Category Archives: Social capital

Assessing the Determinants of Economic Growth in South East Asia

The Historical State, Local Collective Action, and Economic Development in Vietnam

By Melissa Dell (Harvard University), Nathaniel Lane (Stockholm University), Pablo Querubin (New York University)

Abstract – This study examines how the historical state conditions long-run development, using Vietnam as a laboratory. Northern Vietnam (Dai Viet) was ruled by a strong centralized state in which the village was the fundamental administrative unit. Southern Vietnam was a peripheral tributary of the Khmer (Cambodian) Empire, which followed a patron-client model with weaker, more personalized power relations and no village intermediation. Using a regression discontinuity design across the Dai Viet-Khmer boundary, the study shows that areas historically under a strong state have higher living standards today and better economic outcomes over the past 150 years. Rich historical data document that in villages with a strong historical state, citizens have been better able to organize for public goods and redistribution through civil society and local government. This suggests that the strong historical state crowded in village-level collective action and that these norms persisted long after the original state disappeared.

URL: http://econpapers.repec.org/paper/nbrnberwo/23208.htm

Circulated by nep-his on 2017/03/19

Review by Fernando Arteaga (George Mason University)

What was the impact of the ancient Vietnamese Dai Viet empire in promoting long-term economic development? That is the main question the authors try to assess. Their inquiry is embedded within the now large literature on the importance of culture and institutions, as deep determinants of growth. The contribution the paper makes is, however, not restricted to adding one more piece of evidence in favor of it, but, more importantly, in providing empirical support for a specific transmission channel: how state capacity can be built through time via the fostering of local self-organization capabilities.

The paper’s main story builds on the idea that two distinct meta-societies existed within East Asia, and idea around which, by the way, there is general agreement. One of these societies based on Chinese precepts, prevalent in the Northeastern region; and other spread in the Southeast throughout the Indian Ocean.  Societies of the former category were historically constituted around a sort of Weberian professional bureaucracy that consolidated the working of a central state. The latter depended more on informal networking mechanisms among local elites to survive, and hence, tended to promote hierarchical patriarchal relationships.

Today’s Socialist Republic of Vietnam (henceforth Vietnam) is an interesting case study precisely because it arose out of the union of those two distinct cultures. The northern part, the Dai Viet, is an example of a Sino-style state, while the southern part of Vietnam (initially part of the Champa State and later as part of the larger Khmer Empire) resulted from a Indo-style society.  Figure 1 below offers map of present day Vietnam aligned with the size of the historical Dai Viet empire. Figure 1 suggests the Dai Viet expanded southwards through time but ended up establishing its final frontier in 1698 (orange color). It is this border the authors think provides a natural experiment that allows a clean regression discontinuity (RD) strategy that permits the disentanglement of the effect of being part of a bureaucratized state vis a vis a patriarchal state.

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Figure 1: Dai Viet Historical Boundaries (Dell et al., 2017)

The use of the RD design is appropriate, the authors argue, because the chosen border resulted from exogenous contingencies that do not reflect any difference in future economic potential. The 1698 demarcation was settled on the ridges of a river, but there was nothing else particular to it that made that boundary preferable to other potential borders. The Dai Viet stopped its expansion because of constrains imposed by a local civil war (something that has nothing to do with the river itself). Moreover, the environmental characteristics of both sides of the river are almost identical (or vary smoothly), so there is no important geographical difference either. The only thing that changes abruptly is that on the east shore of the 1698 border, Dai Viet settlers occupied and controlled the land, while Khmer villagers occupied and controlled the land to the west of the river. Another possible counterargument to the use of the 1698 border as a natural experiment is the relevance of migration: if settlers moved across villages (at any time after the establishment of the original border), then the boundary becomes inconsequential. The authors argue that, even though they do not have historical data to control for it, there is qualitative evidence that refers to negative attitudes towards outsiders within the villages, which constitutes an important constraint to any major migratory flow. Today, both sides are part of Vietnam. It is then possible to assess if Die Viet institutions still exert some type of effect in current economic outcomes.

Figure 2 portraits the main outcome of the paper. Using household expenditure data from recent censuses (2002-2012), the authors find that today, villages situated along the historical Die Viet side of the border earn a third more than those communities that are situated on the historical Khmer side (Within the figure, the darker the zone depict lower earnings).

