UC Berkeley

Economic development has the potential to improve lives. Three issues that directly affect economic development are conflict, trade, and innovation, the subjects of the three chapters in this dissertation.

Conflict causes enormous suffering, but the study of peacekeeping is plagued by endogeneity issues. The first chapter in this dissertation uses an instrumental variables approach to estimate the effectiveness of U.N. peacekeepers at ending episodes of conflict, maintaining the peace once peace has been obtained, and preventing another episode from ever re-occurring. I find that the likelihood of being sent U.N. peacekeepers varies with temporary membership in the U.N. Security Council and exploit this variation in my estimation. This variation also suggests that the leaders of countries in conflict often do not want their country to receive peacekeepers. The results indicate that even though peacekeepers are often unwanted, they help to maintain the peace after an episode of conflict has ended and reduce the likelihood that the conflict resumes.

After peace, trade is also considered crucial to development. In the standard trade literature, more productive firms should export over less productive firms, all else equal. This premise appears in Melitz (2003), Luttmer (2007), and Eaton et al. (2009), among others. However, we know that developing countries often suffer from market distortions (Hsieh and Klenow, 2009). The theory behind the second chapter of this dissertation combines Hsieh and Klenow-like distortions with a Melitz-like model that accords productivity a key role. Under this model, firm productivity matters less in the decision to export in sectors with greater distortions and firms facing greater distortions exhibit less of the productivity-based "churning" and re-allocation that Melitz predicts. The implication is that trade is less beneficial to productivity in developing countries. These predictions are tested using plant-level data from Colombia.

Finally, new products have been shown to increase welfare in a few studies. One branch of the literature has focused on estimating the welfare effects of very narrow and specific new products; another has estimated elasticities of substitution across a large number of varieties and then imputed gains from the new varieties that appear in the data. However, one might suspect that the most important innovations occurred over a much longer period of time than has been studied to date. Thus, the final chapter of my dissertation focuses on a different question. It assigns an innovation date to each good and asks the question: how would welfare be affected if one were restricted to the set of goods available at an earlier time period? I modify the methodology in Feenstra (1994) and Broda and Weinstein (2006a) to answer this question. The estimates suggest that innovations are more important to welfare than previously thought. I also find that the price index that takes varieties into consideration favoured by the literature can yield deeply misleading results.