Quite interesting paper: Geography vs. Institutions at the Village Level
There is a well-known debate about the roles of geography versus institutions in explaining the long-term development of countries. These debates have usually been based on crosscountry regressions where questions about parameter heterogeneity, unobserved heterogeneity, and endogeneity cannot easily be controlled for. The innovation of Acemoglu, Johnson and Robinson (2001) was to address this last point by using settler mortality as an instrument for geography-induced endogenous institutions and found that this supported their line of reasoning. We believe there is value-added to consider this debate at the micro level within a country as particularly questions of parameter heterogeneity and unobserved heterogeneity are likely to be smaller than between countries. Moreover, at the micro level it is possible to identify more precise transmission mechanisms from geography via institutions to economic development outcomes. In particular, we examine the determinants of economic development across villages on the Indonesian Island of Sulawesi and find that geography induced endogenous emergence of land rights is the critical institutional link between geographic conditions and technological change. We therefore highlight and empirically validate a new transmission channel from endogenously generated institutions on economic development.
The AJR paper is An African Success Story: Botswana. Rodrik argues for the role of institutions (Esterly and Levine also reached similar conclusion) against the role of geography, which is the usual Sachs argument. Also read this one by Devesh Roy and Arvind Subramanian. This is a really popular paper by Rodrik, Subramanian, and Trebbi (Institutions Rule: The Primacy of Institutions Over Geography And Integration In Economic Development). A summary of this paper here. Sachs hits back at the paper here.