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Figure 2a: Household Consumption, RD Graph (Dell et al., 2017)

The authors, however, not content with establishing the effects on current outcomes, look for historical evidence too. They collect data from different periods of Vietnamese history: 1878-1921 for the French Colonization, 1969-1973 for the South Vietnam State, and 1975-1985 for the early Communist Period; and find that the pattern is persistent through time: The Diet Viet zone is, in general, more developed than the Khmer side.

How can these results be interpreted?  The income differences must be due to the Die Viet heritage of greater state capacity that acted through local community self-organization that made them more co-operative and facilitated the resolution of local collective action problems. To test whether this transmission channel matters, the authors looked for data on social capital. Their main sources were the surveys and census of the South Vietnamese period. What they find corroborates their story: villagers on the Diet Viet side were more prone to participate in community activities, to collect more taxes (that at the time were local responsibility, not provincial), to have greater access to public goods (health, school and law enforcement), to be skeptical of central government in favor of local, and to give more to charity.

Comment

All in all, the authors do a thorough job in assessing the robustness of their main story. They control for several of potential alternative stories and/or possible variables that could affect the results and mechanisms.  Any critique of it may sound redundant or unreachable.  Yet, I would point to three different aspects that may be important.

First, and perhaps most importantly, I would stress that although the argument makes sense, the narrative is unclear as to how specifically the Dai Viet, which supposedly was a centralized bureaucratized state, fostered local governance. As the authors mention in the introduction, the literature on social capital is ambivalent on its effects on economic outcomes. As it is, the paper’s contribution is the finding of empirical evidence on the presence of a particular transmission channel (from state to local governance), but without a clear model and/or an analytical narrative, we are left in the dark about how explicitly this mechanism worked its way throughout society.

Second, and pushing the level of pickiness even further, one can always speak of a potential omitted variable bias. I must ask then: what about genes? The authors minimize ethnic fragmentation as a problem because they find the studied area is cataloged as being almost entirely composed of homogeneously ethnic Vietnamese. The problem is that censuses and surveys may under-report true ethnicity, and cannot capture genetic differences at all. By the authors’ own account, we are told the Diet Viet State originated as, and remained for a long time, Chinese. Moreover, as Tran (1993) attests, Chinese ethnicity may conflate the results of the paper in other several ways:

  • the largest Chinese migration occurred between the late 17th century and early 19th century, just at the time that the Dai Viet-Khmer border was being established;
  • The Chinese settled mostly in southern Vietnam, the part that the authors use as study case;
  • Chinese early importance resided precisely in that they helped establish new villages and trade outposts. They (not merely the Diet Viet heritage) helped to build local governance structures.

If ethnicity has been underreported and/or Chinese genetics matter in fostering economic development in any way (as suggested by Ashraf-Galor, 20013a, 2013b) then the interpretation of the paper could dramatically change: the importance of the Dai Viet state would be downplayed in favor of just being more ethnic/genetic Chinese. After all, it is known that there is a correlation between having larger ethnic Chinese minority and larger economic growth (Priebe and Rudulf, 2015).

Third, related to the last point: one would expect that given the importance of the result – the long-term reach of Diet Viet institutions–, its impact would feel more broadly across all the territory, not only in the immediate zones of the frontier which were the last to be incorporated into the state.  Figure 3, for example, shows the level of poverty in Vietnam (Epprecht-Heinmann,2004). It is visible that the area under study (along the last border of the historical Diet Viet) has the lowest share of poverty in the whole country. The immediate area to the left (which coincides with the area that historically belonged to the Khmer Empire) is poorer indeed. But the differences are minor if we compare them to the rest of current Vietnam, which belonged almost entirely to the Diet Viet, and has the largest poorer areas.  The RD design may be identifying a non-observable variable that is concentrated in the southern part (like ethnicity or/and genes) and is not broadly distributed across the rest of Vietnam.

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Figure 3: Incidence of Poverty in Vietnam (Epprecht-Heinmann, 2004: 155).

Additional References

Ashraf, Q., Galor, O., 2013a. Genetic Diversity and the Origins of Cultural Fragmentation. The American Economic Review: Papers on Proceedings 103, 528–533.

Ashraf, Q., Galor, O., 2013b. The “Out of Africa” Hypothesis, Human Genetic Diversity, and Comparative Economic Development. American Economic Review 103, 1–46.

Epprecht, M., Heinemann, A., 2004. Socioeconomic Atlas of Vietnam: A depiction of the 1999 Population and Housing Census. Swiss National Centre of Competence in Research, Bern.

Priebe, J., Rudolf, R., 2015. Does the Chinese Diaspora Speed Up Growth in Host Countries? World Development 76, 249–262.

