[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/red/sed015/1275.html
   My bibliography  Save this paper

Industrialization and the Evolution of Enforcement Institutions

Author

Listed:
  • Latchezar Popov

    (The University of Virginia)

  • Toshihiko Mukoyama

    (University of Virginia)

Abstract
We analyze the evolution of economic institution during the process of industrialization. In particular, we focus on the institution of contract enforcement. Empirically, we show that, during the process of industrialization, countries tend to shift their manufacturing production towards industries that require more relationship-specific investment. Theoretically, we build a dynamic model with incomplete contracts and evolving institutions to account for this pattern. In our model, the incompleteness of contract leads to two types of misallocations that leads to production inefficiency: unbalanced use of inputs and unbalanced production of different goods. In addition to this production inefficiency, the imperfect contract enforcement leads to distortions in factor supply. The government invests in enforcement institutions in order to improve the contractual environment, and the evolution of industry composition crucially depends on how contractual environment changes over time.

Suggested Citation

  • Latchezar Popov & Toshihiko Mukoyama, 2015. "Industrialization and the Evolution of Enforcement Institutions," 2015 Meeting Papers 1275, Society for Economic Dynamics.
    • Handle: RePEc:red:sed015:1275
    as

    Download full text from publisher

    File URL: https://red-files-public.s3.amazonaws.com/meetpapers/2015/paper_1275.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Arellano, Cristina & Kocherlakota, Narayana, 2014. "Internal debt crises and sovereign defaults," Journal of Monetary Economics, Elsevier, vol. 68(S), pages 68-80.
    2. Stephen Knack & Philip Keefer, 1997. "Does Social Capital Have an Economic Payoff? A Cross-Country Investigation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(4), pages 1251-1288.
    3. Nathan Nunn, 2007. "Relationship-Specificity, Incomplete Contracts, and the Pattern of Trade," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 122(2), pages 569-600.
    4. Acemoglu,Daron & Arellano,Manuel & Dekel,Eddie (ed.), 2013. "Advances in Economics and Econometrics," Cambridge Books, Cambridge University Press, number 9781107016064, September.
    5. Johannes Boehm, 2014. "The Impact of Contract Enforcement Costs on Outsourcing and Aggregate Productivity," 2014 Meeting Papers 340, Society for Economic Dynamics.
    6. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert, 1999. "The Quality of Government," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 15(1), pages 222-279, April.
    7. Hough,Jerry F. & Grier,Robin, 2015. "The Long Process of Development," Cambridge Books, Cambridge University Press, number 9781107670419.
    8. Acemoglu,Daron & Arellano,Manuel & Dekel,Eddie (ed.), 2013. "Advances in Economics and Econometrics," Cambridge Books, Cambridge University Press, number 9781107638105, September.
    9. Daron Acemoglu, 2006. "Modeling Inefficient Institutions," NBER Working Papers 11940, National Bureau of Economic Research, Inc.
    10. Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2002. "The Regulation of Entry," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(1), pages 1-37.
    11. repec:hal:wpspec:info:hdl:2441/3lt9cev6r09aqpj1a1248i83gg is not listed on IDEAS
    12. Daron Acemoglu & Georgy Egorov & Konstantin Sonin, 2012. "Dynamics and Stability of Constitutions, Coalitions, and Clubs," American Economic Review, American Economic Association, vol. 102(4), pages 1446-1476, June.
    13. Toshihiko Mukoyama & Latchezar Popov, 2014. "The Political Economy of Entry Barriers," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(3), pages 383-416, July.
    14. North, Douglass C. & Weingast, Barry R., 1989. "Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England," The Journal of Economic History, Cambridge University Press, vol. 49(4), pages 803-832, December.
