Paul Romer: The latest post in our E-seminar series of contributions from economists and other experts comes from Kris James Mitchener of Hoover Institution and Santa Clara University and Noel Maurer of Harvard Business School. They write about several case studies in which countries that struggled with corrupt customs agencies successfully used external institutions to clean them up and increase revenue collection.
Corruption is a serious problem for governments in the developing world. In states where corruption is rampant, it is very hard to build a coalition to stamp it out. Such corruption is particularly pernicious when it affects the revenue-collecting functions of the state: in addition to the deadweight costs corruption imposes on society, corruption in revenue collection reduces the state’s ability to offer fiscal incentives to public officials to obey the law. The recent experience of Angola suggests that a troubled nation can reduce corruption and increase revenue collection by adopting external institutions. Angola outsourced customs collections to Crown Agents, a British nonprofit with expertise in public financial management. In so doing, the country tripled its tariff revenue in the span of a few years, all the while reducing its tariff rates.
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Paul Romer: The latest post in our E-seminar series of contributions from economists and other experts comes from Richard Green, Director and Chair of the Lusk Center for Real Estate at USC.
Hong Kong, Singapore and Korea experienced great economic success: all have per capita GDP that is at least seven times higher than in 1960 (see Penn World Table for more information). All three economies also came to be relatively well housed. While we cannot draw a uniform lesson from their experiences, it is worthwhile to examine each case for clues about successful housing development.
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Most economists think that they are building cranes that suspend important theoretical structures from a base that is firmly grounded in first principles. In fact, they almost always invoke a skyhook, some unexplained result without which the entire structure collapses. Elinor Ostrom won the Nobel Prize in Economics because she works from the ground up, building a crane that can support the full range of economic behavior.
When I started studying economics in graduate school, the standard operating procedure was to introduce both technology and rules as skyhooks. If we assumed a particular set of rules and technologies, as though they descended from the sky, then we economists could describe what people would do. Sometimes we compared different sets of rules that a “social planner” might impose but we never said anything about how actual rules were adopted. Crucially, we never even bothered to check that people would actually follow the rules we imposed.
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Paul Romer: One of the goals of this blog is to encourage the kind of exchange between economists and other experts that we expect from an academic seminar. Matt Kahn, from UCLA has offered this first outside contribution in the E-Seminar series.
Charter cities that don’t tax away as much of the income gains from higher skill may also offer higher real returns to skill compared to many a worker’s country of origin. The promise of better rules may also attract foreign direct investment to charter cities, generating economic opportunities for skilled workers from less-developed areas. A paper by Heckman and Scheinkman (1987) shows that equilibrium returns to skill can differ across sectors so higher returns in a modern sector based in the Charter City need not lead to correspondingly higher returns in traditional sectors that operate in surrounding countries. Could the differences in spatial returns to skill created by a charter city cause a Brain Drain from nearby poor countries that harms those left behind?
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Rule sets can improve through what I will call an evolutionary dynamic based on small, incremental changes or through a new-system dynamic in which an entirely new rule set enters and competes with an existing one. …
Catch-up growth is based on copying existing ideas. Frontier growth involves the discovery and implementation of new ideas. …
In catch-up growth, the new-system dynamic can be used to copy existing rule sets. This allows faster growth without the additional risk that comes from using the new-system dynamic at the frontier.
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