The announcement of Timothy Geithner as nominee for Treasury Secretary in November 2008 produced a cumulative abnormal return for financial firms with which he had a prior connection. This return was about 6% after the first full day of trading and about 12% after ten trading days. There were subsequently abnormal negative returns for connected firms when news broke that Geithner’s confirmation might be derailed by tax issues. Personal connections to top executive branch officials can matter greatly even in a country with strong overall institutions, at least during a time of acute financial crisis and heightened policy discretion.

Medical innovations during the 1940s quickly resulted in significant health improvements around the world. Countries with initially higher mortality from infectious diseases experienced larger increases in life expectancy, population, and subsequent social conflict. This cross-country result is robust across alternative measures of conflict and is not driven by differential trends between countries with varying baseline characteristics. A similar effect is also present within Mexico. Initial suitability conditions for malaria varied across municipalities, and anti-malaria campaigns had differential effects on population growth and social conflict. Both across countries and within Mexico, increased conflict over scarce resources predominates and this effect is more pronounced during times of economic hardship (specifically, in countries with a poor growth record and in drought-stricken areas in Mexico). At least during this time period, a larger increase in population made social conflict more likely.

The “Asian Crisis” of 1997–98 affected all the “emerging markets” open to capital flows. Measures of corporate governance, particularly the effectiveness of protection for minority shareholders, explain the extent of exchange rate depreciation and stock market decline better than do standard macroeconomic measures. A possible explanation is that in countries with weak corporate governance, worse economic prospects result in more expropriation by managers and thus a larger fall in asset prices.

What is the optimal response of a resource exporter when a price cap is imposed on its main export? This paper develops a dynamic framework incorporating stochastic prices, financial frictions, and market power to study this novel tool of statecraft. With the right design, a price cap can incentivize increased extraction, stabilizing prices in the global market. But the stabilizing effects diminish when there is leakage outside the cap. Consequently, weak enforcement of the policy worsens the trade-off faced by the sanctioning policymaker. We provide a systematic approach to setting and enforcing an optimal cap level in these circumstances. (JEL F12, F14, F51, L71, P28, P33, Q35)

The rise of Western Europe after 1500 is due largely to growth in countries with access to the Atlantic Ocean and with substantial trade with the New World, Africa, and Asia via the Atlantic. This trade and the associated colonialism affected Europe not only directly, but also indirectly by inducing institutional change. Where “initial” political institutions (those established before 1500) placed significant checks on the monarchy, the growth of Atlantic trade strengthened merchant groups by constraining the power of the monarchy, and helped merchants obtain changes in institutions to protect property rights. These changes were central to subsequent economic growth.

Which is the tighter constraint on private sector investment: weak property rights or limited access to external finance? From a survey of new firms in post-communist countries, we find that weak property rights discourage firms from reinvesting their profits, even when bank loans are available. Where property rights are relatively strong, firms reinvest their profits; where they are relatively weak, entrepreneurs do not want to invest from retained earnings.

Acemoglu, Johnson, and Robinson (2001) established that economic institutions today are correlated with expected mortality of European colonialists. David Albouy argues this relationship is not robust. He drops all data from Latin America and much of the data from Africa, making up almost 60 percent of our sample, despite much information on the mortality of Europeans in those places during the colonial period. He also includes a “campaign” dummy that is coded inconsistently; even modest corrections undermine his claims. We also show that limiting the effect of outliers strengthens our results, making them robust to even extreme versions of Albouy's critiques. (JEL D02, E23, F54, I12, N40, O43, P14)

We exploit differences in European mortality rates to estimate the effect of institutions on economic performance. Europeans adopted very different colonization policies in different colonies, with different associated institutions. In places where Europeans faced high mortality rates, they could not settle and were more likely to set up extractive institutions. These institutions persisted to the present. Exploiting differences in European mortality rates as an instrument for current institutions, we estimate large effects of institutions on income per capita. Once the effect of institutions is controlled for, countries in Africa or those closer to the equator do not have lower incomes. (JEL O11, P16, P51)

Existing studies establish a strong cross-country correlation between income and democracy but do not control for factors that simultaneously affect both variables. We show that controlling for such factors by including country fixed effects removes the statistical association between income per capita and various measures of democracy. We present instrumental-variables estimates that also show no causal effect of income on democracy. The cross-country correlation between income and democracy reflects a positive correlation between changes in income and democracy over the past 500 years. This pattern is consistent with the idea that societies embarked on divergent political-economic development paths at certain critical junctures. (JEL D72, E21)