Essays on Fintech, Finance, and Development Economics

Abstract

The first chapter uses violations of the law of one price of Bitcoin to uncover sources of demand for cryptocurrency. In line with Hayek, we show that distrust breeds demand. We proxy Bitcoin demand with transitory price deviations---Bitcoin prices in a local currency, converted into dollars, relative to the average worldwide dollar Bitcoin prices. A simple portfolio choice model elucidates several predictions we find in the data. Price deviations rise when 1) perceptions of institutional failures grow, 2) crypto-trading frictions increase, and 3) cryptocurrency prices rally. These price responses are stronger in countries where people express more distrust in others. The second chapter asks whether massive online retailers such as Amazon and Alibaba issue digital tokens that potentially compete with bank debit accounts? There is a long history of trading stamps and loyalty points, but new technologies are poised to sharply raise the significance of redeemable assets as a store of value. Here we develop a simple stylized model of redeemable tokens that can be used to study sales and pricing strategies for issuing tokens, including ICOs. Our central finding is that platforms can generally earn higher revenues by making tokens non-tradable unless they can generate a sufficiently high outside-platform convenience yield. The third chapter tests neoclassical theory predicts convergence towards steady-state income. Empirical tests of convergence in the 1990s found that conditioning on such correlates of growth mattered: unconditionally the norm was divergence. We revisit these empirical tests of convergence with 25 years of additional data. While the recent literature on institutions emphasizes historical origins and persistence, we find substantial change. First, there has been a trend towards unconditional convergence since 1990, leading to convergence since 2000, driven both by faster catch-up growth and slower growth at the frontier. Second, many of the correlates of growth and income - human capital, policies, institutions, and culture - have converged substantially in the same period, in the direction associated with higher income. As such, unconditional convergence has converged towards conditional convergence.