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BREAD-IGC virtual PhD-level course 2026 | Lecture 1 Introduction to Political Economy — Transcript

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0:04Mike, I'm on your I'm on that link that
0:06you sent. So, I don't
0:08>> That's fine.
0:09>> So, an issue not
0:10>> No, I don't I mean is if you're here,
0:12we're good. Um
0:13>> that's the important thing.
0:24>> Great.
0:26Well,
0:28I'll I'll kick things off. Um,
0:31welcome everybody uh to the first
0:34lecture in the bread IGC course on
0:37political economy for 2026.
0:40Really grateful that you're taking the
0:43time to come and we're especially
0:45grateful for um our three uh professors
0:48here who have organized and convened the
0:51course. So before I hand over to them, I
0:54just wanted to
0:56um mention a a couple of things. First,
0:59there will be a lot of questions
1:01throughout the course about
1:02housekeeping. Please um come to to me
1:06for for anything on that.
1:08IGC.researchl.ac.uk
1:13is is my email and I'm happy to to help
1:16in any way I can. Some common questions
1:19uh are around certificates and our bar
1:23for that is that we we really encourage
1:26you to come regularly and to encourage
1:28that um we'll be issuing certificates of
1:31completion for those that attend 10 out
1:33of the 12 lectures. Um we also will be
1:38sharing reading lists before each
1:42lecture and the slides and recordings
1:44will be available after each lecture. Um
1:48once we are in here on the on the
1:51lecture, we have disabled the chat, but
1:55the Q&A function is where you should
1:57submit all your questions into. And
2:00we'll have 60 minutes or so of of
2:02lecture initially and then um about 30
2:04minutes of a Q&A after. We will also ask
2:08for volunteers to become kind of live
2:11participants in uh the meeting. And so
2:14those people um should raise their hands
2:17and I'll be I'll be able to assign them
2:20to uh panelists and you can you can keep
2:23your mic muted but have your video on
2:26and then you'll have the opportunity to
2:28ask live questions um in that Q&A uh
2:31space. So I think that's it for
2:35housekeeping but uh to to introduce
2:39formally here I'm sure these these names
2:42are and faces are familiar to many of
2:44you but we have uh Fred Fernan who works
2:47at UC Berkeley as a professor of
2:50business administration. Claudio Faras
2:52is a professor of economics at
2:55University of British Columbia and uh
2:58Pontipical Catholic University in Rio
3:01and Mike Callen here uh as an associate
3:04professor of economics at the London
3:06School of Economics and they've
3:08researched extensively at the
3:10intersection of economics and political
3:12economy and we're really grateful for
3:14them putting this whole organizing this
3:17whole lecture series and um without
3:20further ado I'll pass over to Claudio
3:22and uh thanks again. So just a note if
3:26you would like to be a live panelist for
3:29for this lecture please raise your hand
3:31and um I'll select randomly 20 or 25
3:34people. Thanks.
3:42Okay. Uh thank you uh Kyle for the
3:46introduction. So let me start by sharing
3:49the slides.
3:55Okay, hopefully
3:57everybody's
4:04hopefully everybody can see this. Yeah.
4:08>> Yeah, we can see.
4:09>> Let me see. Okay, great.
4:17Okay, great. So uh so welcome. Uh it's
4:22it's is great to have everybody here.
4:24We're really excited. We thought about
4:27uh the topics uh the lectures and I
4:31think uh is is is going to be great. The
4:35course is going to be 12 lectures on how
4:40political economy institutions fit
4:42capacity interact with economic
4:44development.
4:45And the lectures are going to have both
4:48a theoretical component. So some of the
4:50lectures are going to be about basic
4:52models in political economy that you you
4:55need in order to understand uh some of
4:57the topics that we're trying to convey
4:59in the course. But also a lot of the
5:01lectures are going to be about empirical
5:03papers and the empirical kit that that
5:06we think uh you need. So we have some of
5:10the lectures are going to be only one
5:11person. Other lectures there are more
5:13than one. So there are 20 people that
5:15are going to be part of this. The way
5:17the course is designed is designed for
5:20PhD students. Although we know that some
5:23of you might be master students or
5:26policy makers, but uh the the what we
5:30try to target is really knowledge at the
5:32PhD student level. Uh and some of the
5:35papers that we're going to ask you to
5:36read are going to be hopefully at that
5:38at that level as well.
5:40So the what what we're going to do today
5:43in this lecture is going to be an
5:45introduction. We're going to split the
5:46three of us. I'm going to start I'm
5:48going to give you an overview of of the
5:51what the course is going to be about.
5:52What are the objectives and I'm going to
5:55talk a little bit about kind of big
5:59distributions of data and countries. And
6:01then I'll go into a little bit of the
6:02history of political economy. Then I'll
6:04pass it to Fred who's going to go deeper
6:06into institutions and then uh we're
6:10gonna have Mike Ken who's going to end
6:12up with some examples of actually more
6:15frontier topics. So the way we wrote the
6:18learning objectives for the course we
6:20want you hopefully after this 12
6:24lectures to be able to do three things.
6:27First explain and compare what are the
6:29main theoretical frameworks that we use
6:31in political economy that will include
6:34uh ways to think about it but you also
6:36include more formal models and how we
6:38think about some of the topics. A lot of
6:41the lectures are going to be very
6:43empirical. So we want you to be able to
6:45read the literature in a critical way. A
6:49lot of it is going to be specific
6:51identification strategies on how do you
6:53identify the effects of political power
6:56on institutions or institutions on
6:58policy. So some of the lectures are
7:01going to use very advanced and hopefully
7:03everybody are familiar with most
7:06advanced uh econometrics methods. And
7:09finally, the idea is to situate you in
7:11contemporary debates like lots of
7:14discussions uh today about state
7:16capacity, clientalism, the role of
7:19media, conflict, democracy, autocracy
7:22and and how those topics relate to a
7:25broader literature on both political
7:27economy and development economics.
7:31So the lectures are going to be from
7:34today until November 24. Uh the timing
7:37is 3:30 UK time which is early for those
7:40of you in in the Pacific. Uh and all the
7:44lectures are going to be both on Zoom
7:46live but they're also going to be uh
7:48recorded so you can also watch the
7:50lectures uh later.
7:53We're going to always post the readings
7:55in advance so you can actually hopefully
7:58read some of the papers and you're going
8:00to be receiving those readings in
8:02advance so you can actually uh get a
8:04look at them before we go into the
8:06lecture slides. So here are the topics
8:08that we're going to cover in the course
8:10with the respective speakers. So today
8:13is going to be an introduction. Next uh
8:17lecture we're going to have Nathan Nun
8:19and Melissa Dell who's going to talk
8:21about history, persistence and
8:22development. And then after you
8:25understand a little bit of what the
8:27history of institutions and persistence
8:30and how is related to current economic
8:32development, we're going to have Patrick
8:33Prua opening up presenting to you what
8:36are the core models that we use in
8:38political economy. After the models,
8:42team Basley is gonna come and give you a
8:44big picture of what is state capacity,
8:47how it relates to the process of
8:49economic development of countries. And
8:52then uh Fred Fein and I are going to
8:54talk about politicians and political
8:56agency.
8:58Uh K and Guja are going to talk about
9:01bureaucracy and implementation.
9:04Then we're going to go to political
9:05selection which deals with the types of
9:07politicians and the types of
9:09representation that we have in
9:10democracies. So that's going to be uh
9:12Rohini Pande and Kazy. Then we have
9:16going to have a lecture on conflict and
9:18fragility like what happens with a lot
9:20of things fail uh states fail. So that's
9:24going to be Mike Khalen and Andrea Dub.
9:27And in some specific countries uh
9:30nowadays, a lot of the conflict also is
9:32going to interact with other forms of uh
9:35lack of order or monopoly of violence
9:38from the state. So crime and organized
9:40crime is becoming a key issue in some
9:42developing countries. And we're going to
9:44have Chris Blackman and Mikuel Lasvatski
9:46coming and talks about it. And the final
9:49uh part of the course which are kind of
9:51like we consider some of the current
9:54topics that are important. One is going
9:56to be James Robinson talking about
9:58political economy of Africa. Uh we're
10:01going to have uh Ninang and and Muchman
10:06talking about the autotocracy of China
10:08and then uh and Maria Petrova talking
10:12about media and political economy. So
10:13that's uh that's the the plan for all
10:16the lectures.
10:19So without uh further ado, let me dig
10:22into motivating a bit what what this
10:26course is about. So here's a quote uh
10:29from Alexander
10:31Boxley. You used to be the Chilean
10:34Minister of Finance. Uh and and the
10:37reason why this quote is interesting is
10:39because he was the ministry of finance
10:41when Chile was transitioning from a
10:44dictatorship under Pino to democracy
10:48trying to pass many new policies in that
10:51transition
10:53but at the same time trying to balance
10:55out winners and losers of these
10:57different policies. And what he's saying
11:00this quote is that economists must not
11:04only know their economic models which
11:06all of you probably know uh from masters
11:09and PhD courses but also understand
11:12politics interests conflicts and
11:15passions
11:16for a brief period of time. You could
11:19make change by decree. In his context he
11:22was talking about implementing policy
11:24under a dictatorship that you don't have
11:26to balance winners and losers. you can
11:28just implement thing but for them to
11:31persist you have to build coalitions and
11:33bring people around. So what we're
11:36trying to convey with this quote is this
11:38idea that there always going to be
11:40winners or losers when you're trying to
11:41implement policies and it's important to
11:44understand those in order to understand
11:47good policy making and how you can make
11:50countries grow.
