Essays on political economy and economic development

Abstract

This thesis explores the causal effect of institutional, geographical and cultural factors on civil con ict and economic development in developing countries. It contains an introduction to the thesis, followed by six self-contained papers, and a concluding chapter that summarizes the main findings of the thesis. The thesis begins by exploring the effect of economic factors on the likelihood of civil conflict in sub-Saharan Africa (SSA). Particularly, Chapter 2 investigates the causal effect of economic policy shocks that are related to the real exchange rate (RER) misalignment on civil conflict in SSA. To address the potential endogeneity problem, the chapter implements two stage least square (2SLS) and GMM estimation and finds that RER overvaluation significantly raises the likelihood of conflict in the region. Chapter 3 studies the effect of emergency food aid on the incidence of civil conflict in SSA. This study proposes a novel identification strategy (IV) to isolate the causal effect of emergency food aid on conflict. Unlike the previous literature, I do not find a statistically significant impact of food aid in raising civil conflict. The next three chapters focus on identifying the effect of the introduction of monetary policy rules, geographical impediment and agricultural market institution on economic integration in the form of FDI, export and import flows. More specifically, Chapter 4 compares the effectiveness of inflation targeting and fixed exchange rate monetary policy rules in attracting FDI in the context of developing countries. Using propensity score and difference-in-differences estimation techniques, we find that the two monetary policy rules are equally important in increasing the inflow of FDI to these countries. Chapter 5 investigates the causal effect of landlockedness on disaggregate export and import. Exploiting the de facto landlockedness of Ethiopia in 1998 and using a triple-differencing strategy, we find that landlockedness has a large negative and statistically significant effect on the import and export of several goods in Ethiopia. Chapter 6 examines the introduction of a modern agricultural commodity market institution in Ethiopia on the export of coffee, the major export item in the country. Using the establishment of the Ethiopian Commodity Exchange (ECX) in 2008 and the sudden introduction of coffee into the ECX platform, it implements a triple difference-in-differences estimation approach and shows that the export of coffee has significantly improved following the introduction of coffee trade through the ECX. Finally, Chapter 7 explores the role of deep-rooted historical factors on the diffusion of technology from the technology frontier to laggard countries. This chapter has two major contributions to the literature. Firstly, it provides a micro channel evidence through which genealogical distance reduces the diffusion of technology from the technology frontier. Secondly, it sheds light on the distributional impact of genetic distance on the productivity of firms. Employing a harmonized survey data and a novel group IV quantile approach, it finds that the effect of genetic distance tends to be stronger for firms that are more productive. Additionally, it shows that cultural barriers to the diffusion of technology across countries affect firm-level productivity through firms' ability to adopt technologies from the frontier countries.