    15. Azzimonti, Marina & Sarte, Pierre-Daniel & Soares, Jorge, 2009. "Distortionary taxes and public investment when government promises are not enforceable," Journal of Economic Dynamics and Control, Elsevier, vol. 33(9), pages 1662-1681, September.
    16. Acemoglu, Daron, 2003. "Why not a political Coase theorem? Social conflict, commitment, and politics," Journal of Comparative Economics, Elsevier, vol. 31(4), pages 620-652, December.
    17. Johannes Boehm & Ezra Oberfield, 2020. "Misallocation in the Market for Inputs: Enforcement and the Organization of Production," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 135(4), pages 2007-2058.
    18. Chang-Tai Hsieh & Peter J. Klenow, 2009. "Misallocation and Manufacturing TFP in China and India," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(4), pages 1403-1448.
    19. Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "The Colonial Origins of Comparative Development: An Empirical Investigation," American Economic Review, American Economic Association, vol. 91(5), pages 1369-1401, December.
    20. Latchezar Popov, 2014. "Enforcement frictions and optimal lending contracts," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 57(1), pages 195-222, September.
    21. Diego Restuccia & Richard Rogerson, 2008. "Policy Distortions and Aggregate Productivity with Heterogeneous Plants," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(4), pages 707-720, October.
    22. Guriev, Sergei & Sonin, Konstantin, 2009. "Dictators and oligarchs: A dynamic theory of contested property rights," Journal of Public Economics, Elsevier, vol. 93(1-2), pages 1-13, February.
    23. Kydland, Finn E. & Prescott, Edward C., 1980. "Dynamic optimal taxation, rational expectations and optimal control," Journal of Economic Dynamics and Control, Elsevier, vol. 2(1), pages 79-91, May.
    24. Dani Rodrik & Arvind Subramanian & Francesco Trebbi, 2004. "Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development," Journal of Economic Growth, Springer, vol. 9(2), pages 131-165, June.
    25. Sophie Osotimehin & Latchezar Popov, 2018. "Misallocation and intersectoral linkages," 2018 Meeting Papers 561, Society for Economic Dynamics.
    26. Francisco J. Buera & Joseph P. Kaboski & Yongseok Shin, 2011. "Finance and Development: A Tale of Two Sectors," American Economic Review, American Economic Association, vol. 101(5), pages 1964-2002, August.
    27. Drozd, Lukasz A. & Serrano-Padial, Ricardo, 2018. "Financial contracting with enforcement externalities," Journal of Economic Theory, Elsevier, vol. 178(C), pages 153-189.
    28. Chang-Tai Hsieh & Peter J. Klenow, 2007. "Relative Prices and Relative Prosperity," American Economic Review, American Economic Association, vol. 97(3), pages 562-585, June.
    29. Andrés Erosa & Ana Hidalgo Cabrillana, 2008. "On Finance As A Theory Of Tfp, Cross-Industry Productivity Differences, And Economic Rents," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(2), pages 437-473, May.
    30. Robert E. Hall & Charles I. Jones, 1999. "Why do Some Countries Produce So Much More Output Per Worker than Others?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(1), pages 83-116.
    31. Sophie Osotimehin & Latchezar Popov, 2023. "Misallocation and Intersectoral linkages," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 51, pages 177-198, December.
    32. Daron Acemoglu & Pol Antràs & Elhanan Helpman, 2007. "Contracts and Technology Adoption," American Economic Review, American Economic Association, vol. 97(3), pages 916-943, June.
    33. Charles I. Jones, 2011. "Intermediate Goods and Weak Links in the Theory of Economic Development," American Economic Journal: Macroeconomics, American Economic Association, vol. 3(2), pages 1-28, April.
    34. Glomm, Gerhard & Ravikumar, B., 1997. "Productive government expenditures and long-run growth," Journal of Economic Dynamics and Control, Elsevier, vol. 21(1), pages 183-204, January.
    35. Sonin, Konstantin, 2003. "Why the rich may favor poor protection of property rights," Journal of Comparative Economics, Elsevier, vol. 31(4), pages 715-731, December.