11:53So what I'm going to do is I'm going to
11:54start with the the big picture and I'm
11:58going to show you some some figures and
12:00after those figures I'll go into a
12:02little bit of the history of of
12:04political economy. So the point of to
12:08start I think a lecture like this I
12:10don't know if everybody has a a
12:12background in development economics but
12:15probably all of you know that there's a
12:18huge variation in income per capita
12:20across different countries. Uh not only
12:23some countries are rich and and others
12:26are poor but the difference between rich
12:28and poor countries is very very very
12:31large.
12:33And this is not something if you look at
12:37uh a graph where you plot on the white
12:39axis here the economic growth of
12:41countries since the 1960s. This figure
12:44is only until 2011. But it doesn't
12:47change that much if you incorporate the
12:49past 10 years. And if you plot that
12:52against the initial level of income per
12:54capita, what we don't see very clear is
12:58a pattern of convergence in the sense
13:00that it's not the case that countries
13:02that started very very poor are
13:05necessarily growing way more than
13:07countries that started richer. Right? So
13:09you can see that in the bottom of the
13:11distribution GDP per capita, you have
13:13countries such as Bundi of Malawi that
13:16haven't grown that much, right? like
13:18they're very close to zero actually in
13:20terms of growth rate. If you look at all
13:22these different decades on the other
13:25hand, you have countries such as
13:26Botswana or one of the miracle countries
13:29of the 20th century which is South Korea
13:31that have extremely high growth rates.
13:34And part of what we're going to try to
13:36do is this course is try to understand
13:39why is this the case. Now it's not that
13:42things has not changed, right? So if you
13:45look at for example since the 1980
13:47what's very clear is that some countries
13:50like Brazil for example and many middle-
13:53inome countries have been stagnated in
13:56terms of the income per capita while
13:58other countries such as China or India
14:00have grown significantly over this
14:03period. So there's some things that some
14:05countries are doing in terms of policym
14:08and reforms that are functioning to make
14:10these countries more grow while uh it's
14:14not happening in in other countries. Now
14:18why is this related to political
14:20economy? So let me motivate with a
14:23couple of figures. One is the
14:26correlation that exists between income
14:28per capita and the rule of law. Now Fred
14:32is going to come later and talk a little
14:34bit more about institutions and there
14:36are many ways that we measure
14:37institutions. One is rule of law meaning
14:42protection of property rights or
14:44enforcement of the police or violence
14:48etc. All those things are different
14:50proxies for rule of law. And one thing
14:53very clear is that rich countries
14:56functions way better in terms of the
14:58rule of law than poor countries.
15:02The other thing that's also very clear
15:04where you look at the data is that rich
15:06countries they are also way more
15:08democratic. Here in this figure I'm
15:11showing this uh measured by the freedom
15:13house which is a measure of democracy.
15:16But this figure here doesn't depend on
15:18which measure of democracy you really
15:20choose. No matter which measure of
15:22democracy, poorer countries tend to be
15:25on average less democratic. Rich
15:27countries tend to be on average more
15:29democratic. Now, of course, this figure
15:32is just a correlation. It doesn't say
15:34that as you grow richer, you become
15:36democratic. Or it also doesn't say
15:39necessarily that there's a causal
15:41pathway from becoming more democratic to
15:44growing more. We're going to discuss
15:46that over over the course. This is just
15:48a pattern that's interesting to observe
15:52that we're going to need to explore and
15:53understand why. And the the final figure
15:56that I want to show is that not only
15:59richer countries, they're more
16:00democratic, but in general, the
16:03government functions way better in those
16:06countries. So there are more public
16:08goods, they're more collective ways of
16:11implementing policies, etc. the way that
16:13the government functions uh is actually
16:16way better as countries grow.
16:22Now, this is not a coincidence. Uh one
16:27of the main points we're going to
16:28emphasize in the course is that
16:29institutions and political power matter
16:31a lot for policym. So, let me illustrate
16:35this with a couple of examples. So, it's
16:37very clear what we're trying to convey.
16:39So the first example comes from several
16:43papers that examine during the 20th
16:46century what happens when rules that
16:50allow different people to vote change.
16:53In this case is the specific example of
16:55the United States when women become
16:58infranchised and allowed to vote. And
17:02what some papers have shown in this
17:04literature and this is not the only one
17:06uh but one of them is that the patterns
17:10of government spending after women
17:13became infranchised to vote in the
17:15United States changed significantly. So
17:18on the right hand side of this figure,
17:20what we have is an event study where we
17:22have spending per capita before
17:25infranchising and then spending per
17:27capita after woman got infranchised to
17:30vote. And we see that governments became
17:33very responsive and increased spending
17:35significantly.
17:37It's not showing in this graph, but this
17:39spending was especially in health,
17:42sanitation, and education after woman
17:45become infranchised. So this is just an
17:47example linking policies to specific
17:51electoral rules on who is allowed to
17:55vote and how the change in the medium
17:57voter that we're going to talk about
17:59later and Mike is going to present
18:00another example of this later as well
18:02can really change how policy is being
18:05implemented.
18:07A different example comes from macro and
18:11government spending. Not in terms of who
18:14gets the money and preferences, but more
18:17on how different government spending
18:20changes along years and especially along
18:23the electoral cycles. So in many
18:25countries, governments tend to spend
18:27more when they get close to elections
18:30compared to when there are years that
18:32are not elections. And this is
18:34particularly so in emerging democracies.
18:37And the idea is that over time voters
18:40learn that governments are trying to
18:42fool them and punish for example
18:45politicians for spending too much in
18:48electoral years with important
18:50consequences later with deficits and
18:53inflations and other things that can
18:54hurt voters uh in the long run. So this
18:57is not something that you observe in
18:58your traditional macro course where
19:00re-election incentives is not part of
19:03the traditional aggregate macro model.
19:07So before I turn it to Fred to talk
19:10specifically about institutions, I want
19:13to walk you through some slides on the
19:16history of economic thought of political
19:19economy. So when we think now about
19:21political economy and it's around
19:24publishing journals and their models of
19:27political economy is not always the case
19:30in the sense that economics started
19:34being called political economy but
19:36during some time it completely vanished
19:38from the frontier of what we can call
19:41orthodox traditional academia especially
19:44during the middle of the 20th century.
19:47So while econom economics started as
19:50political economy with Adam Smith and
19:52John Strud Mill, there was then a belief
19:56that economics and politics should be
19:58separated and there was a direct
20:00consequence of the [snorts]
20:02methodological progress that happened
20:05especially with Alfred Marshall and the
20:07Marshallian revolution where economists
20:10became very interested in actually
20:12modeling agents, perms, individual
20:16equals general equilibrium etc. in a way
20:20that struggles of political power were
20:24not part of the traditional models. And
20:27if you move all the way until the 1980s
20:30and you think about what we believe is
20:33kind of the workhorse models of policy
20:36decision making which is welfare
20:38economics and issues about efficiency
20:41versus equity. Who do you tax? what are
20:44the market failures and how do you
20:45correct those? Most of this discussion
20:48really was a discussion based on social
20:51welfare functions whether the politics
20:54per se who is deciding who's
20:56representing etc was not part of this
21:00discussion. Now this was not absent from
21:03the whole literature. There was a small
21:06set of researchers and some of the
21:10famous ones are for example Buchanan and
21:12Tulook that were not satisfied with the
21:16way that welfare economics emphasize
21:18market failures because what they
21:21emphasized was look not only it exists
21:24market failures but we also have
21:26government failures and government
21:28failures such as corruption or policy
21:30capture are really important to
21:33understand why things fail in some uh
21:36specific policies that you implement in
21:39different settings.
21:41So now if you build on all these
21:44different literatureses we arrive in the
21:471980s
21:48where we can consider the birth of the
21:51modern political economy with some of
21:54the wild well-known researchers such as
21:56Widow Tabellini to personal
21:59etc. And a lot of the motivation for
22:02this literature was how governments were
22:05continuously implementing bad policies,
22:08right? Like this idea that if you have
22:10to choose between good and bad policies,
22:12many times governments were implementing
22:14policies that will hurt citizens uh in
22:18the long run. So if we think about what
22:21political economics is or what we're
22:23interested here is really about these
22:26policy choices that emerge but they
22:28emerge endogenously as a consequence of
22:32the political process as the interaction
22:34between voters, politicians, interest
22:36groups, media etc. So different from
22:41traditional macro for example models we
22:44don't want a representative agent right
22:47like we want models where we introduce
22:49the conflict between different interests
22:51it could be the poor and the rich it
22:52could be the old or the young it can be
22:55male and female but but there is
22:57heterogeneating preferences we also have
23:00frequent elections that affect policym
23:03or we have threats of revolutions if
23:05we're thinking about non-democratic
23:07regimes
23:08And we also want our models to
23:11incorporate the fact that many times
23:13governments are not benevolent. There's
23:15corruption. People are maximizing not
23:18only necessarily what the welfare of
23:21awaited that welfare of of voters. They
23:24want to maximize also their wealth or
23:26they want to maximize their parties
23:28staying powering depending on the
23:30welfare of of the voters.
