Institutions vs. Social Interactions in Driving Economic Convergence: Evidence from Colombia

25 Pages Posted: 28 Mar 2017

See all articles by Michele Coscia

Michele Coscia

Harvard University - Harvard Kennedy School (HKS)

Timothy Cheston

Harvard University - Harvard Kennedy School (HKS)

Ricardo Hausmann

Harvard University - Harvard Kennedy School (HKS)

Date Written: February 1, 2017

Abstract

Are regions poor because they have bad institutions or are they poor because they are disconnected from the social channels through which technology diffuses? This paper tests institutional and technological theories of economic convergence by looking at income convergence across Colombian municipalities. We use formal employment and wage data to estimate growth of income per capita at the municipal level. In Colombia, municipalities are organized into 32 departamentos or states. We use cellphone metadata to cluster municipalities into 32 communication clusters, defined as a set of municipalities that are densely connected through phone calls. We show that these two forms of grouping municipalities are very different. We study the effect on municipal income growth of the characteristics of both the state and the communication cluster to which the municipality belongs. We find that belonging to a richer communication cluster accelerates convergence, while belonging to a richer state does not. This result is robust to controlling for state fixed effects when studying the impact of communication clusters and vice versa. The results point to the importance of social interactions rather than formal institutions in the growth process.

Keywords: Economic convergence, institutions, technological diffusion, growth, development, Colombia

Suggested Citation

Coscia, Michele and Cheston, Timothy and Hausmann, Ricardo, Institutions vs. Social Interactions in Driving Economic Convergence: Evidence from Colombia (February 1, 2017). HKS Working Paper No. RWP14-014, Available at SSRN: https://ssrn.com/abstract=2939678 or http://dx.doi.org/10.2139/ssrn.2939678

Michele Coscia

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States

Timothy Cheston

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States

Ricardo Hausmann (Contact Author)

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Mailbox 34
Cambridge, MA 02138
United States
617-496-3740 (Phone)
617-496-8753 (Fax)

HOME PAGE: http://www.hks.harvard.edu/about/faculty-staff-directory/ricardo-hausmann

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