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

Listed author(s):
  • Michele Coscia

    ()

    (Center for International Development at Harvard University)

  • Timothy Cheston

    ()

    (Center for International Development at Harvard University)

  • Ricardo Hausmann

    ()

    (Center for International Development at Harvard University)

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.

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File URL: http://growthlab.cid.harvard.edu/files/growthlab/files/colombia_convergence_cidwp_331.pdf
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Paper provided by Center for International Development at Harvard University in its series CID Working Papers with number 331.

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Date of creation: Feb 2017
Handle: RePEc:cid:wpfacu:331
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