23:34So what we have today's political
23:36economy then is a different sets of
23:40revolutions that come from advances in
23:43theory that happens during the 1970s and
23:45the 1980s after the revolutionary game
23:48theory or contract theory that are
23:50brought into models of voters parties
23:55etc.
23:57We then have models of policy formation
24:00that is endogenous that allow us to
24:02understand well how come bad policies
24:05are implemented but not only that how
24:08come that policies persist over time and
24:10that's a a pretty important component
24:13especially of understanding why some
24:15countries stay poor in the very long
24:17run. So how can how come a country stays
24:19poor for 40 for 50 for 60 years? It has
24:23to be because they're making decisions
24:25that are not great. But then we need to
24:27understand those decisions.
24:30And finally, one thing that is important
24:32in terms of political economy is trying
24:35to have an interdisciplinary perspective
24:37like bringing economic history, bringing
24:40history, bringing political science,
24:42bringing sociology. So many of the
24:44models and the ways that we view the
24:46world today are influenced by a
24:49different set of uh disciplines that
24:52have really contributed to to our
24:54knowledge today. So right now political
24:58economy is pre-conolidated in the sense
25:01that if you look starting the 1990s
25:03there a set of models that we understand
25:07of the workforce of political economy a
25:10set of empirical facts and what
25:13political economy merging with
25:15development is going to do is using
25:18those models using those facts to try to
25:22answer the questions that we believe are
25:24important and in the end it is about why
25:26is it the case that some countries are
25:28developed today, others are not. Why is
25:30it the case that some countries are able
25:32to grow and others are not. So what I'm
25:36going to do now is then uh pass it to
25:38Fred who's going to go a little bit more
25:40deep into what are institutions, how do
25:42we think about them and how do we frame
25:45uh our understanding of institutions,
25:48political economy uh and development.
25:52>> Uh thank you Claudio. Let me uh first
25:55let me
25:56>> Yeah, maybe maybe it's better.
25:58>> Yeah, I'm going to stop sharing and then
26:00you can you can share your screen.
26:16>> Can you see my screen here?
26:19>> Yeah.
26:19>> Okay, beautiful.
26:21>> Okay, great. Uh thank you everyone.
26:23Thank you Claudio for the nice
26:25introduction. Uh we're excited to
26:27present this course to you. Um so as
26:30Claudio motivated earlier on there's
26:33just vast you know disparities in income
26:36and GDP per capita across across the
26:39world. And you might argue that, you
26:42know, one of, if not the most important
26:45questions in development economics or
26:48growth economics is trying to understand
26:50why some countries are rich and others
26:52are poor when you see such large
26:54disparities.
26:56And so, um, for much of the 1990s, as
27:01Claudia described and and even into the,
27:04uh, 2000s, uh, economists tended to
27:07emphasize the accumulation of the
27:09factors of production such as capital,
27:12labor, maybe even exogenous
27:14technological change as kind of the
27:17drivers or the causes of why we see such
27:21disparities around the world. But
27:24something that but a point that's was
27:25starting to be made early in the early
27:282000s and later on was was this notion
27:31that this is just these are just
27:32approximate causes of of growth or
27:36development. And what we really needed
27:39to understand more fundamentally was
27:41what we would call fundamental causes.
27:43And so you know what are these
27:45fundamental causes that that drive these
27:48you know differences across society. And
27:50so for us to understand what you know a
27:53fundamental cause is we have to think
27:55about you know you know what exactly is
27:58driving these things and so we start
28:00with a series of questions. So for
28:02example you know if we were to ask why
28:05is Chad poor for instance well you know
28:07a very superficial level to that answer
28:11to that question would be something like
28:12well they have too little physical
28:14capital or they don't have enough human
28:16capital or it's low productivity. Well,
28:19what we've essentially done is just
28:21define what what at some level what
28:23underdevelopment is, right? And so
28:25that's why we would call these things
28:27proximate causes of of of
28:31development. Um or Yeah. And so so then
28:35we'd have to unlayer the onion one more
28:38level, which is to say, well, you know,
28:40in that case, why is there so little
28:42capital or why is there so little
28:44schooling and so forth? Well, one might
28:46then answer well because the returns to
28:49accumulating these factors of production
28:51or to education are low. But then that
28:55begs another question which is well why
28:58are the returns so low? And the answer
29:01to that type of question this deeper
29:03question is exactly what we would
29:05consider to be a fundamental cause.
29:07Right? So the way to think about a
29:09fundamental cause is that it's a feature
29:11of the environment that people take as
29:14given which by the way doesn't mean that
29:16it's necessarily exogenous and in fact
29:18you know these things are are not
29:20exogenous but it's something that people
29:22take as given when they decide to save,
29:25invest, educate or innovate. So it's not
29:28one of these decisions that define you
29:30know the reasons why countries are poor
29:33but these you know these are the you
29:35know these are it's those decisions made
29:38within this environment that we look to
29:40explain why there's such uh differences
29:43across society and uh and GDP per capita
29:46say okay so that's what we typically
29:49mean by a fundamental cause so what are
29:51the different you know potential
29:54fundamental causes out there that can
29:56explain in uh the the differences that
29:59we see. Well, what the literature has
30:01done is they've sort of settled on sort
30:03of four potential explanation.
30:05One is geography. So things like you
30:09know whether a country is landlock or
30:12whether it you know has a high disease
30:14burden definitely affects development.
30:16So that's been a focus of of of the
30:19literature in the past. The other have
30:22have been things like historical
30:23accidents, sort of these random
30:25historical events that you know that put
30:29countries on different development paths
30:31and so forth. And so that's been thought
30:33of as another potential fundamental
30:35cause of development. And then another,
30:40you know, uh, fundamental cause that's
30:41gaining more and more popularity within
30:43the political economy literature has to
30:46do with culture, with values and beliefs
30:48and, you know, and social norms, trust
30:51and religious values. And maybe that can
30:53be an important driver of the
30:54development that we see today. But a
30:58fourth reason and and one that we're
31:00going to be focusing on mostly
31:01throughout this course is this notion of
31:03institutions. What do we mean by
31:05institutions? Well, institutions are the
31:07formal and informal rules of the game,
31:10so to speak, things that shape human
31:12interaction. And I'll provide you with a
31:15more precise definition in a second. But
31:18the reason why this is in some sense
31:20interesting and why it's gained a lot of
31:21attention in literature is because
31:24institutions are the, you know, the one
31:26sort of cause that a society can change
31:28deliberately and that's what makes them
31:31interesting. That's why we need you know
31:33a theory of who chooses them and why are
31:37they chosen in the uh in the way that
31:39they are. Okay. So if we were to think
31:42about like what you know first of all
31:45what is an institution? Well most people
31:48you know institutions can be kind of a
31:50vague term. So most people rely on
31:53Douglas North's definition which is
31:55institutions are the rules of the game
31:57in a society or more formally are the
32:00humanly devised constraints that shape
32:02human interaction. And the reason why I
32:05find this definition useful and most
32:07people find it useful is because it
32:09highlights three key points. One, it's
32:12that it's humanly devised, right? So you
32:15know society chooses which uh develops
32:18and chooses which institutions it
32:21adopts. It also sets the constraints. So
32:24it defines the boundaries and the rules
32:26that structure behavior but also it also
32:30shapes incentives right. So it directly
32:32influences how you know human choice and
32:35how we interact with one another. Okay.
32:38So this is you know the the canonical
32:40definition of institution
32:43and but it's useful to distinguish
32:46between different classes of
32:48institutions and what the literature has
32:50f focused on mostly is defi is the
32:53distinction between what we would call
32:55economic institutions. Those those are
32:57the things like property rights or entry
32:59barriers. Those are the things that
33:02shape the economic incentives or
33:04contracting possibilities and and also
33:07the distribution of economic benefits
33:09across society.
33:11In contrast, there's things that we call
33:13political institutions as well, which is
33:16these would be the different forms of
33:18governments that we see across countries
33:20or the different types of constraints
33:22that are placed on on politicians and so
33:25forth. And the reason why these
33:27institutions, as I'm going to describe,
33:30um, are important is because not only do
33:33they shape the political incentives that
33:35politicians or political elites face,
33:38but also affects the distribution of
33:40political power, which is a key theme
33:43throughout throughout this course.
33:48And so, you know,
33:51as Claudio showed in in some of his uh
33:53earlier slides, if you were to look
33:55across the world, we see not only a lot
33:57of variation in income per capita, but a
33:59lot of variation in the types of
34:02economic institutions that we see. Uh so
34:05for examp so so one example here would
34:07be the protection against expropriation
34:10of risk which is a commonly used measure
34:13for the quality of a of an economic
34:16institution in a in a country and we see
34:18that there's vast you know a vast
34:21distribution of of different levels of
34:23of expropriation of risk throughout
34:25throughout the world. Uh similarly if we
34:28were to look at uh the variation across
34:31political institutions so this would be
34:33the constraints on the executives uh
34:36that we see on the right here we again
34:38see that there's a lot of variation in
34:40these types of political institutions
34:42across the world and so this is you know
34:44these are as clauddio emphasized these
34:46are one of many proxies that if you were
34:47to if if you were to plot globally would
34:50look very very similar.
34:53So this begs then the question which is
34:56why do societies choose different
34:57institutions? Well, here there's also
35:00sort of four theories of of why of of
35:04why societies choose different
35:05institutions or why they've persisted
35:07over time. Um and basically the there's
35:11you know one notion is that society just
35:14chooses the most efficient institution.
