Essays in Institutional and Development Economics

Paper 1: “Congo: The Prize of Predation” Abstract: The article analyzes the war against Mobutu (1996–97) and the more recent war (1998– ) in the Democratic Republic of the Congo with particular attention to greed and grievance as motivating factors in these two wars. Whereas the authors’ usage of the term ‘greed’ simply reflects the desire to gain control of natural resource rents, they model ‘grievance’ as deliberate institutional differences, implemented by the ruler, between the formal and informal sectors. On the basis of quantitative and qualitative evidence, the authors outline a model of a predatory conflict between a kleptocratic ruler and a group of potential predators within a given region. The potential predators choose between peaceful production and predation on the ruling elite, who control the country’s natural resource rents. It is shown that institutional grievance between the formal and informal sectors, along with the relative strength of the ruler’s defense, play a key role for the initiation of a war. This observation is used to explain the timing of the two wars analyzed in this article. The model also shows that once a war has commenced, the abundance of natural resources and the ruler’s kleptocratic tendencies determine conflict intensity. This result is also well in line with experience from the most recent Congolese war. Paper 2: “Endogenous Institutional Change After Independence” Abstract: Independence from colonial rule was a key event for both political and economic reasons. We argue that newly-independent countries often inherited sub-optimal institutional arrangements, which the new regimes reacted to in very different ways. We present a model of endogenous changes in property rights institutions where an autocratic post-colonial elite faces a basic trade-off between stronger property rights, which increases the dividends from the modern sector, and weaker property rights that increases the elite's ability to appropriate resource rents. The model predicts that revenue-maximizing regimes in control of an abundance of resource rents and with insignificant interests in the modern sector will rationally install weak institutions of private property, a prediction which we argue is well in line with the experience of several developing countries. Paper 3: “Island Status, Country Size and Institutional Quality in Former Colonies” Abstract: The purpose of this paper is to explore the effects of island status and country size on institutional quality, and to determine if these institutional effects can explain the relatively strong economic performance of islands and small countries. One of the main findings of this paper is that the relationship between island status and institutional quality is significantly positive, and that these results are robust to the inclusion of a number of control variables. Further, we find that country size is negatively related to institutional quality, which is in keeping with previous results. Finally, using an instrumental variable method we demonstrate that when Rule of Law is included in regressions on levels of per capita GDP, the positive effects of small country size and island status disappear. These results provide further support for our hypothesis that institutions account for these countries' relatively better economic performance. Paper 4: “The Determinants of Rural Child Labor: An Application to India” Abstract: There are several factors that may contribute to the decision to send a child to work, such as poverty, market imperfections and parental preferences. The aim of this paper is to determine empirically the relative importance of these diverse factors on the incidence of child labor in rural India. In order to examine several potentially influential factors separately, we outline a theoretical model of child labor in a peasant household based on the model presented in Bhalotra and Heady (2003) with modifications to allow for the child to participate in different types of labor. We then use the theoretical model to specify and estimate an empirical model of rural child labor participation. Our results indicate that there are significant income effects, and that market imperfections play an important role in determining whether the child participates in family labor. Parental education, however, appears to play the most important role in determining whether a child works, attends school or is idle