On foreign aid, institutions, and investment (Ottoman Empire, France)

The first essay of the dissertation assesses the relationship between foreign financial aid and recipients' aggregate investment. Plagued by a difficult endogeneity problem, the literature has grappled with identifying instrumental variables that are uncorrelated with economic activity. This study exploits a set of political variables (constructed in the second essay) that capture donor-recipient strategic relationships. The improved data allow estimation using a dynamic panel technique that helps eliminate a potential source of omitted variable bias. Results suggest that foreign aid has a robustly significant positive relationship with physical investment. When an objective measure of domestic political constraints on recipient governments is interacted with the aid variable, results indicate that returns to aid increase with more secure recipients' property rights.; The second essay, co-authored with Gina Reinhardt, examines the economic, political, and altruistic determinants of bilateral aid allocation. We posit that donors consider recipients' geographic proximity to conflict when allocating aid and potential recipients may signal to donors their desire for cooperation by casting favorable UN votes. We find that allocation is based not only on the development it could create, but on the donor-recipient economic and political cooperation it could encourage. Results from this allocation study also hint at the causes of the somewhat disappointing record of aid effectiveness for development.; In the third essay, co-authored with Noel Johnson, we examine the different evolution of property rights in the Ottoman Empire and in France during the early-modern age as a fundamental cause of their divergent economic development. We hypothesize that in order to make the transition from one institutional equilibrium (such as absolute monarchy) to another (such as representative democracy) two requirements must be met. First, one or more veto players must emerge who are capable of imposing constraints on those responsible for enforcing property rights. Second, these veto players must have incentives which are incompatible with the existing property rights equilibrium. In France, such a veto player emerged under the guise of a cartel of tax collectors known as the Company of General Farms. In the Ottoman Empire, no comparable veto player with the "right" incentives ever emerged.