35:16So if we see differences in institution,
35:18it's just because you know there are
35:20different kind of environments that that
35:23society has to face and so but they're
35:25still choosing the set of institution
35:28that's efficient for them and so these
35:30are so in this theory institutions
35:32evolve to maximize aggregate surplus by
35:35reducing transaction costs or solving
35:38collective action problems and so forth.
35:39So if we think of the cocoa boom in
35:41Ghana during the uh early 2000s um well
35:46this would be you know according to this
35:48view you know the move from communal
35:51land to uh to securing uh private
35:54property was driven by this sudden boom
35:57and this economic opportunity that made
36:00private land much more you know
36:02important for for aggregate growth and
36:04so forth. A second theory would be that
36:07the differences that we see have to do
36:09with uh the beliefs or the ideology of
36:11the political elites and so institutions
36:14reflect what leaders or citizens believe
36:16is legitimate, desirable or effective
36:19even if those mistake even if those
36:21beliefs are mistakes. So these are all
36:22you could be subjective beliefs about
36:24these things. So this might be, you
36:26know, maybe one of the reasons why, you
36:28know, South Korea and [clears throat]
36:29North Korea look very differently is
36:31because uh because of different beliefs
36:34that they had about how to organize and
36:36so forth. Um a third theory has to do
36:39with with uh what we call luck or
36:42accident. And these are this notion that
36:44institutions can just be persistent
36:47byproducts of you know things like
36:49colonization or war
36:52um or some sort of initial condition
36:55rather than sort of you know a
36:56deliberate design by by local elite by
36:59elites and so forth. And then the fourth
37:02uh theory for institutions and the one
37:04that you know Claudia has already you
37:07know kind of emphasized in in the
37:08description of the course and it's the
37:10theory that has gotten the most
37:12empirical traction which is why
37:14something it's something that we're
37:15going to emphasize throughout is this
37:18notion of social conflict which is that
37:21institutions are chosen by groups with
37:23political power
37:25and who may prefer arrangements that
37:28protect their rents over those that
37:30maximize output. So what's attractive
37:33about this this uh this theory is that
37:36it explains why as Clauddio mentioned
37:39there might be bad policies or there
37:40might be inefficient institutions that
37:42persist over time. Okay.
37:46So based on this social [clears throat]
37:48conflict view the you know just to
37:51restate what the core premise is here is
37:53that instit institutions are chosen for
37:56their economic consequences.
37:58Um and so the question then becomes well
38:01how do how does society make decisions
38:05when there when every econ when every
38:08institution is going to create winners
38:11and losers, right? So how do we decide
38:14what our institutions
38:17uh need to be or what they're going to
38:19be when you know some are going to
38:21benefit and some aren't? Well, this is
38:24where the notion of political power
38:27comes in. So, uh, political power is
38:30very much this power to impose or secure
38:33social choices against the wishes of
38:35other groups, right? And so, you know,
38:38with political power, the idea being
38:40that that's going to determine social
38:43choice. And then as a result, it's also
38:45going to determine economic
38:47institutions.
38:49And so then this raises yet another set
38:52of questions which is okay what's where
38:54does political power come from
38:58and what role do does you know political
39:01institutions play in deter in you know
39:04in in all of this.
39:08So before we get there there's two
39:11important distinctions that we would
39:13like to make in terms of you know how we
39:15define political power we classify
39:17political power. [snorts] One is what we
39:19call dejour
39:22and this is you know this is this is the
39:24where political institutions are going
39:26to play an important role because it's
39:29political institutions that determine
39:32the dejour power in society. So this is
39:34this is the political institutions is
39:36what allocates this power. So if we
39:38think about a democracy for instance
39:40that's a political institution and the
39:43durary power there is that it allocate
39:45you know we all have access to to to
39:47voting and so forth and so it's a way
39:49it's distributed political power across
39:52society compared to the dictatorship
39:54where political where this political
39:56institution has in fact concentrated
39:59dejour political power in a very narrow
40:02sense.
40:03In contrast, we have things called de
40:05facto political power which people which
40:08we often think of as being determined by
40:11economic wealth. So the oligarchs in
40:14society, they have a lot of political
40:15power in the US through campaign
40:17contributions and those type of things.
40:20But there's also other forms of of de
40:22facto political power such as the
40:24military or um and so you know or threat
40:27of violence and those type of things.
40:29Those are other forms of de facto
40:31political power. And so the overall
40:35distribution of political power in
40:38society is determined by this
40:40combination of both and also the
40:43interplay of both de facto and dejury
40:45political power.
40:49And so when we think about political
40:52power and institutional persistence,
40:55what we think about is that well with
40:57dejour
40:59because political institutions are
41:02inherently persistent. Uh so if you
41:05think about you know democracy tends to
41:08persist for decades and so forth even
41:10even if there's backsliding at at times.
41:14uh but because these political
41:16institutions are are persistent this
41:18means that the you know this form of
41:21duri power is going to remain stable and
41:24durable over time. Okay.
41:27On the other hand and this is what and
41:29as you can see the different these
41:31different versions of power or
41:33classification of powers is what's going
41:35to give us the dynamics that we're going
41:36to need um to explain persistence over
41:40time. Uh on the other hand, what we have
41:42is this de facto uh power which you
41:46could which is at least relative to
41:48relative to dejour is argued to be more
41:51transient and and to some extent
41:53strategic.
41:55Um and so with de facto power it can be
41:58you know uh it could be subject to to
42:01change and its durability is only going
42:04to depend entirely on how it's
42:05leveraged. Okay. So for example
42:09uh if it's used only for immediate
42:12economic gains then the changes are
42:14easily reversed when this de facto power
42:17shifts. So if like you know uh if
42:20different if different uh industries in
42:22the economy become rich and poor that's
42:24going to shift the de facto powers that
42:26that they have in in society.
42:29On the other hand, if de facto power is
42:32leveraged to alter political
42:34institutions, right? So if they if
42:36they're if they're if these elite groups
42:39are trying to change regulations or
42:42change the type of political
42:44institutions that that society has, then
42:48what you can see is that and because
42:50political institutions are more
42:51persistent that this group can secure a
42:55much more durable gain, right? And so uh
42:59there's this inherent incentive to use,
43:03you know, temporary de facto power to
43:06reshape political institutions to
43:09regulate future dur. And so that's kind
43:12of the strategic incentive behind behind
43:15this behind this theory.
43:18And so um and so when we think about the
43:22interplay between economic institutions
43:24and political power and how it uh
43:28reinforce and perpetuates existing
43:31institutions over time, we think of uh
43:34political power which determines the
43:37structure of economic institutions.
43:41Um and within that we have these
43:44economic rules which shape the
43:45allocation or the distribution of of
43:49resources which you know effectively
43:51determines the de facto political power
43:54and how that's distributed within
43:56society and then we also think about uh
44:00this resource of wealth as I mentioned
44:02that is is that generates the de facto
44:05uh political power and so um a non-level
44:10plane field in the economy are going to
44:12be is going to be one that favors those
44:14with political power which in turn
44:16increases their their political power
44:19further and creates this self
44:22reinforcing loop. So if we think about
44:24it in terms of what the this theory is
44:28when we put all these pieces together it
44:31starts with this notion of social
44:34conflict.
44:36Um it then you know has this idea that
44:40uh it's the political power of society
44:42both in terms of dejouring de facto
44:44that's shaping the economic institutions
44:48that we have and then there's this
44:51reinforcing
44:53uh loop that exists that ma maintains
44:55this persistent over time. So this is a
44:59theory that that uh uh Don Nasimogu and
45:02James Robinson put forward which is we
45:04start off the law of motion is something
45:06where we have a set of political
45:08institutions
45:10uh and distribution of resources at at
45:12time t. Those two things influence the
45:18distribution of dejour political power
45:22and de facto political power. And once
45:25that has been determined, that's going
45:27to affect society's choice of not only
45:30the economic institutions that it that
45:33it faces, but then also the types of
45:36political institutions that we're going
45:38to see in the subsequent period. Once
45:41economic institutions have have been
45:42determined, that's going to affect the
45:44economic performance that we see in
45:46society today
45:48as well as and importantly so the
45:51distribution of resources because
45:53remember the distribution of resources
45:56then creates this feedback loop back
46:00into determining
46:02uh you know the distribution of
46:04political power. And so this is so
46:06according to this theory, this is why we
46:08see this these stealth reinforcing loops
46:11and this persistence of institutions
46:13over time. And so um and so this is the
46:17basic theory of institutions that we're
46:19going to be promoting going forward in
46:21the course. And so this is going to set
46:23up for instance the discussion. So when
46:25you'll when you'll when you'll uh when
46:28you'll hear from Nathan Nun and Melissa
46:31Dell, it's very much this type of theory
46:33that they'll have in mind when they'll
46:35talk about why, you know, the you know,
46:37why institutions matter and how they've
46:39persisted over time. Um, and with that,
46:42I'll pass it on to uh to Mike, but let
46:46me stop sharing this.
47:14Just a second. Sorry about that.
