I have a new working paper available. Well, its not exactly new. Its a paper that I had left to simmer for some time as I was highly unsatisfied with it. I recently revisited it and submitted it for publication. The version below is the version after I made revisions to satisfy referee concerns. It applies the logic of the Dynamics of Interventionism (linked) to the study of divergence. I use a neat econometric setup from Quebec’s history to make that case. The paper is here on SSRN and the abstract is below:
The theory of interventionism argues that government interventions are inherently destabilizing which helps explain the growth of government. I argue that the theory of interventionism is also useful process of economic growth. At first, an intervention reduces living as a level change. However, because the intervention alters entrepreneurial incentives, there is a second effect that decelerates economic growth (Czeglédi 2014). Any additional intervention to deal with the distortions generated by initial interventions merely accentuates these two effects. Thus, the dynamics of interventionism entail a cumulative process of divergence. To illustrate my argument, I use the example of milling regulations in colonial Quebec. Directly, these regulations reduced the quantity and quality of milling services. However, indirectly, they altered long-run specialization patterns notably in dairy production. As dairy exports later boomed due to exogenous factors, this alteration eventually led to greater divergence.