Essays on the Processes of Economic Growth

This dissertation consists of three essays on the processes of economic growth. In the first chapter I show how growth behaves when protesting occurs. I continue with the topic of protests in the second chapter, where I consider the effect of political unrest on economic inequality. In the final chapter, I study the impact joining the WTO has on the composition of trade flows that may affect long term growth.

Protests occur regularly and at times involve millions of people, often disrupting economic activity. In Chapter 1 I examine the link between economic growth and protest events using the Global Database of Events, Language and Tone (GDELT). This dataset provides daily observations on protests and similar events for a panel of 150 countries over the past three decades. I show that protests have a significant negative relationship with short term growth. On average, protest activity is associated with a drop in growth of at most 1.5 percentage points of growth rate in the year of the protest event(s) with this effect persisting in subsequent years. Further, I reject the hypothesis that protesting can improve or damage GDP growth in the longer run. Protests also impact negatively other aggregate outcomes that may serve as channels through which protesting influences the growth rate. I establish that during the year of the protest gross capital formation declines, while unemployment goes up. The magnitudes of these effects are non-trivial even though the overall impact on economic growth is quantitatively small.

Protesting might affect the level of inequality in a country through post-protest redistributive policies. In Chapter 2 I study the relationship between protesting and inequality using a panel of 74 countries over 1979-2012. I find that across most of the specifications the effect of protesting on inequality, determined by the Gini Index, is negative and statistically significant. On average, a 1% increase in protest activity decreases the Gini index immediately by 0.01 points. These results are robust to different ways of defining the protest variable itself such as number of protests or the intensity of protesting measured by the media coverage. A binary measure based on the intensity of protesting indicates that a large enough protest reduces inequality, lowering the Gini Index by 1.6 -- 2.1 points.

When countries join the World Trade Organization (WTO), they gain mostly unhindered access to new markets allowing them to trade more. While it has been shown in the literature that after accession to the WTO volume of trade increases for the new members, it is unclear what effect, if any, the membership has on the composition of trade. Developing countries may be negatively affected through crowding-out of vital sectors due to foreign competition or positively --- through strengthening of the sectors with comparative advantage. Using gravity equation estimation I show that while the volume of exports and imports increases after countries become WTO members, the resulting changes in the composition of trade differ depending on the sector and the income level. For example, in a developing country accession to the WTO increases the share of textile sector in total imports by 0.5%, while the same sector's share decreases by 33% when it comes to exports.