47:20Okay. Uh, so let me go ahead and get
47:22started. I hope my slides are visible to
47:24everyone. Um before I dive in, I just
47:26want to reiterate a point that both Fred
47:28and Claudio made, which is uh we're
47:30delighted to have you all here. It's
47:31remarkable uh to see so many people and
47:33we've certainly enjoyed uh putting
47:35together this course and are excited to
47:36present it to you. Um so Claudia and
47:39Fred have sort of made the case and laid
47:41out the theory of why institutions are
47:44tremendously important when we want to
47:45think about one of the most
47:47consequential questions in economics,
47:48which is why are some countries rich and
47:51other countries poor? Um I think this
47:53point has also received quite robust
47:56empirical support uh using a number of
47:58different methods where you try to
48:00isolate exogenous changes in
48:02institutions and link those to
48:04differences in economic performance. I
48:06think it's one of the most sort of
48:07robust and consistent findings in in
48:09economics. Um but this sort of
48:11observation that institutions matter
48:13tremendously in trying to understand why
48:15some countries are rich and other
48:16countries are poor is really a point of
48:18departure. So it's sort of the beginning
48:20of an agenda rather than the end of one.
48:23Um and I think this observation has
48:25really provided the underpinnings of
48:27much of the development in this
48:28[clears throat] area of research uh over
48:30the last 25 years which is what I'll aim
48:33to summarize in my portion of the
48:34lecture. Um to put a little bit of a
48:38finer point on it, uh governments, if
48:41you think about what they do, provide
48:43sort of very fundamental functions that
48:45are essential for the for the operation
48:48of any market economy. Uh they protect
48:50property rights, they correct market
48:52failures, they raise revenue, uh they
48:55provide public goods that otherwise
48:56would be underprovided. Um and so these
48:59all provide sort of at least beginning
49:01clues as to why they would link through
49:03to differences in economic progress and
49:05differences in prosperity. Um and so you
49:08know I think one of the most important
49:09points we can make today and will be
49:11made consistently throughout the course
49:12is if we want to address development
49:15challenges think matters like ending
49:16poverty dealing with climate change and
49:18so on. really fundamentally requires an
49:21understanding of institutions which in
49:22turn requires sort of working with ideas
49:26and political economy. Um so I've tried
49:29to organize the research that's happened
49:32since this point was made in the early
49:342000s uh into four different research
49:36areas. Uh before I dive in I want to
49:39make two points. The first is that I've
49:41sequenced this broadly in sequence with
49:43the way that the lectures will happen
49:45through the rest of the course. Uh
49:47second point uh is that I've tried here
49:50to provide the most cited contributions
49:53related to each of these questions. I've
49:55highlighted in bolded in blue lectures
49:57that we have on the course. I've done
49:59this just to underscore how how
50:00fortunate we are to really have the
50:02leading thinkers uh in the area of
50:04political economy and and economic
50:06development. Um so the first question
50:09comes quite naturally from the
50:11observation that institutions are so
50:12important which then is to ask well
50:15where where do these institutions come
50:17from um and how do they change? Uh so
50:20there's lots of work pointing out that
50:22that both sort of geographic differences
50:25and also historical events that happened
50:28centuries ago persist into differences
50:31in income per capita today. Um and so
50:33this is a literature that focuses quite
50:35a bit on how [clears throat] is it that
50:37these institutions perpetuate
50:39themselves? What are the mechanisms of
50:42persistence and what are the moments
50:43that cause things to change? For
50:45example, a major one is if we think if
50:47we're thinking about power, when is it
50:49that the powerful decide to infranchise
50:51those with less power? A very practical
50:54manifestation of that in democracies is
50:56is actually extending the franchise to
50:58groups that didn't previously have the
50:59right to vote.
51:02A second literature um is kind of pushes
51:05inside the institutions to be much more
51:07precise theoretically about how should
51:09we think about institutions, how should
51:11we conceptualize them. For example, in
51:14the field of thinking about democracy,
51:16we think about the importance of
51:17elections both for selecting who is
51:19going to have de facto or dare power um
51:23and how are elections sort of the
51:24incentive to be reelected going to
51:26police them once they are there. Um,
51:28another very consequential idea in this
51:32part of political economy is thinking
51:34about how do states build up the
51:36ability, build up the capacity to
51:38implement policy or or drive economic
51:40policy and create economic change.
51:44A third sort of part of the literature
51:47which has been sort of you know growing
51:49very quickly is really been sort of a
51:52sort of the part of a tremendous amount
51:53of activity um is to sort of take these
51:56ideas from theory and provide sort of
51:58precise empirical tests. Um I'll
52:01elaborate on this more in in sort of the
52:03next slide. Um but the some of the
52:05questions that get a asked here are you
52:07know if we have a view that for example
52:09we think of voters as being principles
52:12and the politicians that they elect as
52:14being their agents and we think of
52:16elections as performing this key
52:17function of providing a disciplining
52:19role. Um is that true empirically? Can
52:22we provide sort of a causal test of this
52:24hypothesis that that politicians who are
52:27subject to re-election will behave sort
52:29of in line with the way their voters
52:31would like them to? Um, another sort of
52:34related sub literature within this area
52:36is really focused on sort of trying to
52:39build and test policy ideas and policy
52:42interventions that can be used to alter
52:44institutions to try to see if they
52:46actually trace through um to welfare and
52:49economic development and if this can be
52:51done at scale.
52:54Uh, but you know the literature also I
52:57would is much more expansive than just
52:59thinking about sort of institutions per
53:01se. It's about thinking about a bunch of
53:03related forces that also shape the
53:06development of institutions and and
53:08economic development. There's been quite
53:10a bit of work on sort of violent
53:12conflicts sort of starting with the
53:13observation that a a strong coralate of
53:16sort of people who live under $2 a day
53:19and experience extreme poverty across
53:20the world is also experiencing violent
53:22conflict. Um there are questions about
53:25how does the history of violent conflict
53:27affect sort of contemporary political
53:29and economic institutions. U we'll also
53:32have lectures on what is the role of
53:33media and promoting sort of transparent
53:35institutions and importantly there's
53:37going to be a focus as well on sort of
53:39non-democratic regimes. So if you look
53:41at sort of where the extreme poor in the
53:42world live today, it's not true that the
53:44majority of them live in democratic
53:46institutions. Many live in sort of
53:48hybrid or autocratic regimes. And so I
53:50think political economy also and
53:51political economy that deals with
53:53institutions needs to think about how
53:55does economic progress and how to happen
53:58in the context of non-democratic
54:00regimes.
54:02Um so let me try to kind of quickly
54:05summarize you know using two quotations
54:08sort of where where this literature has
54:10landed trying to summarize it briefly.
54:13uh first is sort of this observation
54:15from Asmoglin Robinson in their 2012
54:17book which summarizes much of the
54:19research that they did over their prior
54:21decade which is basically try to see if
54:24we know that kind of institutions are
54:26determined and are important for
54:28explaining why some countries are rich
54:30and other countries and poor we need to
54:31know how it is that they can persist
54:33even when they aren't doing the job of
54:35delivering development when they can
54:37kind of create poverty and misery for
54:39millions. uh in a journal of economics
54:41perspectives article Rohini Pande and
54:44Lucy Page make a related point which is
54:46that if we want to end extreme poverty
54:48sustainably and quickly uh we do need to
54:51think about states we need to think
54:52about what can we do both to make them
54:54more accountable to those who don't have
54:56voice or don't have power um and what
54:58can we do to make them more capable what
55:00can we do to make it make it so that
55:01they can actually deliver public goods
55:03and advance policy that help with the
55:05goal of economic development and they
55:07make the point that this should be a
55:09focus of international interventions as
55:10well.
55:12Um, so let me now turn to the one
55:16specific example of primary research we
55:19have on the reading list for this week,
55:21which is the Thomas Fujiara 2015 paper.
55:24Um, we've selected this as just an
55:26example of sort of modern empirical
55:29research in political economy uh because
55:31we think it embodies sort of a few key
55:33and important features. Uh first it sort
55:36of builds from a fairly clear theory of
55:38institution in prediction about
55:40institutions which in this case is that
55:43infranchisement should drive changes in
55:46policy outcomes and in human development
55:48outcomes um as a result. Um it
55:52[clears throat] also has sort of a
55:53hallmark of this literature which is a
55:55very credible and clear focus on a
55:58causal test of this of this hypothesis.
56:02Um another feature that is common
56:04amongst much of the best work in this
56:06field is sort of a deep knowledge of the
56:08institutions and context. So in the case
56:09that I'll present here um the
56:12opportunity to causally identify the
56:14impact of infranchisement which is one
56:16of the most important questions we could
56:17think of in political economy comes from
56:19a knowledge of the of the context and
56:22how that context developed and and in
56:24particular a specific policy change
56:27related to the introduction of
56:28electronic voting. um it uses rich
56:31measurement. So there's been sort of
56:33tremendous advances in our ability to
56:35measure both political variables and
56:37economic variables that allow us to
56:39really push inside institutions and
56:42deepen our understanding of how
56:44specifically uh they affect development
56:46and economic progress. Uh and then
56:49finally this paper is one that sort of
56:51manages to trace it all the way through
56:54to sort of the ultimate variable of
56:56interest which is are people's lives
56:57getting better? In this case, it's
56:59looking at sort of variables related to
57:01child health. Um, so let me kind of
57:04quickly describe and provide an overview
57:08of the article. Um, so first this when
57:12sort of the period reviewed in the
57:14article um starts in sort of 19 in the
57:16early 1990s. At that time Brazil already
57:19had universal suffrage. So dure suffrage
57:23isn't being changed but de facto
57:25suffrage is. Uh the reason is is that
57:28there was a lot of adults were
57:30illiterate and the paper ballots that
57:31were being used in the elections before
57:33the introduction of electronic um voting
57:36were were tremendously complex. So they
57:38point to an example of a ballot paper
57:40that had over 1,200 candidates on the
57:42ballot paper. You were allowed to vote
57:44for one of the 1200. You can imagine
57:47sort of the cognitive challenge
57:49associated with trying to to go through
57:51this ballot paper in general but uh in
57:54particular if you're illiterate. And so
57:56you can imagine how a consequence of
57:58this voting system is to systematically
58:01disenfranchise poorer and less educated
58:04voters. Um so the paper asks a question
58:07which is did the simplification of
58:09voting through the introduction of
58:11electronic voting which was used to
58:13replace paper ballot based voting which
58:16simplified the the the process in
58:18particular for poor and less educated
58:21citizens. Uh did this change the
58:22development outcomes? Um, and again
58:24getting back to the point about context,
58:26there's a good reason here to think that
58:27it would, which is that the poorer and
58:29less literate voters are also more
58:31likely to rely on public health
58:33provision as opposed to private health
58:35provision, both of which are available
58:37um in [clears throat] Brazil.
