Sunday, February 24, 2013

Acemoglu vs. Henry: Institutions vs. Policy

This NY Times profile of NYU Dean Peter Henry nudged me to track down his 2009 AER P&P paper that contrasts the economic performance of Barbados vs. Jamaica.   Here I quote the paper's witty conclusion:
"It may be tempting for readers to regard this paper as a quaint tale of two exotic islands better known for their beaches, music, and Olympic sprinters than their significance in the global economy."
Peter argues that macro policy (not institutions) explains why Barbados has outperformed Jamaica.   The Acemoglu research agenda needs more data points.   There were only 63 colonies studied in the original AJR paper.     If researchers start to test for "heterogeneous effects" of institutions by continent and other observable factors then the "large sample" of 63 colonies will suffer from a curse of dimensionality and there won't be enough data to test hypotheses.

If you'd like to see another pairwise comparison, here is a paper that contrasts Croatia and Latvia.