Civil Liberties, Mobility, and Economic Development

Abstract

To what extent do civil liberties affect economic development? This dissertation addresses this question in two essays. The first chapter (joint with Roger Betancourt) provides a new economic interpretation of civil liberties as rights over a person's most basic human asset: her own self. The importance of these rights to economic development is based on the principle that property rights-defined over a broad set of "property''-are crucial for economic growth. The empirical literature to date shows little support for such claims related to civil liberties, however, with ambiguous evidence on the role of these rights in driving long-run growth. Using newly available data from Freedom House, we find that one of the recently disaggregated categories of civil liberties explains income differences across countries more powerfully and robustly than any other measure of property rights or the rule of law considered. This component, entitled "Personal Autonomy and Individual Rights,'' evaluates the extent of personal choice over issues such as where to work, study, and live, as well as a broader set of property rights and other choices.

While the first chapter finds that greater civil liberties can substantially improve long-run economic development, the second chapter identifies a key friction in this relationship. In countries that lack complementary institutions, civil liberties governing individual mobility can complicate credit transactions. By allowing individuals to move to locations where less is known about their prior defaults, mobility freedoms induce opaqueness and can result in credit rationing. I develop an instrumental variable estimation to study these effects, which would otherwise be complicated by omitted variable bias and endogeneity. Using household survey data from Guatemala, I instrument for individual migration with the interaction of violence patterns and individual sensitivities toward that violence. Using this approach, I find that the act of migration within a country actually causes individuals to have significantly less access to credit, primarily because lenders are concerned about these borrowers' opportunistic default.