Inclusive Institutions and Long-Run Misallocation

Oded Galor, Kaivan Munshi and Nicholas Wilson

No 2013-9, Working Papers from Brown University, Department of Economics

Abstract: This research advances the hypothesis that resource abundant economies characterized by a socially cohesive workforce and network externalities triggered the emergence of efficiency-enhancing inclusive institutions designed to restrict mobility and to enhance the attachment of community members to the local labor market. However, the persistence of these institutions, and the inter-generational transmission of their value, ultimately resulted in the misallocation of talents across occupations and a reduction in the long-run level of income per capita in the economy as a whole. Exploiting variation in resource intensity across the American Midwest during its initial development, the empirical analysis establishes that higher initial resource-intensity in 1860 is indeed associated with greater community participation over the subsequent 150 years, and reduced mobility and labor misallocation in the contemporary period.

Keywords: Inclusive institutions; Exclusive institutions; Networks; Labor misallocation; Development; Persistence. (search for similar items in EconPapers)
Date: 2013
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Working Paper: Inclusive Institutions and Long-Run Misallocation (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:bro:econwp:2013-9

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