Genetic distance and income differences – evidence from China

In a paper in Economic Letters (ungated version here), Ying Bai and James Kung test Spolaore and Wacziarg’s hypothesis on genetic distant and economic development:

Since 1949, trade and economic ties as well as the physical movement of people between Taiwan and the Chinese mainland had been banned. Given this disconnection, one would naturally expect the relative genetic distance – operating presumably via the diffusion of technology or institution – from Taiwan to have no effect on the income differences among provinces in the Chinese mainland. The ending of this cross-Strait “cold war” in 1987 has however drastically changed this situation. Indeed, by comparing the coefficients of relative genetic distance before and after 1987, we show that, with the removal of the restrictions previously placed upon personal exchange in 1987, the effect of relative genetic distance from Taiwan has increased, even though absolute genetic distance – which is highly correlated with the relative genetic distance from China’s technological frontier – has not changed significantly. This implies that relative genetic distance affects income difference through the channel of enhanced communication and economic exchanges.

The greater correlation of relative genetic distance than absolute genetic distance with income differences matches the theoretical and empirical findings of Spolaore and Wacziarg’s paper. However, I’m not convinced about what underlies this result, so am cautious about taking it as evidence that Spolaore and Wacziarg are on the right track.

In the light of the recent flurry of debate about Ashraf and Galor’s paper on genetic diversity (which should be distinguished from genetic distance) and economic development, it seems that Spolaore and Wacziarg had a rather smooth passage on the release of their paper. Spolaore and Wacziarg placed a much heavier emphasis on genetic factors being a proxy than did Ashraf and Galor, but I would be interested in seeing their work critiqued by those taking on Ashraf and Galor.

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