Essays on Economic Development and International Risk Sharing

This dissertation consists of two independent essays approaching two macroeconomic problems: development outcomes and international risk sharing.

The first essay analyzes the relationship of income inequality and economic development. I use a difference-in-differences specification with data from Brazilian municipalities to show empirical evidence that the origins of inequality matter to determine development outcomes across different economies. Inequality in sugar-producing areas in Brazil was historically associated with non-market allocation of resources, namely slavery and royal land grants. In contrast, wheat-growing places were settled under market-related mechanisms of free labor and auction acquisition of land. I add to the Engerman-Sokoloff hypothesis by showing that there is not a simple relationship of inequality and development. Instead, I find that non-market inequality was harmful compared to market inequality. There is a differential negative effect of inequality on development in sugar compared to wheat areas. Schooling and public goods provision seem to be two important channels for those different paths of development.

The second essay explores pairwise determinants of international risk sharing. The low levels of income and consumption risk sharing found in empirical research are still not well understood in the literature. I first estimate the amount of risk sharing and find averages of zero for income and of 37% for consumption. Then I test potential direct determinants and find that equity assets seem to be contributing to income risk sharing. For consumption, international deposits seem to be helpful. Finally I look for indirect determinants, among which WTO membership, common language, migration and the share of companies listed in the stock market play a role for income risk sharing. For consumption, the size of the economies, WTO and regional trade agreements, geographic distance, migration, ease of doing business and a legal rights index seem to be important.