Essays on infrastructure, trade, and politics in Developing Countries
Author(s)Firth, John S. (John Stockmann)
Massachusetts Institute of Technology. Department of Economics.
Daron Acemoglu and Benjamin Olken.
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This thesis comprises three essays in empirical development economics. Broadly, the essays provide causal evidence on the effects of various barriers to trade, associated with infrastructure, law, and politics. Chapter 1 begins from the observation that transportation networks worldwide suffer from heavy congestion. To measure this congestion's effect on the production side of the economy, I combine firm survey data with traffic data from Indian Railways. Geographic variation in congestion comes from a recent wave of passenger trains which were planned according to certain rigid rules, making it possible to identify the costs the additional traffic imposes on firms using the railways to ship goods. In estimating this "congestion externality", the empirical strategy accounts for both direct and spillover effects of congestion. It also draws on a traffic model from operations research to disentangle a mean effect (congestion makes the average shipment slower) from a variance effect (congestion makes shipping times less predictable). In response especially to the unpredictability, firms simplify operations in several ways, leading to lower productivity and substantial revenue loss. While affected firms suffer, however, I draw on a general equilibrium model of competition to identify gains to their competitors. Policy implications of these results concern both the management of traffic on existing infrastructure, and the construction of new infrastructure. Chapter 2 (coauthored with Ernest Liu) provides a long-run perspective on the effects of trade costs on the geography of production. We consider India's Freight Equalization Scheme (FES), which aimed to promote even industrial development by subsidizing long-distance transport of key inputs such as iron and steel. Many observers speculate that FES actually exacerbated inequality by allowing rich manufacturing centers on the coast to cheaply source raw materials from poor eastern regions. We exploit state-by-industry variation in the effects of FES on input costs, in order to show how it affected the geography of production. We find, first, that over the long-run FES contributed to the decline of industry in eastern India, pushing iron and steel using industries toward more prosperous states. This effect sinks in gradually, however, with the time needed to construct new plants serving as a friction to industry relocation. Finally, we test for the stickiness of these effects, by studying the repeal of FES. Contrary to popular opinions of the policy and to agglomeration-based reasons for hypothesizing stickiness, we find that the effects of repealing FES are equal and opposite to those of its implementation. Still, due to changing locations of the processing of basic iron and steel materials, the resource-rich states suffering under FES never fully recover. Chapter 3 contributes to the debate on laws against foreign bribery. When governments pass laws to prevent their businesspeople from bribing foreign officials, how does this affect patterns of trade and foreign investment? A literature focusing on the OECD Anti-Bribery Convention claims that these laws direct international business toward less corrupt destination countries, with the effect of diverting business away from developing countries. I rebut this claim, using three empirical tests: (i) a baseline test building on previous work but accounting for the omitted role of OECDlevel cooperation trends, (ii) an analysis of an initiative intensifying the Convention's enforcement, and (iii) a test exploiting product-by-destination level variation in pre- Convention exposure to OECD exports. Together, these tests show that the redirection of trade and investment following the passage of the foreign bribery laws was due not to the laws themselves, but to an underlying trend of increased political cooperation among OECD countries, as indicated by patterns in UN voting affinity. This cooperation is what simultaneously led OECD countries to pass measures such as the Convention, and to do more business with other OECD countries, which happen to be less corrupt on average than non-OECD countries.
Thesis: Ph. D., Massachusetts Institute of Technology, Department of Economics, 2018.This electronic version was submitted by the student author. The certified thesis is available in the Institute Archives and Special Collections.Cataloged student-submitted from PDF version of thesis.Includes bibliographical references (pages 187-194).
DepartmentMassachusetts Institute of Technology. Department of Economics.
Massachusetts Institute of Technology