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Irene van Staveren, Institute of Social Studies Zahid Pervaiz, Lahore School of Management

I just ran growth regressions with social cohesion …. Irene van Staveren, Institute of Social Studies Zahid Pervaiz, Lahore School of Management WINIR conference 2 -4 September 2016, Boston. “Missing links” in development literature. Social capital Institutions

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Irene van Staveren, Institute of Social Studies Zahid Pervaiz, Lahore School of Management

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  1. I just ran growth regressions with social cohesion … Irene van Staveren, Institute of Social Studies Zahid Pervaiz, Lahore School of Management WINIR conference 2-4 September 2016, Boston

  2. “Missing links” in development literature • Socialcapital • Institutions Convergingempiricallyaround trust, rule of lawandinformalinstitutions: => socialcohesionchannel

  3. Social constraints on growth? • Inequality • Exclusion Negative effect of socialexclusion on growth?

  4. Empirical contribution • Beyond income inequality (= vertical inequality) • Beyond simple trust survey question (= arbitrary) • Beyond formal institutions such as rule of law (ignore social group dynamics such as discrimination) new database with new variables

  5. Social cohesion and social exclusion: • Social exclusion = horizontal inequality • Social cohesion = mediating factor between the social dimesion and growth

  6. Methodology & data • Dependentvariable: GDP growth 5-yr average (WB) • Independent variable: Inclusion of Minoritiesfrom Indices of Social Development, ISS • Control variables: Initial GDP per capita -30 yrs; grosscapitalformation; governmentexpenditures; level of education (WB) • Instruments: Ethnicfractionalization (Alesina); SocialCohesion (Indices of Social Development, ISS); Gini-coefficient (WB)

  7. ISD Database at ISS: • www.IndSocDev.org freely online available • Data from 1990 until 2010 in 5-year periods • Almost every country in the world • Continuously updated • Index between 0 and 1 • Transparent: • Which indicators go into which index • 6 indices and 200 indicators are downloadable • Standard errors provided per country and variable

  8. 6 indices: • Civic Activism, measuring use of media and protest behaviour • Clubs and Associations, defined as membership in local voluntary associations • Intergroup Cohesion, which measures ethnic and sectarian tensions, and discrimination • Interpersonal Safety and Trust, focusing on perceptions and incidences of crime and personal transgressions • Gender Equality, reflecting gender discrimination in home, work and public life. • Inclusion of Minorities, measures levels of discrimination against vulnerable groups such as indigenous peoples, migrants, refugees, or lower caste groups.

  9. Methodology ISD • ISD combines over 200 indicators from 25 independent and reputable sources • Uses ‘matching percentiles’ method used for Corruptions Perceptions Index (Lambsdorff 1999) www.transparency.org/policy_research/surveys_indices/cpi/2010/in_detail#4 • Rationale for matching percentiles • Combination of sources measuring same phenomenon more reliable than each source separately • Indices broaden the coverage compared to single source • Bootstrapping in ranking countries on each index • Minimum 3 independent sources to develop index ranking for a country

  10. Estimation methods • Pooled OLS and Panel data analysis 2 step withfixedeffectsforall (developingcountries) 1990-2010 (5 years) • Endogeneity is notlikelybecausesocialcohesionandsocialexclsuiontendto change slowly over time. • Instruments: ethnicfractionalization, socialcohesion, Gini-coefficienct • Generalized Method of Moments (GMM) • Endogeneity is adressed • Instruments: ethnicfractionalization, socialcohesion, Gini-coefficienct

  11. Our earlier work • Effect of exclusion of minorities on social cohesion is negative, strong and statistically significant (Irene van Staveren and Zahid Pervaiz, ‘Is it Ethnic Fractionalization or Social Exclusion, Which Affects Social Cohesion?’, Social Indicators Research, Online First DOI 10.1007/s11205-015-1205-1 • Effect of social cohesion on GDP growth is positive and statistically significant and bigger than that of membership of clubs (Zahid Pervaiz and Amatul R. Chaudhary, ‘Social Cohesion and Economic Growth: an Empirical Investigation’, Australian Economic Review, 48 (4) 2015)

  12. Preliminary results • Inclusion of Minorities (1 minus Exclusion of Minorities) • Instrumented with ethnic fractionalization, Gini, Social Cohesion

  13. Pooled OLS robust standard errorsn = 257adj. Rsq 0.28

  14. Panel 2 stage EGLS; random effectsn = 162 unbalancedadj. Rsq 0.26

  15. GMM with IVn = 162 unbalancedadj. Rsq 0.57

  16. discussion • As expected capital, education and initial GDP are statistically significant, but govt exp not • Results show positive, strong and statistically significant effect of Inclusion of Minorities on growth: bigger effect than the other variables • In the two panel analyses size impact is 0.1 increase in inclusion of minorities (scale 0-1) is correlated with GDP growth increase of 0.7 - 0.8 percentage points

  17. More regressions to be ran … • We need to include additional controls • We plan to compare high/stable growth countries with low/unstable growth countries • We want to distinguish effects of each social inequality variable: social cohesion and exclusion of minorities but how if the one is instrument for the other? • Any other suggestions??

  18. Indices of Social Development databasewww.IndSocDev.orgtwitter: @indsocdev

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