Development and Globalization - Findings
ESOP has produced several publications on development and globalization, particularly as it relates to institutions and income inequality.
An international fairness experiment | The importance of institutions | Income and inequality | Growth and globalization | Environmental challenges
One important research goal is to understand the role of entitlements and egalitarian values in an international perspective. Do people hold the same social preferences and values across countries? Do people in countries with small income differences subscribe to more egalitarian views – or are the differences that we observe basically due to institutional differences? What is the role of basic needs in poor countries?
One paper that we would like to emphasize is Alexander W. Cappelen, Karl Ove Moene, Erik Ø. Sørensen and Bertil Tungodden ‘’Needs vs. entitlements – an international fairness experiment’’, forthcoming in Journal of the European Economic Association. The paper explores the relative importance of needs, entitlements, and nationality in people's social preferences by a real effort fairness experiment. People in two of the world's richest countries, Norway and Germany, interacted directly with people in two of the world's poorest countries, Uganda and Tanzania. The study provides four main findings. First, entitlement considerations are crucial in explaining distributive behaviour in the experiment; second, needs considerations matter a lot for some participants; third, the participants acted as moral cosmopolitans and did not assign importance to nationality in their distributive choices; and finally, the participants' choices are consistent with a self-serving bias in their social preferences. There is no support in the experiment that Norwegians are more egalitarian than other participants.
ESOP’s research has been directed towards the great inequalities between rich and poor countries, and the many dysfunctional power relations in poor countries. The misuse of power takes many forms from full scale war to corruption and bad policies. The war in Afghanistan has been analyzed by Jo Thori Lind, Karl Ove Moene and Fredrik Willumsen. Using a unique dataset on opium production and conflict events, they show how the recent rise in Afghan opium production is caused by violent conflicts. This is one stark example of how social organization and economics may be interrelated in a drastically counterproductive pattern. Bård Harstad has worked on different forms of corruption and lobbying and its effect on private firms. He finds that when the level of development is low, firms are more inclined to bend the rules through bribing. This mechanism may account for the common perception that bribery is relatively more common in poor countries, while lobbying is relatively more common in rich ones. Similarly, the comprehensive treatise in Jean-Marie Baland, Karl Ove Moene and James Robinson emphasizes how bad policies so often tend to be good politics that favour the survival of the ruling elite.
ESOP also has many contributions to the literature on how to measure income and inequality across countries. Ingvild Almås has developed a new method for comparing incomes across countries, while Jo Thori Lind and Karl Ove Moene have developed a misery index to compare the extent of lack of redistribution of income between rich and poor within different countries.
There are also important works on growth and globalization. Kjetil Storesletten has analyzed China’s growth experience since 1992, with high output growth, sustained returns on capital investments, extensive reallocation within the manufacturing sector, falling labour share and accumulation of a large foreign surplus. He finds that the building blocks underlying this performance is capitalist entrepreneurs acting in an environment with financial control and low wages. Hence, China’s growth experience is a result of a particular combination of social and institutional features.
The global environmental challenges is another issue of the interaction between organization (or lack thereof) and economic performance. Mads Greaker and Michael Hoel study the effect of carbon taxes on innovation. They argue that if the government can optimally subsidize firms’ innovation today, the government avoids the so called time inconsistency problem. Thus, lack of commitment is not an argument for high current subsidies of innovation.