in modern times through its e ects on land tenure, public goods
provision, and the economic structure, contributing to lower household consumption and higher levels
of subsistence farming in a ected district .

UNBUNDLING INSTITUTIONS ACEMOGLU AND JOHNSON (2005)

Introduction:
• The study addresses the growing consensus among economists that institutions (broad social,
economic, legal, and political organizations) are crucial for economic performance.
• It identi es two essential types of institutions: contracting institutions (supporting private contracts)
and property rights institutions (constraining government and elite expropriation .

Data:
• Contracting Institutions: Measured using indices of legal formalism and procedural complexity, which
include factors like the number of formal legal procedures necessary to collect an unpaid check and
resolve unpaid commercial debt case .
• Property Rights Institutions: Assessed using various metrics, such as Polity IV (constraints on the
executive), Risk Services (protection against government expropriation), and Heritage Foundation
(property right protection .
• Historical Data: Includes the legal origin of the country (civil vs. common law) and population density
in 150 .
• Economic Performance: Measured using per-capita GDP (1995), investment to GDP ratio, credit to
private sector, and stock market capitalizatio .

Identi cation Strategy:

• The model investigates the impact of contracting and property rights institutions on various economic
outcomes.
• Instruments used include population density in 1500 and legal origin of the country, with the
assumption that these factors a ect development only through their e ects on property rights and
contracting institutions, respectivel .

Results:
• First Stage Results: The legal origin of a country and population density in 1500 are powerful
predictors of the quality of contracting and property rights institution .
• Conclusions:
• Contracting Institutions: Found to have limited or no e ect on long-run economic growth, the
ability to channel money to investments, or the overall amount of nancial intermediation provided
through the banking sector. Some e ect on equity nance was noted.
• Property Rights Institutions: Showed a signi cant e ect on long-run growth, the ability to channel
money to investments, the overall amount of nancial intermediation in the economy through the
banking sector, and on equity nanc .

In summary, the study concludes that property rights institutions are crucial for economic growth and
nancial development. While contracting institutions a ect the form of nancial intermediation, they have
less impact on growth. The results suggest that while economies can function with weak contracting
institutions, they cannot thrive in the presence of signi cant risks of expropriation from the government
or other powerful groups. This emphasizes the vital role of property rights institutions in constraining
those who control the state and ensuring a stable environment for economic activities.

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DO INSTITUTIONS CAUSE GROWTH, JEG, 2004

Research Questions:
• The study poses critical questions about what matters more for economic development: the quality of
institutions or human capital. It explores whether political institutions drive economic growth or if
growth and human capital accumulation lead to better institution .

Two Views on Development:

• Institutions First: This approach emphasizes establishing democracy and checks on government to
secure property rights, believing that investment in human and physical capital and subsequent
economic growth will follow.
• Human Capital First: This view holds that human and physical capital accumulation is the starting
point. Pro-market dictators can secure property rights as a policy choice, not due to political
constraints. Democracy and institutional improvements are seen as consequences of increased
education and wealt .

Case Study: Korea

• The example of South and North Korea highlights this debate. Both countries were similar in 1950, but
their paths diverged due to di erent political and economic systems. South Korea, which adopted
capitalism and secured property rights, experienced greater economic growth and later transitioned to
democracy. This suggests that improved institutions can be an outcome of economic growt .

Measuring Institutional Quality:

• Various measures are used, including surveys of institutional quality and government e ectiveness.
However, these measures are often volatile and increase with per-capita GDP. They are also
constructed in a way that dictators choosing good policies receive high scores, regardless of whether
they are constrained to choose such policie .

Empirical Evidence:
• The presentation shows that initial levels of constraints on the executive power do not predict
economic growth. Instead, human capital seems to be a more fundamental source of growt .

Experience of Poor Countries:

• Examining poor countries in 1960, the study nds that all these countries had uneducated populations
and were run by dictators, yet they exhibited large dispersions in growth rates. This suggests that the
security of property rights is more a result of policy choices than constraint .

