"Only the one who does not question is safe from making a mistake."
The origins of common identity: Evidence from Alsace-Lorraine (With Sirus Dehdari), University of Zurich CIS Working Paper No. 99 (August 2018). PDF | SSRN
We exploit the quasi-exogenous division of the French regions Alsace and Lorraine after the Franco-Prussian War in 1870, caused by disagreements in the German leadership. This allows us to provide evidence of group identity formation within historically homogeneous regions. People in the treated area, which was over many decades exposed to more repression and homogenization policies aimed to suppress group identity, afterwards exhibit a stronger regional identity and higher support in three referenda that would have increased regional autonomy. The results using a regression discontinuity design at the municipal level are robust across different specifications and bandwidths, and not driven by language differences, large agglomerations or distance to foreign countries. We provide evidence about potential mechanisms using subscription rates to regional newspapers and regionalist party votes. The differences in regional identity are strongest for the first two age cohorts after World War II and associated with preferences for more regional decision-making in various areas.
Stigma or Cushion?
IMF Programs and Sovereign Creditworthiness
(With Valentin Lang), University of Zurich CIS Working Paper No. 98 (2018). PDF | SSRN
IMF programs are often considered to carry a “stigma” that triggers adverse market reactions. We show that such a negative IMF effect disappears when accounting for endogenous selection into programs. To proxy for a country's access to financial markets, we use credit ratings and investor assessments for 100 countries from 1988 to 2013. Our instrumental variable strategy exploits the differential effect of changes in IMF liquidity on loan allocation. We find that the IMF can “cushion” against falling creditworthiness, despite contractionary adjustments related to its programs. This positive signaling effect is also visible in monthly event-based specifications using country-times-year fixed effects. A text analysis of rating statements indicates a positive signal to investors if countries under IMF programs commit to economic reforms.
Aid and conflict at the subnational level (With Lennart Kaplan and Melvin Wong), (2018).
Using geo-referenced data on development projects by the World Bank and China, we provide a comprehensive analysis of the causal effect of aid on conflict using fixed effects and instrumental variables strategies. The results show aid projects on average seem to reduce rather than fuel conflict. Our analysis suggests that this is driven by projects in the transport and financial sectors, and by less lethal violence by governments against civilians. There are no clear differences based on ethnic fractionalization and government participation of a region, but some indications of spill-overs to other regions. We also find no increased likelihoood of demonstrations, strikes or riots associated, but a higher likelihood of non-lethal government repression in areas where China is active.
Stimulant or depressant?
Resource-related income shocks and conflict (With Sarah Langlotz and Stefan Kienberger), University of Heidelberg Department of Economics Discussion Paper Series No. 652
(2018). PDF | SSRN
We provide new evidence about the mechanisms linking resource-related income shocks to conflict. To do so, we combine temporal variation in international drug prices with new data on spatial variation in opium suitability to examine the effect of opium profitability on conflict in Afghanistan. District level results indicate a conflict-reducing effect over the 2002-2014 period, both in a reduced- form setting and with three different instrumental variables. We provide evidence for two main mechanisms. First, the importance of contest effects depends on the degree of violent group competition over valuable resources. By using data on the drug production process, ethnic homelands, and Taliban versus pro-government influence, we show that on average group competition for suitable districts is relatively low in Afghanistan. Second, we highlight the role of opportunity costs by showing that opium profitability positively affects household living standards, and becomes more important after a sudden rise in unemployment due to the dissolution of large armed militias after an exogenous policy change.
Regional Resources and Democratic Secessionism (With Stephan A. Schneider), University of Zurich CIS Working Paper No. 100 (August 2018). PDF | SSRN
Although regional resources have been shown to influence secessionist conflicts in developing countries, their effect in established democracies has largely been neglected. We integrate resource value in a model on the optimal size of nations and show that regional wealth correlates positively with secessionist party success in a large panel of regions. To establish causality, our difference-in-differences and triple-differences designs exploit that Scotland and Wales both feature separatist parties, but only an independent Scotland would profit from oil discoveries off its coast. We document an economically and statistically significant positive effect of regional resources and rule out plausible alternative explanations.
Work in Progress: European identity: United against outside pressure? (With ), ().
The large absence of a common European identity is usually seen as one of the major obstacles for the European Union. We use a historical natural experiment to demonstrate how outside pressure and experiencing the downsides of nation state policies contributed to forming a stronger European identity in a French region. Being exposed to a change in nation status and intrusive policies cause significantly stronger support for the European Union in two important referenda. This could provide important insights about the formation of a European identity and the potential necessity of a uni-forming event or outside pressure for Europeans to move closer together.
Work in Progress: The effect of absolute and relative group size for immigrant integration (With Vicky Fouka and Marco Tabellini), ().
We examine the hypothesis that the relative or absolute group size of migrant enclaves affects their integration in the host country. Using historical US census data from 1880 to 1930, we examine various economic and social proxies of integration ranging from labor market outcomes, to inter-group marriage, name choices for children, and volunteering for the military. We exploit county-group-year level variation, and rely on a shift-share instrument and push factors like climatic shocks and quotas for identification. We augment our county level analysis with newly digitized disaggregated data for selected counties, which allow us to also investigate the role of spatial segregation for immigrant integration.
