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Title: Inclusive Institutions and Long-Run Misallocation

Citation Type: Miscellaneous

Publication Year: 2013

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Abstract: This research advances the hypothesis that resource abundant economies characterized by a socially cohesive workforce and network externalitites 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.

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Authors: Munshi, Kaivan; Galor, Oded; Wilson, Nicholas

Publisher: Brown University

Data Collections: IPUMS USA

Topics: Labor Force and Occupational Structure

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