Testing explanations for development: Three essays in empirical macroeconomics

Formalizing a concept developed by de Soto (1989), in my first essay I construct a simple general equilibrium model of the formal and informal sectors. Agents in the economy can choose to be entrepreneurs in the formal or informal sector, or work in the labor market. Government rent-seeking and bureaucracy leads to a bifurcation in the size of firms: small informal firms and large formal firms. This bifurcation in turn causes lower overall productivity. The empirical implications of the model are tested using industry-level data on formal sector manufacturing establishments from a cross section of countries. The data do not conform to the model's predictions, indicating that this popular conception of the nature of formal and informal sectors should be re-examined. In my second essay, I consider several theories linking land inequality with development. To test some of the proposed links, I use a new measure of the breadth of land holdings across the agricultural population as well as the size distribution of holdings from a cross-country sample of post-war former colonies. I fail to find significant and robust relationships between land inequality and either institutions or financial development. I do find that lower land inequality across agricultural populations is associated with greater public provision of education. In my third essay, I examine the Highly Indebted Poor Country (HIPC) Initiative, which has provided debt relief to over 26 countries since it's inception in 1996. I attempt to identify the effects of the HIPC Initiative using a simple version of technique more widely used in microeconomics: regression discontinuity. While participation in the HIPC Initiative seems to have somewhat positive effects on a number of macroeconomic and social variables, I fail to find overall significant effects. However, I do find significant improvements in youth illiteracy. I discuss possible interpretations for our results, including problems in applying the regression discontinuity technique in this context and the possibility that insufficient time has elapsed for the effects to become evident.