Final Report Summary - IPCDP (Institutions, Policy and Culture in the Development Process)
The research project "Institutions, Policy and Culture in the Development Process" (IPCDP), financed by the European Research Council (Advanced Grant), has performed theoretical and empirical research on the structural transformation that accompanies economic development and on the determinants of its success or failure.
Since China represents the most spectacular ongoing episode of economic transition, an important part of the project has focused on the Chinese experience. The economic growth of China presents a number of special features that distinguish it from the earlier development of today's industrialized nations. Most notably, high growth is accompanied by a large increasing capital export, increasing inequality, and a fast reallocation across sectors and between firms of different productivity. In the article titled “Growing Like China” (by Zheng Song, Kjetil Storesletten and Fabrizio Zilibotti), published in American Economic Review of February 2011 the authors identify credit frictions and financial market imperfections as powerful barriers to the economic development of China. The study highlights policy implications for the process of economic growth which have contributed to the refocusing of the path of policy reforms in China. The impact of this research is witnessed by the award of the Sun Ye Fang prize in economic science, awarded by the Chinese Academy of Social Sciences, which is the highest recognition in economics in China. The article is also highly recognized in the academic community, where it has attracted a large number of citations.
This seminal article has sprung additional research on policy-relevant issues for China. In the article “Sharing High Growth Across Generations: Pensions and Demographic Transition in China”, forthcoming in the American Economic Journal: Macroeconomics, the researchers focus on income inequality and pension reforms in China. The theory highlights the extent to which alternative pension systems enable different generations to share the benefits of high growth in emerging countries. The quantitative model embeds key trends of the growth experience of China: a demographic transition (heavily affected by the one-child policy introduced in 1978), rural-urban migration, fast wage growth, expected to slow down in future, and financial market imperfections which repress the rate of return on households' savings. The model is used to assess the financial sustainability and welfare properties of alternative reforms in the face of unfavorable demographic dynamics that will increase the old age dependency ratio in coming years. The normative predictions of the research run against the common wisdom that switching to a pre-funded pension system is the best response for emerging economies facing adverse demographic dynamics. A reform in this direction would exacerbate the already large intergenerational inequality. On the contrary, the pension system should strengthen its redistributive elements, today, even though this would imply less generous pensions and slightly higher taxes in future decades.
The scope of the research project goes beyond the economic development of China. The research team has studied from both a theoretical and an applied standpoint the relationship between innovation, intellectual property right protection, firms' organization and technology adoption. In addition, it has studied the effect of culture and institutions on the process of economic development, and in particular the formation and diffusion of values and beliefs that foster or undermine trust and cooperation. Part of the research in this context has an interdisciplinary nature and focuses on inter-ethnic conflicts. Another part focuses on child labor, and on the political and economic forces that can lead to its eradication in developing countries. Finally, recent research studies how the cultural transmission of preference traits determines the extent to which entrepreneurship diffuses differentially across different countries and social groups.
The Principal Investigator, Prof. Fabrizio Zilibotti is the recipient of a number of international awards, including the 2009 Yrjö Jahnsson award of the European Economic Association, in recognition of his contribution to the study of economic growth, technological innovation and the positive analysis of welfare state institutions. He is a Fellow of the Econometric Society, the main editor of the Journal of the European Economic Association, a former director and managing editor of the Review of Economic Studies, and a co-director of the NBER SI group on Macroeconomics and Income Inequality. He was recently elected vice-President of the European Economic Association, of which he will become the president in 2016.
Since China represents the most spectacular ongoing episode of economic transition, an important part of the project has focused on the Chinese experience. The economic growth of China presents a number of special features that distinguish it from the earlier development of today's industrialized nations. Most notably, high growth is accompanied by a large increasing capital export, increasing inequality, and a fast reallocation across sectors and between firms of different productivity. In the article titled “Growing Like China” (by Zheng Song, Kjetil Storesletten and Fabrizio Zilibotti), published in American Economic Review of February 2011 the authors identify credit frictions and financial market imperfections as powerful barriers to the economic development of China. The study highlights policy implications for the process of economic growth which have contributed to the refocusing of the path of policy reforms in China. The impact of this research is witnessed by the award of the Sun Ye Fang prize in economic science, awarded by the Chinese Academy of Social Sciences, which is the highest recognition in economics in China. The article is also highly recognized in the academic community, where it has attracted a large number of citations.
This seminal article has sprung additional research on policy-relevant issues for China. In the article “Sharing High Growth Across Generations: Pensions and Demographic Transition in China”, forthcoming in the American Economic Journal: Macroeconomics, the researchers focus on income inequality and pension reforms in China. The theory highlights the extent to which alternative pension systems enable different generations to share the benefits of high growth in emerging countries. The quantitative model embeds key trends of the growth experience of China: a demographic transition (heavily affected by the one-child policy introduced in 1978), rural-urban migration, fast wage growth, expected to slow down in future, and financial market imperfections which repress the rate of return on households' savings. The model is used to assess the financial sustainability and welfare properties of alternative reforms in the face of unfavorable demographic dynamics that will increase the old age dependency ratio in coming years. The normative predictions of the research run against the common wisdom that switching to a pre-funded pension system is the best response for emerging economies facing adverse demographic dynamics. A reform in this direction would exacerbate the already large intergenerational inequality. On the contrary, the pension system should strengthen its redistributive elements, today, even though this would imply less generous pensions and slightly higher taxes in future decades.
The scope of the research project goes beyond the economic development of China. The research team has studied from both a theoretical and an applied standpoint the relationship between innovation, intellectual property right protection, firms' organization and technology adoption. In addition, it has studied the effect of culture and institutions on the process of economic development, and in particular the formation and diffusion of values and beliefs that foster or undermine trust and cooperation. Part of the research in this context has an interdisciplinary nature and focuses on inter-ethnic conflicts. Another part focuses on child labor, and on the political and economic forces that can lead to its eradication in developing countries. Finally, recent research studies how the cultural transmission of preference traits determines the extent to which entrepreneurship diffuses differentially across different countries and social groups.
The Principal Investigator, Prof. Fabrizio Zilibotti is the recipient of a number of international awards, including the 2009 Yrjö Jahnsson award of the European Economic Association, in recognition of his contribution to the study of economic growth, technological innovation and the positive analysis of welfare state institutions. He is a Fellow of the Econometric Society, the main editor of the Journal of the European Economic Association, a former director and managing editor of the Review of Economic Studies, and a co-director of the NBER SI group on Macroeconomics and Income Inequality. He was recently elected vice-President of the European Economic Association, of which he will become the president in 2016.