Trần, K., 1993. The Ethnic Chinese and Economic Development in Vietnam. Institute of Southeast Asian Studies, Singapore.

Does Technological Progress Lead to more Human Capital Formation? Evidence from the French Industrial Revolution

The Complementarity between Technology and Human Capital in the Early Phase of Industrialization

By Raphael Franck (Bar-Ilan University and Brown University, raphael.franck@biu.ac.il) and Oded Galor (Brown University, Oded_Galor@brown.edu)

URL: http://d.repec.org/n?u=RePEc:bro:econwp:2015-3&r=his

Abstract

The research explores the effect of industrialization on human capital formation. Exploiting exogenous regional variations in the adoption of steam engines across France, the study establishes that in contrast to conventional wisdom that views early industrialization as a predominantly deskilling process, the industrial revolution was conducive for human capital formation, generating broad increases in literacy rates and education attainment.

Review by Natacha Postel-Vinay (University of Warwick)

While human capital is often thought to be at the root of any development process, early industrialization itself is often thought to be de-skilling. Images of children working long hours executing repetitive tasks usually come up when one thinks of the Industrial Revolution (Humphries, 2010). Yet there is also the idea that industrial and technical development might lead to a greater need for skilled labour to maintain, fix and adapt new machinery. In this case industrial development might lead to a greater supply of schooling and might result in significant human capital improvements. Focusing on early French industrialization in a recent working paper (distributed by NEP-HIS on 2015-05-02), Franck and Galor attempt to demonstrate just this.

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Steam engine from Lille (Nord departement)

Making use of data from the 1840s, the authors find a positive correlation across French departements between the number of steam engines and human capital indicators such as the share of literate conscripts, the share of pupils in the population, and the number of teachers (which would be more suggestive if also set relative to population). This correlation is best illustrated in a series of shaded maps (Figure 3), although the strikingly high levels schooling and literacy in the north-eastern part of France remain to be explained. Of course, correlation does not necessarily imply causation: it may be that other factors caused both the number of steam engines and the number of teachers to increase in certain areas, which could render any relationship between the two fortuitous.

Figure 3 in Franck and Oded Galor (2015).

Figure 3 in Franck and Oded Galor (2015).

To tackle this endogeneity problem, the authors make clever use of the fact that the first steam engine was introduced in 1735 in Fresnes-sur-Escaut in the Nord departement, near the northern tip of France. Since technology diffusion can be reasonably assumed to occur first around the region where the new technology was first introduced (which was indeed the case), it seems possible to use each departement’s distance from Fresnes-sur-Escaut as an instrument in the regression. In the first stage of the regression, they successfully show that the shorter a departement’s distance from the first steam engine location, the larger the number of steam engines in the departement, which seems quite reasonable.

To prove the exogeneity of the instrument, the authors have to show that human capital formation was not higher closer to the first steam engine location. This is trickier. To support their case, Franck and Galor investigate the relationship between distance from Nord and economic development indicators from around 1700, such as urban population, literacy rates and university location. They find that there is no correlation (although this may be surprising in light of Figure 1). More importantly, human capital may be quite imperfectly captured by these indicators in the pre-industrial era, when human capital may have developed in ways that are quite difficult to measure: through the transmission of skills from masters to apprentices, or learning-by-doing. It has often been shown that there was no clear relationship between technological progress and literacy rates in the early modern era (Mitch, 1999). Accordingly perhaps more detail should be provided in the paper as to why the steam engine was first introduced in this region and not elsewhere.

Figure 1 in Franck and Galor (2015)

Figure 1 in Franck and Galor (2015)

Which brings me to a broader point about the paper. Although its stated aim is to investigate the causal relationship running from technological progress to human capital formation, causality could run the other way around. Although endogeneity issues are explicitly addressed in the paper from (and confounding factors such as land suitability, rainfall, access to waterways, distance from Paris, and market integration duly controlled for), the specific problem of reverse causality is not explicitly dealt with in the text. Reassuringly the IV model should theoretically take care of reverse causality, but the authors could still discuss this possibility in more detail.

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Boys at school in Nord departement in the 19th c.

Overall though, Franck and Galor rather successfully tackle a very important and highly complex aspect of industrialization processes. By showing that technological improvement led to advances in human capital accumulation, these results in turn trigger a number of questions. Through which mechanism did industrialization lead to better schooling and literacy rates? Was the process demand-driven? Or did parents’ higher wages mean that children no longer had to work to help the family? Finally, could child labour abuse in factories have led to local initiatives to promote schooling? This latter hypothesis is discussed by Weissbach (1989), who emphasizes a particularly strong will to change the status quo in Alsatian and nearby regions — which could partly explain the greater spread of schooling in this part of France. Such inquiries could be the subject of fascinating future research.

