State Capacity and Economic Development: A Network Approach

Daron Acemoglu, Camilo García-Jimeno and James Robinson

No 19813, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study the direct and spillover effects of local state capacity using the network of Colombian municipalities. We model the determination of local and national state capacity as a network game in which each municipality, anticipating the choices and spillovers created by other municipalities and the decisions of the national government, invests in local state capacity and the national government chooses the presence of the national state across municipalities to maximize its own payoff. We then estimate the parameters of this model using reduced-form instrumental variables techniques and structurally (using GMM, simulated GMM or maximum likelihood). To do so we exploit both the structure of the network of municipalities, which determines which municipalities create spillovers on others, and the historical roots of local state capacity as the source of exogenous variation. These historical instruments are related to the presence of colonial royal roads and local presence of the colonial state in the 18th century, factors which we argue are unrelated to current provision of public goods and prosperity except through their impact on their own and neighbors' local state capacity. Our estimates of the effects of state presence on prosperity are large and also indicate that state capacity decisions are strategic complements across municipalities. As a result, we find that bringing all municipalities below median state capacity to the median, without taking into account equilibrium responses of other municipalities, would increase the median fraction of the population above poverty from 57% to 60%. Approximately 57% of this is due to direct effects and 43% to spillovers. However, if we take the equilibrium response of other municipalities into account, the median would instead increase to 68%, a sizable change driven by equilibrium network effects.

JEL-codes: H4 H7 P16 (search for similar items in EconPapers)
Date: 2014-01
New Economics Papers: this item is included in nep-gro, nep-his and nep-ure
Note: POL
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Published as Daron Acemoglu & Camilo García-Jimeno & James A. Robinson, 2015. "State Capacity and Economic Development: A Network Approach," American Economic Review, American Economic Association, vol. 105(8), pages 2364-2409, August.

Downloads: (external link)
http://www.nber.org/papers/w19813.pdf (application/pdf)

Related works:
Journal Article: State Capacity and Economic Development: A Network Approach (2015)
Working Paper: State Capacity and Economic Development: A Network Approach (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:19813

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w19813

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().