Essays on the Strategies of Economic Development

Abstract

I study how government policy shapes productive development. I focus on two strategies which were object of debate in early development economics: industrial policy and infrastructure projects. In the first chapter, which is joint work with Chan Kim, we study how South Korea’s first “mission-oriented” R&D program, implemented between 1992 and 2001, shaped innovation and economic outcomes. Using new textual data and a language model to identify targeted and control technological classes, we exploit the fact that some of the planned research projects were not implemented because of budget shocks. We use a local projections event study to compare the outcomes of targeted technological classes to those of control classes. Despite the absence of differential trends before the program, by ten years after the extension of program support, future-citation-weighed patenting output in the targeted classes doubled and real exports tripled relative to the control technology classes. These results stand when we study cross-country evidence. Technological classes with less concentrated patenting output before the program drive our results. Using market-based patent valuations, we find that the program’s benefits exceeded its costs by over a factor of three. These findings suggest that technology policy was central to South Korea’s transition to a knowledge-intensive economy. In the second chapter, which is joint work with Sebastián Galiani and Mateo Uribe-Castro, we study the impact of the Panama Canal on the development of Canada’s manufacturing sector from 1900 to 1939. Using newly digitized county-level data from the Census of Manufactures and a market-access approach, we exploit the plausibly exogenous nature of this historical episode to study how changes in transportation costs influence the process of structural transformation and manufacturing productivity. The reduced-form estimates show that lowered shipping costs increased manufacturing employment as a share of the population by increasing the number of manufacturing establishments, though not their average size, capital intensity, or skilled labor share. Manufacturing revenues grew 9% more in counties with market access gains at the 75th percentile, compared to counties with 25th percentile gains. Productivity grew by 13% more. These effects persist when we consider general equilibrium effects: the closure of the Canal in 1939 would result in economic losses equivalent to 1.86% of GDP, chiefly as a by-product of the restriction of the country’s access to international markets. Altogether, these results suggest that the Canal substantially altered the economic geography of the Western Hemisphere in the first half of the twentieth century. In the third chapter, which is joint work with Sebastián Galiani and Mateo Uribe, we examine the influence of transportation infrastructure on migration decisions in the context of the Great Migration in the United States. Focusing on the opening of the Panama Canal in 1920, we isolate the effect of improved economic opportunities from reduced migration costs. Using full-count Census data, we find that Southern African American migrants preferred areas with enhanced market access, leading to higher inflows after 1920. The study highlights the interplay between migrant networks and labor markets in shaping migration patterns. These findings underscore the significance of local market conditions induced by improvements in local market access in influencing migration decisions during the Great Migration.