    36. Benjamin Moll, 2014. "Productivity Losses from Financial Frictions: Can Self-Financing Undo Capital Misallocation?," American Economic Review, American Economic Association, vol. 104(10), pages 3186-3221, October.
    37. Stephen Knack & Philip Keefer, 1995. "Institutions And Economic Performance: Cross‐Country Tests Using Alternative Institutional Measures," Economics and Politics, Wiley Blackwell, vol. 7(3), pages 207-227, November.
    38. Pedro S. Amaral & Erwan Quintin, 2010. "Limited Enforcement, Financial Intermediation, And Economic Development: A Quantitative Assessment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 51(3), pages 785-811, August.
    39. Acemoglu,Daron & Arellano,Manuel & Dekel,Eddie (ed.), 2013. "Advances in Economics and Econometrics," Cambridge Books, Cambridge University Press, number 9781107016057, September.
    40. Knack, Stephen & Keefer, Philip, 1995. "Institutions and Economic Performance: Cross-Country Tests Using Alternative Institutional Indicators," MPRA Paper 23118, University Library of Munich, Germany.
    41. Acemoglu,Daron & Arellano,Manuel & Dekel,Eddie (ed.), 2013. "Advances in Economics and Econometrics," Cambridge Books, Cambridge University Press, number 9781107674165, September.
    42. Virgiliu Midrigan & Daniel Yi Xu, 2014. "Finance and Misallocation: Evidence from Plant-Level Data," American Economic Review, American Economic Association, vol. 104(2), pages 422-458, February.
    43. Paul Klein & Per Krusell & José-Víctor Ríos-Rull, 2008. "Time-Consistent Public Policy," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 75(3), pages 789-808.
    44. repec:hal:wpspec:info:hdl:2441/1uut5itepl9q5osfl3tj7qatje is not listed on IDEAS
    45. Restuccia, Diego & Urrutia, Carlos, 2001. "Relative prices and investment rates," Journal of Monetary Economics, Elsevier, vol. 47(1), pages 93-121, February.
    46. Acemoglu,Daron & Arellano,Manuel & Dekel,Eddie (ed.), 2013. "Advances in Economics and Econometrics," Cambridge Books, Cambridge University Press, number 9781107627314, September.
    47. Acemoglu,Daron & Arellano,Manuel & Dekel,Eddie (ed.), 2013. "Advances in Economics and Econometrics," Cambridge Books, Cambridge University Press, number 9781107016040, September.
    48. Dominick Bartelme & Yuriy Gorodnichenko, 2015. "Linkages and Economic Development," NBER Working Papers 21251, National Bureau of Economic Research, Inc.
    49. repec:hal:spmain:info:hdl:2441/3lt9cev6r09aqpj1a1248i83gg is not listed on IDEAS
    50. Thorsten Koeppl & Cyril Monnet & Erwan Quintin, 2014. "Efficient contract enforcement," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 55(1), pages 161-183, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kevin Genna & Christian Ghiglino & Kazuo Nishimura & Alain Venditti, 2021. "Knowledge-Based Structural Change," Working Papers halshs-03164854, HAL.
    2. Johannes Boehm, 2014. "The Impact of Contract Enforcement Costs on Outsourcing and Aggregate Productivity," 2014 Meeting Papers 340, Society for Economic Dynamics.
    3. Lopez-Martin, Bernabe & Perez-Reyna, David, 2021. "Contracts, firm dynamics, and aggregate productivity," Journal of Economic Dynamics and Control, Elsevier, vol. 130(C).
    4. Patrick Ssekitoleko & Ifeanyi Mbukanma, 2022. "Advancing the Growth of Foreign Direct Investment Equity Inflow Amid Covid-19 Pandemic: An Exploratory Study of South Africa Context," Academic Journal of Interdisciplinary Studies, Richtmann Publishing Ltd, vol. 11, November.
    5. Yuanyue Wang & Zhaohui Yu & Xiaojing Yi, 2022. "Financing liabilities and inefficient investment of listed companies: Based on the adjustment effect of different financial structures," Australian Economic Papers, Wiley Blackwell, vol. 61(4), pages 848-875, December.
    6. Li, Junqing & Yang, Zhiyuan & Liu, Kaifeng, 2024. "Research on contracting institutions and convergence," China Economic Review, Elsevier, vol. 84(C).
    7. Kevin Genna & Christian Ghiglino & Kazuo Nishimura & Alain Venditti, 2024. "Knowledge-based structural change," Post-Print hal-04676099, HAL.
    8. Johannes Boehm, 2020. "The Impact of Contract Enforcement Costs on Outsourcing and Aggregate Productivity," SciencePo Working papers hal-03566762, HAL.