Instrumental Variables and Human Capital:

• The study critiques the use of settler mortality and population density in 1500 as instrumental variables
for institutions, suggesting that Europeans might have brought not just their institutions but also their
human capital to the colonies. Human capital is found to be more highly correlated with economic
growth in instrumental variable speci cation .

Conclusions:
• The paper concludes that most indicators of institutional quality used to establish the proposition that
institutions cause growth are conceptually unsuitable. Instead, human capital is found to be a more
basic source of growth than institutions. It suggests that poor countries escape poverty through good
policies, often pursued by dictators, and subsequently improve their political institution .

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 THE WIND OF CHANGE: MARITIME TECHNOLOGY, TRADE AND ECONOMIC DEVELOPMENT

Key Themes:
• First Era of Trade Globalization (1870-1913): The study examines the factors that led to the boom in
global trade during this period, with a particular focus on the role of the steamshi .
• Sailing Ship vs. Steamship: The transition from sailing ships to steamships is a central theme. The
presentation illustrates the di erences in navigation and speed capabilities of these vessel .

Data:
• Data on optimal maritime routes, wind patterns, and actual historical routes are used to understand the
e ciency and impact of di erent ship type .
• Trade data from 1845-1905 for around 100 countries, freight rates, and historical sailing routes are
analyze .
• Additional data includes GDP, urban and total population, executive constraints, and attainable yield
for various crop .

Model:
• A gravity model is applied to estimate the e ect of shipping times on bilateral trade. The model
includes variables for steam and sail travel times and controls for country and year xed e ect .

Empirical and Supportive Evidence:

• The steamship's introduction is found to explain at least 50% of the boom in international trade
post-1870, a signi cant increase from previous estimates of 5-15 .
• The shift from sail to steam had a profound impact on trade. The study nds that steam vessels
dramatically reduced travel times, thereby in uencing trade patterns and volume .

Technological Impact on Trade:

• Steamships Reduced Shipping Times: The advent of steam-powered vessels dramatically reduced
travel times between countries, making global trade more feasible and e cient. This technological
change had the potential to reshape trade patterns and economic relationships.

Average Negative E ect on Economic Development:

• Uneven Bene ts: While the overall volume of trade increased, the bene ts were not uniformly
distributed across all participating countries. The average negative e ect suggests that for some
countries, increased exposure to international trade may have led to adverse economic outcomes,
such as deindustrialization or increased dependence on a narrow range of exports.
• Competition and Market Access: With easier access to foreign markets, countries with a competitive
advantage in certain industries could dominate, potentially harming industries in less competitive
countries. This could lead to economic specialization that may not be conducive to long-term,
diversi ed economic growth.

Conclusions:
• The transition to steamships was a major driver of the rst era of trade globalization.
• This shift had varying e ects on di erent countries, with an average negative e ect on economic
development but a large disparity across countries. This suggests that the impact of trade on
development is complex and context-dependen .
• The study concludes that technological advancements in maritime transportation signi cantly
in uenced global trade patterns, with the introduction of the steamship playing a pivotal role in shaping
economic outcomes across countries.

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THE MISSION, QJE, 2019

Background:
• Jesuit Missions: These were part of the European Counter-Reformation and were established in Latin
America by the Society of Jesus. The rst Guarani Jesuit mission was founded in 1609 in what is now
Argentina, Brazil, and Paraguay. At their peak, these missions housed over 100,000 native .

Education and Training:

• The Jesuits provided education, teaching children to read, write, and do basic arithmetic. They also
trained adults in various skills like masonry, wood carving, embroidery, and even operated printing
presses and astronomical observatorie .

Geographic Scope:
• The study covers 30 missions across a region larger than Uruguay or Ecuador, encompassing 578
municipalities in modern-day Argentina, Brazil, and Paraguay. Despite being remote areas even today,
these missions had a signi cant impact on the local population .

