Inclusive Institutions and Long-Run Misallocation

47 Pages Posted: 24 Oct 2013

See all articles by Oded Galor

Oded Galor

Brown University - Department of Economics; Centre for Economic Policy Research (CEPR)

Kaivan D. Munshi

Brown University - Department of Economics

Nicholas L. Wilson

Brown University - Department of Economics

Date Written: October 23, 2013

Abstract

This research advances the hypothesis that resource abundant economies characterized by a socially cohesive workforce and network externalities triggered the emergence of efficiency-enhancing inclusive institutions designed to restrict mobility and to enhance the attachment of community members to the local labor market. However, the persistence of these institutions, and the inter-generational transmission of their value, ultimately resulted in the misallocation of talents across occupations and a reduction in the long-run level of income per capita in the economy as a whole. Exploiting variation in resource intensity across the American Midwest during its initial development, the empirical analysis establishes that higher initial resource-intensity in 1860 is indeed associated with greater community participation over the subsequent 150 years, and reduced mobility and labor misallocation in the contemporary period.

Keywords: Inclusive institutions, Exclusive institutions, Networks, Labor misallocation, Development, Persistence

JEL Classification: I12, J13, N3, O10

Suggested Citation

Galor, Oded and Munshi, Kaivan D. and Wilson, Nicholas L., Inclusive Institutions and Long-Run Misallocation (October 23, 2013). Available at SSRN: https://ssrn.com/abstract=2344290 or http://dx.doi.org/10.2139/ssrn.2344290

Oded Galor (Contact Author)

Brown University - Department of Economics ( email )

Providence, RI 02912
United States

HOME PAGE: http://www.econ.brown.edu/fac/Oded_Galor/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

HOME PAGE: http://www.econ.brown.edu/fac/Oded_Galor/

Kaivan D. Munshi

Brown University - Department of Economics ( email )

64 Waterman Street
Box B
Providence, RI 02912
United States
401-863-9331 (Phone)
401-863-1970 (Fax)

Nicholas L. Wilson

Brown University - Department of Economics ( email )

64 Waterman Street
Providence, RI 02912
United States

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