An Empirical Test of “Persistence of Power, Elites, and Institutions”: Evidence from land reforms around the world, Pablo Jimenez-Ayora; Prasad Bhattacharya; Mehmet A. Ulubasoglu Deakin University March, 2014

Content Motivation Testable hypotheses Estimating equation Data Empirical results Conclusions Annual World Bank Conference on Land and Poverty

Motivation Institutions are important for economic and political development. What is the importance of political power for setting economic institutions? Renewed interest in the role of elites shaping the development process. How do elites affect economic and political outcomes? Annual World Bank Conference on Land and Poverty

Motivation, cont’d... Economic policies are chosen by those holding the political power; Acemoglu and Robinson (2008, AER). The key contribution of A&R’s paper is to differentiate between types of political power: – De jure political power – De facto political power Annual World Bank Conference on Land and Poverty

Testable hypothesis Competitive economic institutions are adopted when there is a broad political representation of the masses and where elites are constrained (representative democracy). Pro-elite economic institutions are adopted when the political regime represents the interest of the elites (non-democracy). Pro-elite economic institutions are adopted when elites are able to exert power on the political system (de facto political power) even if the de jure political power represents the masses. This equilibrium is called captured democracy. Annual World Bank Conference on Land and Poverty

Data – the novelty How to measure elite’s strength (or lack of it)? We construct a large data set spanning from 1900 to 2010 containing all enactments of major land reforms. If in a particular year a country enacted a major land reform we code this as 1 or 0 otherwise. We also register information regarding the implementation of the land reform. In principle, if a land reform was implemented we assigned a value of 1 or 0 otherwise. Annual World Bank Conference on Land and Poverty

Land reforms dataset 67 (24%) Table 1. Summary of the Land Reforms, Annual World Bank Conference on Land and Poverty

Estimating equation Annual World Bank Conference on Land and Poverty

Data Pro-citizen economic policy: Sachs and Warner indicator of trade openness (1995) – updated by Wacziarg and Welch (2008). De jure political power: Polity2 from PolityIV database. De facto political power: number of times a land reform has been enacted / implemented from our novel dataset. Annual World Bank Conference on Land and Poverty

Empirical results Table 2. All Land Reforms Estimation methodology OLS with fixed effects (1)(2)(3)(4)(5) VARIABLESSWWW Polity ***0.0229***0.0177***0.0204***0.0177*** (7.915)(8.096)(5.708)(6.339)(5.714) Enactment0.194*** 0.174*** 0.181*** (8.634) (7.524) (3.644) Implemented 0.204*** 0.184*** (8.167) (7.039)(-0.153) Enactment * Polity * (1.975) (0.873) Implement * Polity (1.392)(0.0229) Constant0.146***0.167***0.152***0.171***0.152*** (7.108)(8.785)(7.462)(9.114)(7.477) Country FEYes Observations9,690 R-squared Number of countries130 z-statistics in parentheses *** p<0.01, ** p<0.05, * p<0.1 Annual World Bank Conference on Land and Poverty

Empirical results Table 3. Redistributive land reforms Estimation meth.Single equationSystem equation CMP First stage: Continuous Second stage: Probit First stage: Continuous Second stage: Probit (1)(2)(3)(4)(5)(6)(7)(8)(9)(10)(11) VARIABLESSWWW Enactment Implement ation SWWWEnactment Implement ation SWWW US Influence0.0714***0.0337** ***0.0330** (4.54)(2.388) (4.529)(2.357) Polity *** ***0.0290***0.0283*** 0.101*** (10.41)(10.35)(9.154)(9.354)(9.196) (18.81)(18.35) Enactment0.174***0.159***0.137* 2.018***1.393*** (4.693)(5.236)(1.759) (8.959)(4.997) Implemented0.176***0.161*** **1.338*** (4.523)(4.345)(0.277) (2.183)(4.183) Enactment * Polity ***0.0300*** 0.124*** (3.301)(4.545) (3.711) Implement* Polity * *** *** (1.952)(-2.741) (-4.244) Constant0.279***0.283***0.281***0.285***0.280*** (36.68)(40.37)(44.15)(42.28)(41.32)(-0) ( )00( ) Country FEYes Observations9,690 8,913 R-squared Number of cd130 z-statistics in parentheses *** p<0.01, ** p<0.05, * p<0.1 Annual World Bank Conference on Land and Poverty

Empirical results Table 4. Redistributive land reforms with partial implementations taken into account Estimation meth.Single equationSystem equation CMP First stage: Continuous Second stage: Probit First stage: Continuous Second stage: Probit (1)(2)(3)(4)(5)(6)(7)(8)(9)(10)(11) VARIABLESSWWW Enactment Implement ation SWWWEnactment Implement ation SWWW US Influence0.0709***0.0328** ***0.0315** (4.505)(2.329) (4.472)(2.262) Polity ***0.0306***0.0282***0.0290***0.0282*** 0.101***0.100*** (10.41)(10.5)(9.154)(9.458)(9.131) (18.81)(18.17) Enactment0.174***0.159***0.144** 2.189***1.769*** (4.693)(5.236)(2.087) (9.609)(7.13) Implemented0.178***0.162*** *** (4.514)(4.354)(0.211) (1.372)(3.065) Enactment* Polity ** * *** *** (3.301)(3.27) (3.581) Implement * Polity ** * *** (2.113)(-1.911) (-4.239) Constant0.279***0.283***0.281***0.285***0.280*** (36.68)(40.72)(44.15)(42.79)(41.39)(-0) ( )(-0) ( ) Country FEYes Observations9,690 8,913 R-squared Number of cd130 z-statistics in parentheses *** p<0.01, ** p<0.05, * p<0.1 Annual World Bank Conference on Land and Poverty

Empirical results - IV Table 5. All Land Reforms - System equation CMP Estimation methodologyFirst stage: Continuous Second stage: Probit First stage: Continuous Second stage: Probit (6)(7)(8)(9)(10) (11) VARIABLESEnactmentImplement.SWWWEnactmentImplement.SWWW US Influence *** *** *** *** (-4.407)(-4.596) (-3.827)(-4.424) Polity ** (-0.827)(-2.300) Enactment 2.147***2.248*** (137.6)(75.08) Implemented ***-0.331*** (-90.94)(-12.31) Enactment * Polity ** (2.502) Implement * Polity ** (-2.468) Constant0.320***4.47E *** (3.155)( )( )-3.151( )( ) Country Fixed EffectsYes Observations8,913 z-statistics in parentheses *** p<0.01, ** p<0.05, * p<0.1 Annual World Bank Conference on Land and Poverty

Conclusions o Our results show that a reduction in the elites’ strength is related to the adoption of trade openness. o We also find that more enactments of land reforms could be associated with more open economic policies, like an open-trade regime. o We find that, given enactment, the lack of implementation of land reforms is negatively related to the adoption of trade openness. Annual World Bank Conference on Land and Poverty