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Children in a textile factory in 19th c. Provence

References

Humphries, Jane. 2010. Childhood and Child Labour in the British Industrial Revolution. Cambridge: Cambridge University Press.

Mitch, David. 1999. “The Role of Education and Skill in the British Industrial Revolution.” In Joel Mokyr, ed., The British Industrial Revolution: An Economic Perspective, 2 ed. Boulder, nd CO: Westview Press, pp. 241–79.

Weissbach, L. S. 1989. Child Labor Reform in Nineteenth Century France: Assuring the Future Harvest. Louisiana State University Press.

Singing for Hitler – Choirs, Clubs and the Third Reich

Bowling for Fascism: Social Capital and the rise of the Nazi Party in Weimar Germany, 1919-33

Shanker Satyanath (NYU), Nico Voigtlander (UCLA) and Hans-Joachim Voth (Zurich)

URL: econpapers.repec.org/paper/zureconwp/147.htm

Abstract:

Social capital typically leads to positive political and economic outcomes. A growing literature also emphasizes the potentially “dark side” of social capital. This paper examines the role of social capital in the downfall of democracy in interwar Germany. We analyse Nazi Party entry in a cross-section of cities. Dense networks of civic associations such as bowling clubs, choirs, and animal breeders facilitated the Nazi Party’s rise. Towns with one standard deviation higher association density saw at least one-third faster entry. All types of associations – veteran associations and non-military clubs, “bridging” and “bonding” associations – positively predict NS Party entry. These results suggest that social capital aided the rise of the Nazi movement that ultimately destroyed Germany’s first democracy. We also show that the effects of social capital depended on the institutional context – in Prussia, where democratic institutions were stronger, the link between party entry and association density was markedly weaker.

Reviewed by Ronan McGarry (final-year BSc Economics student, Queen’s University Belfast)

This NBER working paper was distributed by NEP-HIS-2013-07-15. The authors seek to clarify and quantify the role that social capital played in the rise of the Nazi Party and the ensuing downfall of the democratic Weimar Republic. In order to do so, econometric analysis of the link between local clubs/societies and Nazi party membership is conducted. The authors also seek to add to the current literature on the ‘dark side’ of social capital (Putnam 1995).

The literature on positive and negative outcomes as a result of high levels of social capital is conflicting. In his 1995 essay ‘Bowling Alone’, Robert Putnam wrote that communities with high levels of social capital ‘promote participatory democracy’. However, Riley (2005) would refute this and point to society-rich Northern Italy – which turned fascist in the 1930s. Furthermore, Chambers & Kopstein (2001) point out that after the collapse of the USSR, Serbs began ethnically cleansing their Balkan neighbours, even though Serbia had fairly intense levels of social capital. This paper turns its attention to Weimar Germany in an effort to shed more light on the topic.

It must be noted that the authors were not the first to tackle Weimar Germany’s fall in terms of social capital. However, they are the first to have done so econometrically. Berman (1997) showed that ‘a robust civil society helped scuttle the twentieth century’s most critical democratic experiment, Weimar Germany’ explaining that the ‘high levels of association served to fragment rather than unite German society.’ This paper builds on Berman’s conclusion by comparing numerically the rates of civic association intensity in German towns and cities against the rate of Nazi Party membership uptake; whilst controlling for various other political and socio-economic variables.

The authors collected data on 111 German towns and cities in modern-day Germany. One problem here is that Weimar Germany’s eastern border was much further to the east than modern-day Germany’s. This means that missing from this dataset are cities like Breslau (now Wroclaw, Poland) and Konigsberg (now Kaliningrad, Russia). Both of these cities were very Nazi-friendly – the Nazis received 44% of Breslau’s vote in 1932 (Davies & Moorhouse, 2011) and 54% of Konigsberg’s in 1933 (Jasinski, 1994) and so their exclusion from the dataset is disappointing in terms of accuracy.

Missing from the authors' dataset are cities like Breslau, Koningberg and Danzig.

Missing from the authors’ dataset are cities like Breslau, Koningberg and Danzig.

Following this, the authors begin the presentation of their findings with an interesting comparison of two similar towns – Kleve and Coburg. Both were similar in size, but with large differences in the presence of associations. Coburg was far denser in terms of civic society – with a rate of 2.99 associations per 1000 inhabitants, compared to Kleve’s 0.89 per 1000. Then, as their hypothesis predicts, Coburg saw an ‘80% greater uptake’ (p. 15) in Nazi Party membership than Kleve between 1919 and 1933.

