English title: Climate Risk, Informal and Formal Institutions and Economic Development

Author(s): Johannes C. Buggle - Ruben Durante -

Language: English

Type: Conference paper/poster

Year: 2014

Abstract

Abstract This research examines the role of historical climate variability in shaping both formal and informal institutions, as well as its consequences for long-run regional economic outcomes. Using high-resolution climate data for Europe over the period 1500-1750 and exploiting within country variation, we first document that consumption volatility caused by erratic precipitation and temperature during the growing-season months favored the emergence of norms of mutual cooperation and trust, as coping strategies by subsistence farmers relied heavily on risk-sharing and mutual cooperation. In addition, we document that regions with more variable climate are also characterized by better political institutions in the past and better functioning regional governments today. We interpret these findings as evidence for the co- evolution of formal and informal norms, which has important consequences for contemporary regional economic development. Over the very long-run, regions with initially unfavorable climatic conditions experienced a “reversal of fortune”, as contemporaneous measures of in- novation and per capita income are positively associated with a history of more erratic climate.

Conference name: The 68th European Meeting of the Econometric Society (ESEM)

Location: Toulouse

Start date: Aug 25, 2014

Type: Paper

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