AØKK08356U Seminar: Fundamental Determinants of Economic Performance

The broad question asked is “Why are some societies richer than others?” The proximate answer is that these societies manage higher productivity rates and investment rates in human- and physical capital, but why is it that some societies are so much more productive and invest more than others? The answers can be grouped into three categories: institutions, culture, and geography. The purpose of this seminar is to explore these three “deep determinants of economic growth” empirically. We will be investigating empirically their origins and their consequences.

Examples of topics that are relevant for this seminar are:

• The institutions of a country provide the formal rules within which we make decisions, and thus influence economic outcomes in various ways. Which institutions are good for growth and which are bad? And why do some countries develop “bad” institutions, while others end up with “good” institutions?
• Our cultural values influence the decisions we make, including our economic decisions. Various economic outcomes have been linked to culture; fertility choices, labor force participation, health, etc. Even GDP per capita has been associated with differences in cultural values, such as individual religiosity, thriftiness, preferences for hard work, patience etc. But how does religiosity or patience influence growth or other economically relevant outcomes such as science development or investments? And why are some societies more religious, thrifty or patient than others?
• Peeling off the layers of the onion in our search for the ultimate deep determinants of economic outcomes brings us back into history. Back then, all societies relied on agriculture and, thus, the deep roots of current economic differences is likely to involve differences in agriculture practices. These practices are highly dependent on the geographic and climatic surroundings of historic societies. In fact, certain geographic and climatic circumstances did influence economic outcomes of past societies, and these historic differences explain a major part of current economic differences.

Choice of topic: Choose one of the deep determinants and investigate either its’ origins or its’ consequences for some economically relevant outcome variable. After that, choose whether to replicate an existing paper partly or to conduct your own empirical analysis. Choosing a paper to base your analysis on is always a good place to start. Choose a paper among the “good journals”, meaning A or B journals: http://socialsciences.ku.dk/research/journal_rankings/economics/. I emphasize the quality of the paper, since replicating a poor paper rarely produces a good paper.

Endogeneity problems will play an important role in the empirical work. For instance, when investigating the impact of institutions on GDP per capita, OLS analysis will include particularly two types of endogeneity bias; institutions and GDP per capita may both be influenced by various omitted factors (omitted variables bias), and GDP per capita levels may influence the quality of institutions (reverse causality bias). Students do not have to solve these endogeneity problems perfectly econometrically in order to pass the seminar, but the minimum criterion to pass is proper OLS regression analysis together with a discussion of endogeneity issues.

You are very welcome to contact me before the semester starts if you want my opinion on a paper that you want to use or a topic that you want to investigate: Jeanet.bentzen@econ.ku.dk.