However, whilst this serves to broadly illustrate the authors’ point, I find this comparison disingenuous in that in picking Coburg, they happen to select one of the most Nazi-friendly cities in Germany to make their point. Indeed, Coburg’s city hall was the first in Germany to fly the Nazi flag. My point is that by picking a town in Bavaria (the home province of the Nazis) and comparing it to a town in the far north, they are ignoring potential geographical concerns. Indeed, if the authors had of compared Kleve with Hamburg (another Northern city with a similar Association Density to Coburg’s), then they would have found their results running the wrong way, as Hamburg has a higher Association Density but a lower Nazi Party entry rate!

Nazi Party Entry Rate against Association Density of towns, with Hamburg, Kleve and Coburg highlighted.

Nazi Party Entry Rate against Association Density of towns, with Hamburg, Kleve and Coburg highlighted.

The authors then present their numerical findings. They announce that ‘association density strongly and significantly predicts higher entry rates into the NSDAP’, with ‘the per capita entry rate increasing by 0.4 standard deviations for every standard deviation increase in association density’ (p.16), results which support Chambers & Kopstein (2001) and Riley’s (2005).

Following this, the authors make an effort to quantify the differences between Putnam’s (1995) ‘bonding’ (exclusive groups such as Gentleman’s Clubs) and ‘bridging’ (inclusive groups such as choirs or bowling clubs) social capital in terms of their effects on Nazi membership uptake. Putnam believed bonding social capital to have adverse effects, with bridging social capital fulfilling the opposite role. However, the authors find bridging capital to have ‘positive, significant and quantitatively meaningful coefficients, which are similar in magnitude to those for bonding capital’ (p.21) – suggesting that both types of associations were ‘important pathways’ in terms of Nazi party membership.

German youth choir, and example of bridging capital. The sign translates to 'We sing for Adolf Hitler'.

German youth choir, and example of bridging capital. The sign translates to ‘We sing for Adolf Hitler’.

One final important contribution this paper makes is in terms of investigating the evidence that social capital can develop a ‘dark side’ (Putnam, 1995) and actually undermine a functioning democracy – which the authors claim is ‘missing’ from current literature. To do so, they examine the state of Prussia, which was more ‘pro-democracy’ and was ‘governed more competently’ (p.22). What they find is that before the gradual weakening of Prussian democracy in 1930, the relationship between party entry and association entry in Prussia was ‘systematically weaker’ (p.23) than the rest of Germany. What this shows is that a ‘functional, strong, democratic government’ (p.24) can help prevent social capital showing its ‘dark side.’

To conclude, this paper offers an interesting insight into an area of social capital literature which had not been studied econometrically before. Whilst it is indeed disappointing that the authors could not include important eastern European cities that are no longer a part of Germany, they do make a fair point that massive war damage in these cities led to the loss of many public records and as such, makes it impossible to gather data. On a positive note, the presentation of Prussia as a case in which social capital can suddenly change from a democracy-supporting vehicle to one which undermines democracy completely is welcomed, and suggests that the manner in which social capital operates is heavily dependent on the ‘wider institutional context’. In terms of future study into the ‘dark side’ of social capital, it might be interesting to apply these econometric methods to the rise of other fascist parties, such as the Golden Dawn in Greece, or further study on fascist – building on Riley’s 2005 work.

Bibliography

Berman, S. (1997). Civil society and the collapse of the Weimar Republic.World politics49, 401-429.

Chambers, S., & Kopstein, J. (2001). Bad civil society. Political Theory, 837-865.

Davies, N., & Moorhouse, R. (2011). Microcosm: a portrait of a central European city. Random House.

Jasiński, J. (1994). A history of Konigsberg: sketches of the thirteenth to twentieth centuries. (Historia Królewca: szkice z XIII-XX stulecia) Książnica, Poland.

Putnam, R. D. (1995). Bowling alone: America’s declining social capital. Journal of democracy6(1), 65-78.

Riley, D. (2005). Civic associations and authoritarian regimes in interwar Europe: Italy and Spain in comparative perspective. American Sociological Review70(2), 288-310.

Satyanath, S., Voigtländer, N., & Voth, H. J. (2013). Bowling for fascism: Social capital and the rise of the Nazi Party in Weimar Germany, 1919-33 (No. w19201). National Bureau of Economic Research.