Empirical Analysis:
• Variables Used: Median years of schooling, literacy, income, presence of missionary (dummy or
nearest distance), and various geographic and weather controls.
• Model: The study examines how proximity to Jesuit missions predicts educational and income
outcomes. This approach helps to isolate the impact of the missions on human capital development
and economic performanc .

Results:
• Proximity to the Jesuit missions was found to be a strong predictor of higher levels of education and
income, indicating a lasting positive impact of these missions. This e ect persisted even after the
expulsion of the Jesuits from the Americas in 176 .

NEW MEDIA AND COMPETITION, DITTMAR AND SEABOLD, JPE 2021

Focus:
• The study investigates the role of printed media (especially business education content and religious
ideas) in economic and institutional development during the Protestant Reformation. It also examines
how competition in printing a ected the amount and content of local printin .

Data and Method:

• The researchers constructed data on printing output and competition in European cities from 1454 to
1600. They analyzed the relationship between the content of printed materials (business education and
Protestant content) and various outcomes like city growth and institutional change.

Findings:
• There was a positive relationship between business education content in print and city growth, as well
as between Protestant content and institutional change. The study highlights that competition in the
printing industry in uenced the content of books, which in turn had causal e ects on economic and
institutional outcomes.
• The analysis used printer deaths as a source of exogenous variation to establish causal relationships,
indicating that competition led to speci c content, which then in uenced the observed outcome . The
idea is that if printer deaths lead to a measurable change in the type and amount of content being
printed, and this change is then correlated with economic and institutional outcomes, one can infer a
causal relationship between printing and these outcomes.

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 WAS WEBER WRONG? A HUMAN CAPITAL THEORY OF PROTESTANT ECONOMIC HISTORY

Weber’s Thesis
• Weber posited that the Protestant Reformation was instrumental in facilitating industrial capitalism in
the Western world. He suggested two mechanisms:
• Work Ethic: Protestants might work harder due to their work ethic.
• Deferred Grati cation: The Protestant belief system encourages saving more, leading to more
investment .

Criticism of the Weber Thesis

• Some cross-country evidence refutes Weber’s thesis, showing no correlation between economic
progress and religion. However, this evidence has been criticized for not properly controlling for other
fundamental causes of economic prosperity such as institutions and geograph .

Luther’s Educational Postulations

• Martin Luther advocated for the expansion of education, emphasizing the study of the Holy Scriptures
in schools for both boys and girls. This focus on education may have led to higher literacy rates among
Protestant .

A Human Capital Theory of Protestant Economic History

• The study proposes an alternative theory: Protestants might have acquired more schooling than
Catholics for religious reasons, which then translated into higher economic prosperity. This perspective
focuses on human capital (education) rather than religious beliefs per se as the key driver of economic
outcome .

Evidence from 19th Century Prussia

• The study utilizes data from 19th Century Prussia, a region well divided between Protestants and
Catholics, to analyze the relationship between Protestantism, literacy, and economic outcomes.
• Data sources include the 1871 Population Census, 1882 Occupation Census, Income Tax Statistics of
1877, and Education Census of 188 .

Findings
• There was a signi cant positive correlation between the share of Protestants and per-capita income
taxes, as well as the share of manufacturing and service sector in 1882.
• The study also found that in modern Germany, Protestants earn higher incomes than Catholics,
suggesting a long-term economic impact of Protestantis .

Methodology
• The study used distance to Wittenberg as an instrumental variable (IV) to analyze the e ect of
Protestantism on economic outcomes. The IV approach aimed to establish causality by using the
geographic spread of Protestantism from Wittenberg as an exogenous facto .

Conclusion
• The study concludes that while Weber's thesis is interpreted as being incorrect in attributing economic
development directly to Protestant beliefs, it is correct in observing that Protestant regions were more
economically a uent than Catholic regions in late 19th-century Prussia. The key channel through
which this arose was the acquisition of literacy, a form of human capital investment promoted by
Protestantis .

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