58:39Um so this figure is quite useful
58:41because it captures uh exactly the
58:44nature of the policy change that allows
58:46for the causal identification um and the
58:50test of this kind of key hypothesis in
58:52political economy which is that changing
58:54de facto power should change sort of
58:56human development outcomes. Um, so in
58:591998, which was the first election that
59:02used electronic voting, uh, because
59:04there just weren't enough electronic
59:06voting systems to be used nationwide,
59:08they followed a policy of introducing it
59:11only in places where there was more than
59:1340,500 citizens living in a
59:15municipality. Um, and so you can see
59:18looking at the blue line here, the 1998
59:21election, which was the first election
59:23where this was used. And you can see
59:25that the vertical axis is showing the
59:27share of cast votes that were valid and
59:30which means basically were people
59:31effectively infranchised did their vote
59:33matter. You can see this large and
59:35discreet upward jump happening exactly
59:38at the threshold. Now why is this
59:40important? Uh this allows for the causal
59:43identification of the effects because we
59:45can take municipalities that live just
59:47to the left of this discontinuity and we
59:50can take m municipalities that lie just
59:52to the right. Again remembering that the
59:54horizontal axis is the population and
59:57you can you can imagine that these two
59:59groups are otherwise identical on both
1:00:02observables and unobservables. So this
1:00:04allows for causal identification.
1:00:06Effectively we can think of
1:00:08municipalities that are just to the
1:00:09right as providing a treatment group and
1:00:12municipalities that lie just to the left
1:00:14as being a control group. And a
1:00:15comparison of these two groups allows us
1:00:17to isolate the causal impact of the
1:00:20policy change. And you can see looking
1:00:22at 1994 which was the election prior to
1:00:24the intro in introduction of electronic
1:00:26voting that there was no change at this
1:00:28discontinuity. Likewise in 2002 uh which
1:00:32is after this had been rolled out
1:00:33nationwide. Again you don't see any any
1:00:36discontinuity here. Um and so let me
1:00:40briefly summarize the consequences of
1:00:43this policy change. Uh first which is
1:00:45the one that you can see in the figure
1:00:47on the prior slide. More of the votes
1:00:49are valid. Um and this is particularly
1:00:51true for poorer and less educated
1:00:54citizens. Uh this in turn led to greater
1:00:57electoral success for the for left-wing
1:00:59parties. Um this in turn changed
1:01:02municipal budgets. So municipalities
1:01:04started spending more on healthcare. Uh
1:01:07and this in turn related to both higher
1:01:09utilization. So mothers were who
1:01:11received all seven of the of the
1:01:13suggested prenatal visits goes up by
1:01:16about 17 seven percentage points which
1:01:18is 19% relative to the controls. Uh and
1:01:21why this is sort of such an important
1:01:23and I think fascinating study is that
1:01:25this ultimately goes all the way through
1:01:27to one of the most important human
1:01:28development outcomes we can think of
1:01:29which is our children born healthy. Uh
1:01:32so lowweight births goes down by about
1:01:340.5 percentage points which is about
1:01:366.8% relative to the control mean. Uh so
1:01:39again pointing to this as an example of
1:01:42research in sort of modern empirical
1:01:44political economy because it has these
1:01:46features rich measurement causal
1:01:48identification clear prediction from
1:01:51theory um and allows us to really deepen
1:01:53our understanding of how do institutions
1:01:55work and I think in this particular
1:01:57example show us how changes to
1:01:59institutions which here providing de
1:02:01facto infranchisement uh to the poorer
1:02:04and less educated parts of the
1:02:06population actually changes development
1:02:08outcomes for
1:02:10Um so let me wrap up and then we can
1:02:13turn to questions. Um so political
1:02:15economy as a field is focused on issues
1:02:18of power and how power shapes
1:02:20institutions. How do we make those
1:02:22institutions accountable to the citizens
1:02:24that they're meant to serve? Um and how
1:02:26do governments and institutions develop
1:02:28the ability to change economic progress,
1:02:31to change policy? Um and so thinking
1:02:34about when governments succeed or fail
1:02:37in becoming accountable or succeed or
1:02:39fail in developing capacity is very
1:02:41fundamental to thinking about economic
1:02:43development and economic change. Um this
1:02:46has been a field that's sort of enjoyed
1:02:48tremendous growth both in terms of the
1:02:50number of papers, the number of
1:02:51citations, the number of people involved
1:02:53and sort of the ambition of the work in
1:02:56particular working very closely with
1:02:58governments across the world to try to
1:02:59understand these issues. And much of
1:03:02this work really is built on the
1:03:03observation that institutions are so
1:03:05important if we want to ask why some
1:03:07countries are rich and other countries
1:03:09are poor. Um so this is going to be the
1:03:11trajectory of the course. We're going to
1:03:12in the remaining lecture try to provide
1:03:14a comprehensive introduction to both the
1:03:16theory and the contemporary research. Um
1:03:19and also kind of point you towards where
1:03:22the current contemporary frontier is in
1:03:24the literature. So with that I'm happy
1:03:26to conclude and and turn to questions.
1:03:34I can uh maybe jump in and try to help
1:03:36moderate this a little bit. We have a
1:03:40couple hundred questions in the Q&A. Uh
1:03:43so I'll try to sift through these a
1:03:45little bit. Uh Clauddio and Fred, feel
1:03:47free to to look at the in the Q&A and
1:03:50pick out any that you think would be
1:03:51interesting. Um maybe first we can go to
1:03:54our our live uh panelists and give you
1:03:58guys the opportunity to ask a question.
1:04:01Um
1:04:03yes uh Grimmo do you want to go ahead?
1:04:07>> Uh thank you so much for this. I was
1:04:09just wondering what's the role of energy
1:04:12resources in a particular country. So we
1:04:15know about the rentier state theory
1:04:17which talks about it increases
1:04:19authoritarianism in a country. What I
1:04:22was basically wondering is what how it
1:04:24affects the intercountry
1:04:27dynamics when we talk about uh economic
1:04:29development and more importantly about
1:04:32well-being of people.
1:04:41>> So could you do you mind just kind of
1:04:43restating it? Um just yeah sure. So I
1:04:48was uh so when we talk about economic
1:04:50development um I was wondering what is
1:04:54the role of energy resources of a
1:04:56particular country
1:04:58and um if most of the time because there
1:05:01are some theories uh especially the
1:05:04rentier state theory which talks about
1:05:07in a country wherever if there's a lot
1:05:09of u natural resources it might cause
1:05:12authoritarianism
1:05:14sorry but uh I was thinking thinking but
1:05:17these resources how does that affect the
1:05:21economic development as well as
1:05:23well-being which is beyond the economic
1:05:25development of these countries and how
1:05:28does it affect the uh intercountry
1:05:32political economy
1:05:36>> I can start with Cladio and Fred should
1:05:38also feed in so I think that there's
1:05:41both lots of evidence that the nature of
1:05:43the resources a country has shapes
1:05:45economic and political development. I
1:05:47think the the sort of the argument we're
1:05:48making here is that a principal
1:05:50mechanism linking one to the other is
1:05:53really how resource availability along
1:05:55with a set of sort of decisions and
1:05:57other factors shapes the institutions.
1:05:59So you can have two countries with
1:06:01identical resources but different
1:06:03institutions. So take the example of
1:06:05North and South Korea right along the
1:06:07border. there's no difference in sort of
1:06:09resources or geography or climate or
1:06:12anything else. But if you look at levels
1:06:13of economic development, they're starkly
1:06:16different. And that's to do with the way
1:06:18that those differences kind of operate
1:06:20through institutions. So I think that's
1:06:22sort of the broad case we're making.
1:06:28>> Yeah. And then just to complement and
1:06:30and and I think we do have I think a
1:06:33significant amount of of literature
1:06:36empirical saying that the types of
1:06:39institutions that country have are also
1:06:42interact a lot with like natural
1:06:44resources right like when you compare
1:06:47say extreme cases such as Norway for
1:06:50example that's very rich in in oil and
1:06:52natural gas that's a very different
1:06:55pattern of development than if you
1:06:57compare with say Nigeria for example,
1:07:00right? So, so in the sense that it's not
1:07:01only about having out not those
1:07:03resources, it's also a matter of when
1:07:06those resources are discovered, how do
1:07:08you use who are the elites that are in
1:07:10power and how they will interact for
1:07:13example with those existing
1:07:14institutions, right? So, I think we do
1:07:17have a lot of evidence that that's very
1:07:19important.