Work in Progress: Collective memory: Measurement and effects (With Shom Mazumder and Felix Roesel), ().
Work in Progress: Resource distribution, ethnic groups and power sharing coalitions (With Paul Schaudt), ().
Work in Progress: Farmers vs. Industrialists: Within-elite Conflict and its Effect on Industrialization in the US South (With Lukas Willi), ().
We argue that the US South after the Civil War can be characterized as a conflict between the traditional plantar elite and emerging industrialists. We show that the initial size of the agricultural sector relative to the industrial sector as a proxy for the relative lobby size explains differences in industrialization in 1900 and 1950. Proxies for inequality within the agricultural sector as a measure of the difficulty to overcome the collective action problem matter as well, but only indirectly by enhancing the effect of the relative size of the farmers' lobby. The relationship is not driven by county suitability for agriculture or industry, by outliers or individual states, and remains significant when controlling for initial agricultural and industrial output nor by outliers or individual states. Farmers seem to succeed in preventing black Americans from acquiring education and overcoming illiteracy, which correlates with lower GDP per capita in the medium and long run and lower agricultural productivity in 1950.
Work in Progress: Sovereign Debt, Regime Type and the Rise of China: Re-Reconsidering the Democratic Advantage (With Andreas Fuchs and Daniel McDowell ), ().
In light of the theoretically (and empirically) ambiguous relationship between democracy and sovereign risk, our paper asserts that we should not per se presume that credit rating agencies’ perceptions of democracy are exogenous and fixed. Instead, we argue that agencies’ perceptions of democratic institutions are endogenous to culture, familiarity, and experience. Consequently, we expect that ratings agencies from stable democracies tend to view the presence of democratic institutions as reducing sovereign risk. On the other hand, rating agencies from non-democratic countries should tend to view the presence of democratic institutions more ambiguously—and perhaps even negatively. To test this argument, we exploit the recent emergence of two new global Chinese ratings agencies: Dagong and China Chengxin Credit Rating Group. We compare the determinants of sovereign ratings of these Chinese firms with the three big US agencies—Fitch, Moody’s, and S&P—over the 2010-2014 period. In our panel econometric analysis, we use several measures of regime type, democratic institutions, the rule of law, and political stability to analyze whether Chinese and US agencies weigh these factors differently. Preliminary results show that all agencies care about the stability of rated countries, albeit to varying degrees. However, the rule of law does not plays a role in Dagong’s assessment of sovereigns, while it enters into the assessment of all three U.S.-based agencies. This research holds broader implications on how the global power shifts towards emerging economies that have no or less experience with democracy are likely to affect the valuation of democratic institutions.
Towards the Greater Good? EU Commissioners’ Nationality and Budget Allocation in the European Union (With Stephan Schneider), University of Zurich CIS Working Paper No. 86 (February 2016). PDF | SSRN
We analyze whether the nationalities of EU Commissioners influence budget allocation decisions in favor of their country of origin. This is inherently difficult as no country related data on budget allocations for individual Commissioners are published by the EU. We are the first to propose a solution to this problem by using data on EU funds allocation and focusing on the Commissioners for Agriculture, who are exclusively responsible for a specific fund that accounts for the largest share of the overall EU budget. On average, providing the Commissioner is associated with increases in a country’s share of the overall EU budget of about one percentage point, which corresponds to half a billion Euro per year. We consider alternative explanations using flexible country-specific time trends in addition to country and time fixed-effects and examining pre- and post-treatment effects. There are no signs of selection bias in terms of significant differences in trend behavior both before and after providing the Commissioner. The results are not driven by any individual country and selection-on-unobservables would have to be implausibly high to account for the estimated coefficient.
Information Transmission within Federal Fiscal Architectures: Theory and Evidence (With Axel Dreher, Christos Kotsogiannis and Silvia Marchesi), CEPR Discussion Paper 11344 (June 2016). PDF | SSRN
This paper explores the role of information transmission and misaligned interests across levels of governments in explaining variation in the degree of decentralization across countries. We analyze two alternative policy-decision schemes—‘decentralization’ and ‘centralization’— within a two-sided incomplete information principal-agent framework. The quality of communication depends on the conflict of interests between the government levels and on which government level controls the degree of decentralization. We show that the extent of misaligned interests and the relative importance of local and central government knowledge affect the optimal choice of policy-decision schemes. Our empirical analysis shows that countries’ choices depend on the relative importance of their private information. Importantly, the results differ significantly between unitary and federal countries, in line with our theory.
Do we know what we think we know? Aid fragmentation and effectiveness revisited (With Katja Michaelowa, Axel Dreher, and Franziska Spörri), Courant Research Centre - Discussion Papers 185 (September 2015). PDF | SSRN
Aid fragmentation is widely recognized as being detrimental to development outcomes. We re-investigate the impact of fragmentation on aid effectiveness in the context of growth, bureaucratic policy, and education, focusing on a number of conceptually different indicators of fragmentation, and paying attention to potentially heterogeneous effects across countries. Our results demonstrate the lack of robustness and any systematic pattern. This stresses the importance of questioning the sweeping conclusions drawn by much of the previous literature.
