Knowledge that Transforms

We estimate the causal effect of a large development program on conflict in the Philippines through a regression discontinuity design that exploits an arbitrary poverty threshold used to assign eligibility for the program. We find that barely eligible municipalities experienced a large increase in conflict casualties compared to barely ineligible ones. This increase is mostly due to insurgent-initiated incidents in the early stages of program preparation. Our results are consistent with the hypothesis that insurgents try to sabotage the program because its success would weaken their support in the population.

We present a theory of spatial development. Manufacturing and services firms located in a continuous geographic area choose each period how much to innovate. Firms trade subject to transport costs and technology diffuses spatially. We apply the model to study the evolution of the US economy in the last half-century and find that it can generate the reduction in the manufacturing employment share, the increased spatial concentration of services, the growth in service productivity starting in the mid-1990s, the rise in the dispersion of land rents in the same period, as well as several other spatial and temporal patterns.

We use broad-based yet detailed data from the economy's goods-producing sectors to investigate firms' ownership of production chains. It does not appear that vertical ownership is primarily used to facilitate transfers of goods along the production chain, as is often presumed: roughly one-half of upstream establishments report no shipments to downstream establishments within the same firm. We propose an alternative explanation for vertical ownership, namely that it promotes efficient intrafirm transfers of intangible inputs. We show evidence consistent with this hypothesis, including the fact that, after a change of ownership, an acquired establishment begins to resemble the acquiring firm along multiple dimensions.

By 2015, global oil consumption will reach 90 million barrels per day. In part, this high level of consumption reflects the fact that many countries provide subsidies for gasoline and diesel. This paper examines global fuel subsidies using the latest available data from the World Bank, finding that road-sector subsidies for gasoline and diesel totaled $110 billion in 2012. Pricing fuels below cost is inefficient because it leads to overconsumption. Under baseline assumptions about supply and demand elasticities, the total annual deadweight loss worldwide is $44 billion. Incorporating external costs increases the economic costs substantially.

India's coal-fired generating capacity doubled between 1990 and 2010 and currently accounts for 70 percent of electricity produced. Despite this, thermal efficiency at state-owned coal-fired power plants in India is significantly lower than at plants in the United States. When matched on age and capacity, heat input per kWh was 8 percent higher at Indian plants between 1997 and 2009. This can only partly be explained by the lower heat content of Indian coal. Electricity sector restructuring in the United States improved thermal efficiency at investor-owned plants; however, electricity sector restructuring in India has yet to improve thermal efficiency at state-owned coal-fired power plants.

We show that isolated capital cities are robustly associated with greater levels of corruption across US states, in line with the view that this isolation reduces accountability. We then provide direct evidence that the spatial distribution of population relative to the capital affects different accountability mechanisms: newspapers cover state politics more when readers are closer to the capital, voters who live far from the capital are less knowledgeable and interested in state politics, and they turn out less in state elections. We also find that isolated capitals are associated with more money in state-level campaigns, and worse public good provision.

We study the determinants of differences in farm size across countries and their impact on agricultural and aggregate productivity using a quantitative sectoral model featuring a distribution of farms. Measured aggregate factors (capital, land, economy-wide productivity) account for one-quarter of the observed differences in farm size and productivity. Policies and institutions that misallocate resources across farms have the potential to account for the remaining differences. Exploiting within-country variation in crop-specific price distortions and their correlation with farm size, we construct a cross-country measure of farm-size distortions which together with aggregate factors accounts for one-half of the cross-country differences in size and productivity.

During the downturn of 2008-2009, output and hours fell significantly, but labor productivity rose. These facts have led many to conclude that there is a significant deviation between observations and current macrotheories that assume business cycles are driven, at least in part, by fluctuations in total factor productivities of firms. We show that once investment in intangible capital is included in the analysis, there is no inconsistency. Measured labor productivity rises if the fall in output is underestimated; this occurs when there are large unmeasured intangible investments. Microevidence suggests that these investments are large and cyclically important.

Historical accounts suggest that Jewish migrs from Nazi Germany revolutionized U.S. science. To analyze the migrs' effects on chemical innovation in the U.S. we compare changes in patenting by U.S. inventors in research fields of migrs with fields of other German chemists. Patenting by U.S. inventors increased by 31 percent in migr fields. Regressions that instrument for migr fields with pre-1933 fields of dismissed German chemists confirm a substantial increase in U.S. invention. Inventorlevel data indicate that migrs encouraged innovation by attracting new researchers to their fields, rather than by increasing the productivity of incumbent inventors.

The dynamics of house prices, sales, construction, and population growth in response to city-specific income shocks are characterized for 106 US cities. A dynamic model of search in the housing market in which construction, the entry of buyers, house prices, and sales are determined in equilibrium is then developed. The theory generates dynamics qualitatively consistent with the observations and a version calibrated to match key features of the US housing market offers a substantial quantitative improvement over models without search. In particular, variation in the time it takes to sell induces transaction prices to exhibit serially correlated growth.