    9. Kevin Genna & Christian Ghiglino & Kazuo Nishimura & Alain Venditti, 2024. "Knowledge-based structural change," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 78(4), pages 1333-1388, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Liang, Yan, 2022. "Impact of financial development on outsourcing and aggregate productivity," Journal of Development Economics, Elsevier, vol. 154(C).
    2. Oleg Itskhoki & Benjamin Moll, 2019. "Optimal Development Policies With Financial Frictions," Econometrica, Econometric Society, vol. 87(1), pages 139-173, January.
    3. Diego Restuccia & Richard Rogerson, 2017. "The Causes and Costs of Misallocation," Journal of Economic Perspectives, American Economic Association, vol. 31(3), pages 151-174, Summer.
    4. Lorenzo Caliendo & Fernando Parro & Aleh Tsyvinski, 2017. "Distortions and the Structure of the World Economy," NBER Working Papers 23332, National Bureau of Economic Research, Inc.
    5. Hansen, G.D. & Ohanian, L.E., 2016. "Neoclassical Models in Macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 2043-2130, Elsevier.
    6. Lopez-Martin, Bernabe & Perez-Reyna, David, 2021. "Contracts, firm dynamics, and aggregate productivity," Journal of Economic Dynamics and Control, Elsevier, vol. 130(C).
    7. Andrea Asoni, 2008. "Protection Of Property Rights And Growth As Political Equilibria," Journal of Economic Surveys, Wiley Blackwell, vol. 22(5), pages 953-987, December.
    8. Acemoglu, Daron & Johnson, Simon & Robinson, James A., 2005. "Institutions as a Fundamental Cause of Long-Run Growth," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 6, pages 385-472, Elsevier.
    9. Uras, R.B. & Wang, P., 2014. "Techniques Choice, Misallocation and Total Factor Productivity," Other publications TiSEM 5a3d8436-c929-49f3-a990-3, Tilburg University, School of Economics and Management.
    10. Djankov, Simeon & Glaeser, Edward & La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei, 2003. "The new comparative economics," Journal of Comparative Economics, Elsevier, vol. 31(4), pages 595-619, December.
    11. Hirokazu Ishise, 2015. "Development Accounting and International Trade," ISER Discussion Paper 0944, Institute of Social and Economic Research, Osaka University.
    12. Diego Restuccia & Richard Rogerson, 2013. "Misallocation and productivity," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(1), pages 1-10, January.
    13. Alonso de Gortari, 2018. "Disentangling Global Value Chains," 2018 Meeting Papers 139, Society for Economic Dynamics.
    14. Dias, Daniel A. & Robalo Marques, Carlos & Richmond, Christine, 2016. "Misallocation and productivity in the lead up to the Eurozone crisis," Journal of Macroeconomics, Elsevier, vol. 49(C), pages 46-70.
    15. Alonso de Gortari, 2019. "Disentangling Global Value Chains," NBER Working Papers 25868, National Bureau of Economic Research, Inc.
    16. Burak R. Uras & Ping Wang, 2017. "Production Flexibility, Misallocation and Total Factor Productivity," NBER Working Papers 23970, National Bureau of Economic Research, Inc.
    17. Manuel García-Santana & Roberto Ramos, 2015. "Distortions and the size distribution of plants: evidence from cross-country data," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 6(3), pages 279-312, August.
    18. Sai Ding & Puyang Sun & Wei Jiang, 2019. "The Effect of Foreign Entry Regulation on Downstream Productivity: Microeconomic Evidence from China," Scandinavian Journal of Economics, Wiley Blackwell, vol. 121(3), pages 925-959, July.
    19. Alessandra Bonfiglioli & Rosario Crinò & Gino Gancia, 2018. "Firms and Economic Performance: A view from Trade," Working Papers 1034, Barcelona School of Economics.
    20. Rok Spruk & Mitja Kovac, 2018. "Inefficient Growth," Review of Economics and Institutions, Università di Perugia, vol. 9(2).

    More about this item

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:red:sed015:1275. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Christian Zimmermann (email available below). General contact details of provider: https://edirc.repec.org/data/sedddea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.