The Diffusion of Development
Stanford Graduate School of Business Paper No. 1898
40 Pages Posted: 15 Jul 2005
Date Written: June 2005
We provide a simple framework relating cultural distance, genetic distance and differences in income per capita. We estimate the model empirically by regressing current income differences between pairs of countries on measures of geographical and genetic distance (coancestor coefficients). We find a significant effect of genetic distance on income differences, while geographical distance (i.e., geodesic distance between major cities) is negative and insignificant when genetic distance is controlled for. Differences in latitude across countries help explain income differences even when genetic distance is controlled for, which is consistent with Jared Diamond's hypothesis regarding a Eurasian advantage in development. We uncover similar patterns of coefficients for differences in human capital, institutions, population growth, and investment rates. Finally, we estimate the structural effects of differences in institutions, human capital, population growth, and investment rates on differences in income per capita using our set of geographic and genetic distances as instruments. Overall, our findings support the view that environmental and cultural barriers play an important role in the diffusion of innovations and development across countries.
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