1:07:22>> Thank you.
1:07:26>> Great. I see a few more hands. Let's
1:07:29Henry, do you want to ask your question
1:07:30just briefly and then we'll turn uh and
1:07:33give a turn to the questions submitted
1:07:35in the Q&A box.
1:07:38Thanks chair for recognizing me. Thank
1:07:40you professors for the beautiful
1:07:42presentation. Um while I appreciate that
1:07:45uh the introduction was basically on
1:07:47countries just wanted to find out from
1:07:50you if it's also safe to say um or maybe
1:07:54your perspective to say regionally like
1:07:58let's say Saddak Echoas can we also
1:08:01still or do we still share the same
1:08:03sentiments to say these do also
1:08:07can be successful based on the
1:08:10institutions that are being used to to
1:08:12shape and to Gavin. Just wanted to pick
1:08:15your brains on that. Thank you.
1:08:19>> I mean, so quick my my perspective on it
1:08:22is I think one of the very optimistic
1:08:24lessons that comes from the idea that
1:08:26institutions are so important is that
1:08:28there's nowhere that's sort of faded to
1:08:30succeed or condemned necessarily to fail
1:08:33as I think one of the like especially
1:08:35when you think about sort of this
1:08:36empirical literature establishing the
1:08:38importance of them. It's sort of the the
1:08:41region fixed effect in the regression
1:08:42often falls out becomes irrelevant. So I
1:08:45think that yes I I think the answer to
1:08:46your question is yes that there's that
1:08:48there is opportunity.
1:08:53>> Great. Um Fred and Clauddio are there
1:08:56any questions you wanted to touch on
1:08:57first in the Q&A box?
1:09:02>> No, go ahead and choose one at random.
1:09:05>> Okay. Uh here's one then from Felipe
1:09:09Venegas.
1:09:10He asked, "Why should we focus only on
1:09:13the economic consequences as drivers of
1:09:16how institutions are set? In principle,
1:09:19elites could also pursue power for its
1:09:21own sake with economic incentives as a
1:09:24byproduct of staying in power."
1:09:30And I'll throw in one other question and
1:09:32you can kind of answer them in groups
1:09:33perhaps. Um, one is around when jur and
1:09:40de facto power conflict, what determines
1:09:43which one prevails?
1:09:46And then on the autocracy side, going
1:09:49back there, can autocracies sustain
1:09:53prosperity in the long run? and kind of
1:09:57what the balance is there um
1:09:59longitudinally with autocracies that
1:10:02that remain in power for a long time.
1:10:06So you have some options.
1:10:09>> I can I can just get started and then
1:10:11the others can can jump in. Um
1:10:14in response to that very first question
1:10:16that you that you asked. Uh so uh there
1:10:19are many motives for for for
1:10:22holding office for having power and in
1:10:24fact a lot of the model some of the
1:10:26models that uh Patrick Francois might go
1:10:29over uh will also will will feature that
1:10:32where you know there are things like you
1:10:34know ego rents that you know is another
1:10:37is a term that is commonly used in the
1:10:40in the literature indicating that you
1:10:42know one of the reasons why politicians
1:10:44want to hold office isn't necessarily
1:10:46for the financial or in addition to the
1:10:48financial gain or it's also this you
1:10:52know enjoyment or or utility from being
1:10:54able to set policy and so forth. So, so
1:10:58you know, you know, even though maybe
1:11:01uh in this lecture we were a bit
1:11:03reductionist in terms of in in terms of
1:11:05the motives, um it's it's it's certainly
1:11:08been incorporated in in in the
1:11:11literature. And so, you know, you you
1:11:13rais a valid point, which is yeah, that
1:11:15there is there's a variety of different
1:11:17reasons for for holding political power,
1:11:19but you know, the thing is that they're
1:11:21all kind of self-reinforcing, right?
1:11:23Because, you know, if my objective is
1:11:26just to hold as much power, well, one of
1:11:28the ways that I I can do that is by is
1:11:32by having a lot of economic power as
1:11:35well. Um, and so, uh, these things can
1:11:38be a bit circular. Um, I don't quite
1:11:40remember the other questions, but maybe
1:11:42Mike or Claudio can jump in.
1:11:44>> I can I can I can jump in.
1:11:46>> Do do you want to do you want to jump
1:11:47in, Mike? No, I I was I was going to
1:11:49jump in on the on the so on on the
1:11:53second question about the facto and the
1:11:56jury power. I the the reason why is
1:11:59important to understand the facto power
1:12:01is because in many countries the way
1:12:05constitutions are written don't
1:12:07necessarily map to how people are
1:12:09elected and the power that they make for
1:12:12decision making and to implement
1:12:14policies. Right? So, so a simple
1:12:16example, imagine a country where
1:12:19everybody's free to vote, but in
1:12:22elections there's so much electoral
1:12:24violence, for example, that in some
1:12:27parts of the country, most people don't
1:12:29show up to the voting polls, right? So,
1:12:32so then you you're saying look, if you
1:12:35what's written out there in terms of how
1:12:36power is distributed should be in a way
1:12:38that all the regions in the country
1:12:40should be represented. But the facto you
1:12:43have a part of the country who is not
1:12:44represented because they don't show up
1:12:46in the elections right so that
1:12:48distinction is very important because it
1:12:50affects actually who has a voice in the
1:12:53elections and then who gets represented
1:12:56so that's like one example another
1:12:58example is where you can imagine that
1:13:01politicians can use the army right like
1:13:03there are many countries where the army
1:13:06and the government are not independent
1:13:09forces in fact politicians can use the
1:13:11army for example to stay in power and
1:13:13help them doing a coup deta right so
1:13:15that's another example where there's a
1:13:17very clear distinction between the de
1:13:19facto and and the the jury power so so I
1:13:23I don't think there is a is a question
1:13:25of like oh if you have both which one
1:13:27prevails the one that's going to prevail
1:13:30is is the one that if there is violence
1:13:33they can enforce power through violence
1:13:35even if in the constitution is written
1:13:38that everybody can vote right so so in
1:13:41that sense is why the fact of power who
1:13:44really has the power is really sometimes
1:13:46more important than what's written in
1:13:48the books.
1:13:50So I can come in on the third question
1:13:53which is do we think autotocracy can you
1:13:55know I guess sustainably deliver
1:13:57economic progress. I think it's one of
1:13:59the most interesting and important
1:14:00questions in political economy and and
1:14:02to some extent I think China in
1:14:04particular has always been a bit of a
1:14:06challenging state to reconcile with this
1:14:08institutionalist view. Um, but I think
1:14:11the the argument that Ace Mogen Robinson
1:14:13make in the 2012 book about why China
1:14:15shouldn't grow at the frontier is, you
1:14:17know, again it gets back to issues of
1:14:19power. So if a company becomes large
1:14:21enough and powerful enough, economic
1:14:22power quickly starts to translate into
1:14:25political power. And you certainly see
1:14:27this with large powerful companies in
1:14:28the United States. And there's sort of a
1:14:30view that eventually an autocratic
1:14:32government gets uncomfortable with
1:14:34worldleading frontier companies. So the
1:14:36reason you don't have Amazon and Apple
1:14:38and so on emerging necessarily in China
1:14:40is that once they are that large then
1:14:42autocrats would be uncomfortable with
1:14:44something that really is a separate pole
1:14:46of very meaningful power and would shut
1:14:47them down. I have to confess when I
1:14:49initially read that in the 2012 book I
1:14:51was a bit unconvinced but I think like
1:14:53developments over the last decade have
1:14:55certainly sort of changed my perspective
1:14:56on that.
1:15:02>> Thank you. Um let's go back to the
1:15:05panelists then. Uh Pablo, do you want to
1:15:07briefly ask your question and then Aman?
1:15:10>> Yes, perfect. Thank you so much uh for
1:15:12discourse.
1:15:14My question is in the conclusion remarks
1:15:18uh it said that political economy
1:15:20explains power, accountability and state
1:15:23capacity. And when I think about
1:15:25accountability, I think of the principal
1:15:27agent models based on elections. But I
1:15:31was wondering what is the role of
1:15:33accountability in autocra autocracies?
1:15:36Do we have accountability in autocracies
1:15:38and what is the role?
1:15:40>> Thank you.
1:15:40>> So I guess since those are my remark I
1:15:44mean it definitely is there. So there
1:15:46are still kind of ways in which
1:15:47autocrats are made to be accountable and
1:15:49differently across different autocratic
1:15:51regimes. There's also really interesting
1:15:53questions I think about how citizens
1:15:55mobilize and try to demand some degree
1:15:57of it. they obviously have much less of
1:15:59it in an autocracy which is something
1:16:01that'll be covered in the last lecture
1:16:03um in particular one of the last
1:16:05lectures.