The Home Bias in Sovereign Ratings (With Andreas Fuchs), Courant Research Centre - Discussion Paper No. 179. (June 2015). PDF | SSRN | Online Appendix
Credit rating agencies are frequently criticized for producing biased sovereign ratings. This article discusses how the home country of rating agencies could affect rating decisions as a result of political economy influences and cultural distance. Using data from nine agencies based in six countries, we test whether agencies assign better ratings to their home countries, as well as to countries economically, geopolitically and culturally aligned with them. Our results show biases in favor of the respective home country, culturally more similar countries, and countries in which home‐country banks have a larger risk exposure. Linguistic similarity seems to be the main transmission channel that explains the advantage of the home country.
Crime, Incentives and Political Effort: Evidence for India (R&R at the EJPE) (With T. Florian Kauffeldt and Krishna Chaitanya Vadlamannati), Courant Research Centre - Discussion Paper 170 (March 2015). PDF | SSRN
The large share of politicians facing criminal accusations in India has sparked a public debate and an emerging literature that assesses its causes and effects. We develop a model of the incentives faced by members of parliament when deciding whether to engage in effort for their constituency to assess the effect of their having a criminal background on their decision. We use direct and clearly identifiable measures of effort in the 14 Lok Sabha over the 2004-2009 legislative period: attendance rates, parliamentary activity, and utilization rates of a local area development scheme. The findings suggest that criminal MPs exhibit on average about 5% lower attendance rates and lower utilization rates, but no difference in parliamentary activity. The results depend on the development level of the constituency, a proxy for rent-seeking possibilities and monitoring intensity, as well as on the measurement of criminal background. We use selection on observables, matching techniques, and treatment effect regressions to demonstrate why these negative relations should constitute an upper bound estimate for the causal effect of criminality and to show they are unlikely to be driven by selection on unobservabels.
Geopolitics, Aid and Growth (With Axel Dreher and Vera Eichenauer), CEPR Working Paper No. 9904.
4299 (March 2014). PDF | SSRN
We investigate the effects of short-term political motivations on the effectiveness of foreign aid. Donor countries’ political motives might reduce the effectiveness of conditionality, channel aid to inferior projects or affect the way aid is spent in other ways, reduce the aid bureaucracy’s effort, and might impact the power structure in the recipient country. We investigate whether geopolitical motives matter by testing whether the effect of aid on economic growth is reduced by the share of years a country has served on the United Nations Security Council (UNSC) in the period the aid has been committed, which provides quasirandom variation in commitments. Our results show that the effect of aid on growth is significantly lower when aid has been granted for political reasons. We derive two conclusions from this. First, short-term political favoritism reduces growth. Second, political interest variables are invalid instruments for aid, raising doubts about a large number of results in the aid effectiveness literature.
Gesture politics or real commitment? Gender inequality and the allocation of aid (With Axel Dreher and Stephan Klasen), United Nations University, Tokyo, Japan 79 (August 2013). PDF | SSRN
Donors of foreign aid increasingly claim to consider gender inequality in the recipient countries to be a serious concern. While aid specifically to promote gender equality receives only a tiny share of aid budgets, allocations to education, health, and civil society projects could be affected by gender inequality concerns. In this paper, we investigate whether donors indeed give more aid to countries with larger gender gaps (‘need’) in education, health, employment, or women’s rights, or rather reward improvements in those indicators (‘merit’). We find some evidence that gender gaps in education and health affect the allocation of aid in those sectors and overall, while greater female political representation appears to be ‘rewarded’ with higher aid flows; employment gaps do not seem to affect the allocation of aid. Taking account of substantive and statistical significance, overall, there is modest evidence that gender gaps affect the allocation of aid in total and for particular sectors. The quantitative effects are rather small in size and differ by donor country (group) and donor as well as recipient characteristics.
Inequality and happiness: When perceived social mobility and economic reality do not match (With Christian Bjørnskov, Axel Dreher, Justina A.V. Fischer, Jan Schnellenbach), Ludwig Maximilians University, Munich, Germany 44827 (March 2013). PDF | SSRN
We argue that perceived fairness of the income generation process affects the association between income inequality and subjective well-being, and that there are systematic differences in this regard between countries that are characterized by a high or, respectively, low level of actual fairness. Using a simple model of individual labor market participation under uncertainty, we predict that high levels of perceived fairness cause higher levels of individual welfare, and lower support for income redistribution. Income inequality is predicted to have a more favorable impact on subjective well-being for individuals with high fairness perceptions. This relationship is predicted to be stronger in societies that are characterized by low actual fairness. Using data on subjective well-being and a broad set of fairness measures from a pseudo micro-panel from the WVS over the 1990-2008 period, we find strong support for the negative (positive) association between fairness perceptions and the demand for more equal incomes (subjective well-being). We also find strong empirical support for the predicted differences in individual tolerance for income inequality, and the predicted influence of actual fairness.