Do Governments Matter In Economic Development?

Does government policy drive economic development? Or, does ethnic culture matter more (in a Protestant work-ethic sense)?

A new study with a clever methodology favors ethnic culture over government policy as a driver of economic development in Africa (emphasis added).

Divide and Rule or the Rule of the Divided? Evidence from Africa

Stelios Michalopoulos, Elias Papaioannou

NBER Working Paper No. 17184 Issued in June 2011

We investigate jointly the importance of contemporary country-level institutional structures and local ethnic-specific pre-colonial institutions in shaping comparative regional development in Africa. We utilize information on the spatial distribution of African ethnicities before colonization and regional variation in contemporary economic performance, as proxied by satellite light density at night. We exploit the fact that political boundaries across the African landscape partitioned ethnic groups in different countries subjecting identical cultures to different country-level institutions. Our regression discontinuity estimates reveal that differences in countrywide institutional arrangements across the border do not explain differences in economic performance within ethnic groups. In contrast, we document a strong association between pre-colonial ethnic institutional traits and contemporary regional development. While this correlation does not necessarily identify a causal relationship, this result obtains conditional on country fixed-effects, controlling for other ethnic traits and when we focus on pairs of contiguous ethnic homelands.