Is a country’s ability to enforce contracts an important determinant of comparative advantage? To answer this question, I construct a variable that measures, for each good, the proportion of its intermediate inputs that require rela-tionship-specific investments. Combining this measure with data on trade flows and judicial quality, I find that countries with good contract enforcement specialize in the production of goods for which relationship-specific investments are most important. According to my estimates contract enforcement explains more of the pattern of trade than physical capital and skilled labor combined.

Using a new data set on annual deaths from disasters in 57 nations from 1980 to 2002, this paper tests several hypotheses concerning natural disaster mitigation. While richer nations do not experience fewer natural disaster events than poorer nations, richer nations do suffer less death from disaster. Economic development provides implicit insurance against nature’s shocks. Democracies and nations with higher quality institutions suffer less death from natural disaster. The results are relevant for judging the incidence of a Global Warming induced increase in the count of natural disaster shocks.

Can part of Africa’s current underdevelopment be explained by its slave trades? To explore this question empirically, I combined data from ship records with data from various historical documents reporting slave ethnicities, and construct estimates of the number of slaves exported from each country during Africa’s slave trades between 1400 and 1900. I find a strong robust negative correlation between the number of slaves exported from a country and its current economic performance. To better understand if the relationship is causal, I examine the historical evidence on selection into the slave trades, I use instrumental variables, and I control for observable country characteristics. The results suggest that the relationship between slave exports and current economic performance is causal. I then test for potential channels of causality. Consistent with the historic evidence, the data indicate that the effects of the slave trades are through ethnic fractionalization, weakened states, and a decline in the quality of domestic institutions.

This paper provides evidence of a causal and economically important effect of financial development on volatility. In contrast to the existing literature, the identification strategy is based on the differences in sensitivities to financial conditions across industries. The results show that sectors with larger liquidity needs are more volatile and experience deeper crises in financially underdeveloped countries. At the macro level, the results suggest that changes in financial development can generate important differences in aggregate volatility. An additional finding of this paper is that financially underdeveloped countries partially protect themselves from volatility by concentrating less output in sectors with large liquidity needs. Nevertheless, this insulation mechanism seems to be insufficient to reverse the effects of financial underdevelopment on within-sector volatility. Finally, this paper provides new evidence that: (i) financial development affects volatility mainly through the intensive margin (output per firm); (ii) both, the quality of information generated by firms, and the development of financial intermediaries, have independent effects on sectoral volatility, (iii) the development of financial intermediaries is more important than the development of equity markets for the reduction of volatility. I am grateful to Daron Acemoglu and Ricardo Caballero for extremely helpful comments and discussion.

Institutions — quality of contract enforcement, property rights, shareholder protec-tion, and the like — have received a great deal of attention in recent years. Yet trade theory has not considered the implications of institutional differences, beyond treating them simply as different technologies or taxes. The purpose of this paper is twofold. First, we propose a simple model of international trade in which institutional differ-ences are modeled within the framework of incomplete contracts. We show that doing so reverses many of the conclusions obtained by equating institutions with productiv-ity. Institutional differences as a source of comparative advantage imply, among other things, that the less developed country may not gain from trade, and factor prices may actually diverge as a result of trade. Second, we test empirically whether institutions act as a source of trade, using data on US imports disaggregated by country and industry. The empirical results provide evidence of “institutional content of trade: ” institutional differences are an important determinant of trade flows.

We examine the impact of ambiguous and contested land rights on investment and productivity in agriculture in Akwapim, Ghana. We show that individuals who hold powerful positions in a local political hierarchy have more secure tenure rights, and that as a consequence they invest more in land fertility and have substantially higher output. The intensity of investments on di¤erent plots cultivated by a given individual correspond to that individual’s security of tenure over those speci…c plots and, in turn, to the individual’s position in the political hierarchy relevant to those speci…c plots.

This article identifies the emergence of the institution-based view as a third leading perspective in strategic management (the first two being the industry-based and resource-based views). We (a) review the roots of the institution-based view, (b) articulate its two core propositions, and (c) outline how this view contributes to the four fundamental questions in strategy. Overall, we suggest that the institution-based view represents the third leg of a strategy tripod, overcomes the long-standing criticisms of the industrybased and resource-based views ’ lack of attention to contexts, and contributes significant new insights as part of the broader intellectual movement centered on new institutionalism.

Per capita income in the richest countries of the world exceeds that in the poorest countries by more than a factor of 50. What explains these enormous differences? This paper returns to two old ideas in development economics and proposes that complementarity and linkages are at the heart of the explanation. First, just as a chain is only as strong as its weakest link, problems at any point in a production chain can reduce output substantially if inputs enter production in a complementary fashion. Second, linkages between firms through intermediate goods deliver a multiplier similar to the one associated with capital accumulation in a neoclassical growth model. Because the intermediate goods ’ share of revenue is about 1/2, this multiplier is substantial. The paper builds a model with complementary inputs and links across sectors and shows that it can easily generate 50-fold aggregate income differences.

ABSTRACT: This article provides a survey of the growing body of em-pirical evidence that points towards the long-term effects that historic events can exert on current economic development. The most recent studies, using micro-level data and more sophisticated identification techniques, have moved beyond testing whether history matters, and attempt to identify exactly why history matters. The most commonly examined channels include: institutions, culture, knowledge and tech-nology, and movements between multiple equilibria. The article con-cludes with a discussion of the questions that remain and the direct of

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