1:16:08I mean one one simple example uh which
1:16:11is actually a nice paper by Patrick
1:16:14Franis that's going to be one of the
1:16:15lectures have with uh Frances
1:16:19about power sharing Africa is one
1:16:21example of that right where even though
1:16:23you are a dictator in a country in
1:16:25Africa for example you still need to
1:16:27share the power with like other groups
1:16:29because otherwise they're going to do a
1:16:31keta and kick you out of office right so
1:16:33even in settings where there are like no
1:16:35elections there's still mechanisms that
1:16:38we need to keep a coalition together in
1:16:42supporting you in order someone to not
1:16:44come and do a detaine kick you out even
1:16:47if not through electoral system right
1:16:54>> perfect thanks do you want to ask your
1:16:56question
1:16:58>> yeah thanks a lot for the lecture um I
1:17:01wanted to ask it seems that political
1:17:04institutions shaping how economic
1:17:07institutions are formed and resources
1:17:09get distributed. That seems pretty well
1:17:12understood. But is the other way around
1:17:15also as well studied like how economic
1:17:19institutions and economic distribution
1:17:22of power shapes the deure deour power of
1:17:26the polit and the political frameworks
1:17:29that a country operates in. Right?
1:17:32That's my question.
1:17:43Yeah, I mean I think that there are kind
1:17:45of there's a there's been quite a quite
1:17:47a bit of focus on on the causal arrow
1:17:49going from institutions to economic
1:17:51development. And I think in part it's
1:17:53because there's a lot of very precise
1:17:55ways you can link one to the other. Um
1:17:59but I mean surely there are caus there's
1:18:02kind of forces pointing the causal arrow
1:18:04the other direction as well. There's
1:18:05sort of a lot of this focus on the idea
1:18:06of modernization theory that you get
1:18:08political rights as a consequence of
1:18:10economic development. So the idea that's
1:18:11associated with lipet um I think it's
1:18:14something that's contested. So the
1:18:15people who set out to empirically test
1:18:17the notion of sort of modernization
1:18:19theory where you think of political
1:18:20rights resulting from economic change or
1:18:23more specifically specific types of
1:18:25empowerment like specific groups getting
1:18:27voice as a consequence of economic
1:18:29change isn't isn't something I guess
1:18:32it's something that I would say is a
1:18:33subject of empirical dispute. I mean one
1:18:35simple example if you look across
1:18:36countries and look at the share of women
1:18:38represented in political office as a
1:18:40function of GDP it there is a slight
1:18:42positive correlation but it's very very
1:18:44slight. it actually tends to be sort of
1:18:45flat with relation to GDP. I'm a little
1:18:47bit in contradiction to the
1:18:48modernization hypothesis.
1:18:54>> Um I'm looking back in the chat and
1:18:56there's quite a cluster on uh on kind of
1:19:00questions relating or stemming from
1:19:02colonization and I think last year we
1:19:05had about half of our students come from
1:19:07one country or another that had that was
1:19:10colonized at some point. So, I wonder if
1:19:12you could maybe talk a little bit about
1:19:13how colonization fits into institutions
1:19:18and maybe I'll I'll read these two
1:19:20questions to kind of give some context.
1:19:22I asked how far do colonial patterns of
1:19:26extraction and dependency continue to
1:19:28shape the political economies of
1:19:30developing nations today? and Hermias
1:19:34um asked many political elites in poor
1:19:37countries still believe that colonial
1:19:39installed institutions are responsible
1:19:41for diver diverging patterns of growth
1:19:43across countries.
1:19:45Do you think that this still is at work
1:19:47even 56 years after independence?
1:19:58I mean I can start uh I think part of
1:20:02what's going to be discussed I think
1:20:04during Melissa Dell and ATM's lecture is
1:20:06going to be what is the evidence that we
1:20:09have for the persistence and and I think
1:20:12right now we have a huge body of
1:20:14evidence suggesting that
1:20:17colonization in terms of who colonized
1:20:20how they colonize the the identity how
1:20:23they set boundaries of countries
1:20:25artificially, how they extracted taxes
1:20:28back in the day, etc. have huge not only
1:20:31huge effects but really persistent
1:20:33effects, right? Like countries that were
1:20:35colonized by by different countries
1:20:38ended up with different sets of of of
1:20:41institutions, different rules, different
1:20:43interactions with the world market. So,
1:20:47so I think absolutely there is a very
1:20:50very long run effect of colonization in
1:20:54terms of patterns of of economic
1:20:56development. I don't think that's
1:20:57something that is disputed uh
1:21:00academically.
1:21:03Uh let me just add one thing because I
1:21:04was intrigued by the by the question
1:21:06which is um so to echo Claudio's point
1:21:10we do have a lot of evidence showing
1:21:12that you know past institutions but also
1:21:16you know coloniza as a result of
1:21:17colonization so forth greatly affected
1:21:21uh economic development. what we have
1:21:23less evidence on is that it affected the
1:21:26political institutions that you see in
1:21:29those places um and whether they're you
1:21:32know local institutions or or so. So so
1:21:34that's that's probably an area that
1:21:37would be that we need more research on.
1:21:40So you know this the standard paper that
1:21:42you would see like for instance there's
1:21:44this paper by uh Sarah Lo and Eduardo
1:21:48Monttero who show you know the effects
1:21:50of the the concessions that King Leopold
1:21:54had in in the in the DRC. Um and they
1:21:59show that that that type of institution
1:22:02greatly affected
1:22:04um the types you know a variety of
1:22:07development uh outcomes as measured by
1:22:10you know income per capita but even the
1:22:12amount of public goods that existed in
1:22:14those in those areas and so forth and so
1:22:17so we see a lot of that evidence on
1:22:19those type of of outcomes of development
1:22:23what we don't know is how although that
1:22:26I should backtrack a little We don't we
1:22:28don't see tons of evidence of what that
1:22:30meant what that means for future day
1:22:32institutions. Um although there is one
1:22:35part of that paper they look at indirect
1:22:37rule and so forth and and and they show
1:22:39that there's differences in indirect
1:22:41rule. So um so it's it's definitely an
1:22:44interesting area of of future research.
1:22:51>> Thanks guys. Um, one other kind of
1:22:54cluster of questions is um, if I can
1:22:58kind of rephrase a lot of the lecture
1:23:01talked about institutions at a national
1:23:03level or like a state level and there
1:23:06are questions around what about
1:23:09countries, what is the effect of
1:23:12institutions of a at a regional level.
1:23:15So if um they're in the Middle East and
1:23:19there's a regional war going on, how
1:23:21might that affect or or just how do
1:23:23neighboring countries institutions
1:23:25affect the institutions inside your own
1:23:28country? Um, someone used a another
1:23:31example in Syria when there's uh a de
1:23:34facto kind of intransition government
1:23:37but it's supported internationally and
1:23:40so maybe how does international support
1:23:42uh
1:23:44influence the the health of institutions
1:23:48in a country.
1:23:51>> So I guess I can come in a bit on this.
1:23:53It sort of relates to some of my areas
1:23:55of research. Um I think that it's
1:23:58actually something that we're we're sort
1:23:59of still trying to understand. I mean
1:24:01one observation across countries is that
1:24:04the if you look at where the world's
1:24:05extreme poor are concentrating today
1:24:07largely they seem to be concentrating in
1:24:09places where institutions are are quite
1:24:11weak and fragile to to the point that
1:24:13they may even change sort of very
1:24:14fundamentally. Um so you know one one
1:24:18logic for why that might be uh is just
1:24:20that you know if a role of institutions
1:24:23is to make exchange of all types
1:24:25predictable market exchange predictable
1:24:28um if they if they might kind of
1:24:30fundamentally change and dramatically
1:24:32change it becomes pretty hard to think
1:24:34about investment in those contexts. So
1:24:35it may be that that's one mechanism
1:24:38and one role for international
1:24:40involvement. I think one thing that you
1:24:41see is that when it becomes clear that
1:24:43the is international support for the
1:24:45government that might last then it may
1:24:46be that it becomes more robust and
1:24:48predictable and that can then in turn
1:24:49sort of be start to play the role of
1:24:51institutions of providing a coordinating
1:24:54mechanism to coordinate behavior.
1:25:01I just wanted to mention one thing that
1:25:02which is this is uh I agree with what
1:25:05Mike said but uh most of this literature
1:25:07if you're interested in these types of
1:25:09questions it's mostly been dealt with in
1:25:11the political science literature uh in
1:25:13the IR field so international relations
1:25:17economists are starting to get into this
1:25:19a bit more with what we call sort of geo
1:25:22geoeconomics although um there's still
1:25:26some missing key missing political
1:25:28elements in in the way economists are
1:25:30thinking about it these days. But um but
1:25:32yeah, so that's that's been a topic that
1:25:35has been well this it's hard to deal
1:25:37with empirically um in a in a in in a
1:25:41satisfactory way or at least the way
1:25:42economists the bar that economists have
1:25:45set. And so um as a result it's it's
1:25:47it's been more it's been sidelined in
1:25:50our in our field to some extent.
1:25:58Yeah, the I think uh geoeconomics is is
1:26:01on the up and so I encourage anyone
1:26:03that's interested in these questions to
1:26:06dive into that a little bit more. We are
1:26:09out of time now so we'll have to wrap up
1:26:12and I'm sorry to all those who had
1:26:13questions that we couldn't get to but uh
1:26:17thank you for attending today. We will
1:26:20have our next lecture at this time next
1:26:23week. And just wanted to say a big thank
1:26:26you to professors Feras, Colin and Finan
1:26:30for putting this whole thing together
1:26:32and um and letting us hear your thoughts
1:26:36today. So, thank you very much.
1:26:41>> Yes. And thank you everyone that
1:26:42attended. Uh hope uh to see you again
1:26:46next week.
1:26:48>> Yeah. Thanks very much everyone.
1:26:49>> Thanks everyone.
1:26:52>> Thank you

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