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Institutions vs. Social Interactions in Driving Economic Convergence: Evidence from Colombia

Author

Listed:
  • Coscia, Michelle

    (Harvard University and University of Namur)

  • Cheston, Timothy

    (Harvard University)

  • Hausmann, Ricardo

    (Harvard University)

Abstract
Are regions poor because they have bad institutions or are they poor because they are disconnected from the social channels through which technology diffuses? This paper tests institutional and technological theories of economic convergence by looking at income convergence across Colombian municipalities. We use formal employment and wage data to estimate growth of income per capita at the municipal level. In Colombia, municipalities are organized into 32 departamentos or states. We use cellphone metadata to cluster municipalities into 32 communication clusters, defined as a set of municipalities that are densely connected through phone calls. We show that these two forms of grouping municipalities are very different. We study the effect on municipal income growth of the characteristics of both the state and the communication cluster to which the municipality belongs. We find that belonging to a richer communication cluster accelerates convergence, while belonging to a richer state does not. This result is robust to controlling for state fixed effects when studying the impact of communication clusters and vice versa. The results point to the importance of social interactions rather than formal institutions in the growth process.

Suggested Citation

  • Coscia, Michelle & Cheston, Timothy & Hausmann, Ricardo, 2017. "Institutions vs. Social Interactions in Driving Economic Convergence: Evidence from Colombia," Working Paper Series rwp17-014, Harvard University, John F. Kennedy School of Government.
    • Handle: RePEc:ecl:harjfk:rwp17-014
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    2. Reinhold Kosfeld & Timo Mitze, 2020. "The role of R&D-intensive clusters for regional competitiveness," MAGKS Papers on Economics 202001, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    3. Alejandro Rueda-Sanz & Timothy Cheston, 2023. "The Economic Tale of Two Amazons: Lessons in Generating Shared Prosperity While Protecting the Forest in the Peruvian and Colombian Amazon," CID Working Papers 145a, Center for International Development at Harvard University.
    4. Zhuoming Ren & Wenli Du & Ziyi Zhao & Li Zhao & Tongfeng Weng, 2024. "Strategies for selecting trading partners based on economic complexity of international trade networks: A comparison between Chinese and the US markets," Palgrave Communications, Palgrave Macmillan, vol. 11(1), pages 1-12, December.
    5. Leopoldo Fergusson & Tatiana Hiller & Ana Maria Ibañez, 2020. "Growth and inclusion trajectories of Colombian functional territories," Sobre México. Revista de Economía, Sobre México. Temas en economía, vol. 1(1), pages 79-125.
    6. Juan Manuel Aristizábal & Gustavo A. García, 2021. "Regional economic growth and convergence: The role of institutions and spillover effects in Colombia," Regional Science Policy & Practice, Wiley Blackwell, vol. 13(4), pages 1146-1161, August.
    7. P. Eko Prasetyo, 2019. "Role of Entrepreneurial Culture as the Driver of Economic Growth," International Journal of Economics and Financial Issues, Econjournals, vol. 9(3), pages 237-243.

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