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Inclusive Institutions and Long-Run Misallocation

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Abstract

This research advances the hypothesis that resource abundant economies characterized by a socially cohesive workforce and network externalities triggered the emergence of efficiency-enhancing inclusive institutions designed to restrict mobility and to enhance the attachment of community members to the local labor market. However, the persistence of these institutions, and the inter-generational transmission of their value, ultimately resulted in the misallocation of talents across occupations and a reduction in the long-run level of income per capita in the economy as a whole. Exploiting variation in resource intensity across the American Midwest during its initial development, the empirical analysis establishes that higher initial resource-intensity in 1860 is indeed associated with greater community participation over the subsequent 150 years, and reduced mobility and labor misallocation in the contemporary period.

Suggested Citation

  • Oded Galor & Kaivan Munshi & Nicholas Wilson, 2013. "Inclusive Institutions and Long-Run Misallocation," Working Papers 2013-9, Brown University, Department of Economics.
  • Handle: RePEc:bro:econwp:2013-9
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    More about this item

    Keywords

    Inclusive institutions; Exclusive institutions; Networks; Labor misallocation; Development; Persistence.;

    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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