New Economics Papers
on Business, Economic and Financial History
Issue of 2005‒06‒14
35 papers chosen by

  1. Non-linear dynamics in output, real exchange rates and real money balances: Norway, 1830-2003 By Q. Farooq Akram; Øyvind Eitrheim; Lucio Sarno
  2. Regionalização e história: uma contribuição introdutória ao debate teórico-metodológico By Alexandre Mendes Cunha; Rodrigo Ferreira Simões; João Antonio de Paula
  3. Adam Smith e seu contexto: o Iluminismo escocês By Hugo E. A. da Gama Cerqueira
  4. El sector industrial del Tolima: aproximación histórica, estructura y dinámica By Alvaro Augusto Campos Martínez
  5. History versus Geography: The Role of College Interaction in Portfolio Choice and Stock Market Prices By Massa, Massimo; Simonov, Andrei
  6. The Reform of October 1979: How it Happened and Why By Lindsey, David E; Orphanides, Athanasios; Rasche, Robert H
  7. Party Governance and Political Competition with an Application to the American Direct Primacy By Castanheira, Micael; Crutzen, Benoît SY; Sahuguet, Nicolas
  8. Back to Keynes? By van der Ploeg, Frederick
  9. The Demise of Investment Banking Partnerships: Theory and Evidence By Morrison, Alan; Wilhelm Jr, William J
  10. Vive la Révolution! Long Term Returns of 1968 to the Angry Students By Maurin, Eric; McNally, Sandra
  11. The Early Modern Great Divergence: Wages, Prices and Economic Development in Europe and Asia, 1500-1800 By Broadberry, Stephen N; Gupta, Bishnupriya
  12. Did Inflation Really Soar After the Euro Cash Changeover? Indirect Evidence from ATM Withdrawals By Angelini, Paolo; Lippi, Francesco
  13. The Need for Institutional Changes in the Global Financial System: An Analytical Framework By Claessens, Stijn; Underhill, Geoffrey R D
  14. Betting on Hitler - The Value of Political Connections in Nazi Germany By Ferguson, Thomas; Voth, Hans-Joachim
  15. India's De-Industrialization Under British Rule: New Ideas, New Evidence By Clingingsmith, David; Williamson, Jeffrey G
  16. The Impact of the Terms of Trade on Economic Development in the Periphery, 1870-1939: Volatility and Secular Change By Blattman, Christopher; Hwang, Jason; Williamson, Jeffrey G
  17. The Worldwide Economic Impact of the Revolutionary and Napoleonic Wars By O'Rourke, Kevin H
  18. Income and Wealth Concentration in Switzerland Over the 20th Century By Dell, Fabian; Piketty, Thomas; Saez, Emmanuel
  19. A 50 años de la Curva de Kuznets: Crecimiento Económico y Distribución del Ingreso en Uruguay y otros Países de Nuevo Asentamiento desde 1870 By Luis Bertola
  20. The role of data & program code archives in the future of economic research By Richard G. Anderson; William H. Greene; Bruce D. McCullough; H. D. Vinod
  21. Wealth concentration in a developing economy : Paris and France, 1807-1994 By Thomas Piketty; Gilles Postel-Vinay; Jean-Laurent Rosenthal
  22. Resisting the Melting Pot: the Long Term Impact of Maintaining Identity for Franco-Americans in New England By Mary MacKinnon; Daniel Parent
  23. Urban Colossus: Why is New York America's Largest City? By Edward L. Glaeser
  24. Rational Pricing of Options during the South Sea Bubble: Valuing the 22 August 1720 Options By Gary S. Shea
  25. South Sea Company Subscription Shares and Warrant Values in 1720 By Gary S. Shea
  26. ""Voice" and "Exit" in Japanese Firms during the Second World War: Sanpo Revisited" By Tetsuji Okazaki
  27. Was the IMF's Imposition of Economic Regime Change Justified? A Critique of the IMF's Economic and Political Role in Korea During and After the Crisis By James Crotty; Kang-Kook Lee
  28. Another Distortion of Adam Smith: The Case of the "Invisible Hand" By Michael Meeropol
  29. Capital Inflows, Policy Responses, and Their Ill Consequences: Thailand, Malaysia, and Indonesia in the Decade Before the Crises By Clara Garcia
  30. Exchange Rate Regimes: Latin American Economic Analysis before the Depression By Kenneth P. Jameson
  31. Economics Ideas and Institutions in Historical Perspective: Cairú and Hamilton on Trade and Finance By Matias Vernengo
  32. Free Banking and the Bank of Canada By David Laidler
  33. Changing boundaries and structure of a technological system: lessons from UK retail banking By Davide Consoli
  34. What might the Soviet Union learn from the OECD countries in economics and politics ? An article from 1991 with some comments from 2005 By Thomas Cool; Jan Tinbergen; Thomas Colignatus
  35. Explaining the Early Years of the Euro Exchange Rate: an episode of learning about a new central bank By Manuel Gomez; Michael Melvin

  1. By: Q. Farooq Akram (Norges Bank); Øyvind Eitrheim (Norges Bank); Lucio Sarno (Norges Bank)
    Abstract: We characterise the behaviour of Norwegian output, the real exchange rate and real money balances over a period of almost two centuries. The empirical analysis is based on a new annual data set that has recently been compiled and covers the period 1830{2003. We apply multivariate linear and smooth transition regression models proposed by Terasvirta (1998) to capture broad trends, and take into account non-linear features of the time series. We particularly investigate and characterise the form of the relationship between output and monetary policy variables. It appears that allowance for statedependent behaviour and response to shocks increases the explanatory powers of the models and helps bring forward new aspects of the dynamic behaviour of output, the real exchange rate and real money balances.
    Keywords: Business cycles, real exchange rates, money demand, non-linear modelling, smooth transition regressions.
    JEL: C51 E32 E41 F31
    Date: 2005–06–09
  2. By: Alexandre Mendes Cunha (Cedeplar-UFMG); Rodrigo Ferreira Simões (Cedeplar-UFMG); João Antonio de Paula (Cedeplar-UFMG)
    Abstract: This paper intends to contribute to the theoretical and methodological debate on regionalization and history. Firstly, it starts discussing the very concept of region on its several related approaches: geography, political economy, history and historiography. Then, a methodological issue is analyzed, that is to say: the paper tries to articulate the most important criteria of spatial segmentation embedded on regionalization (analytical functionalism, heterogeneity and homogeneity) with: a) the necessity of non-anachronism; and b) the necessity of a historical dynamic approach on definition of regional boundaries
    Keywords: Region, Economic spaces, History, Regionalization
    JEL: N01 N96 R10
    Date: 2005–05
  3. By: Hugo E. A. da Gama Cerqueira (Cedeplar-UFMG)
    Abstract: This essay argues that Adam Smith's thought should be interpreted within the intellectual context of the Scottish enlightenment. It discusses the origins and the specific nature of the enlightenment in Scotland in order to highlight the differences between the social theory of the Scottish literati and the dominant approach to economics.
    Keywords: Adam Smith, Scottish enlightenment, political economy
    JEL: B30 A13
    Date: 2005–05
  4. By: Alvaro Augusto Campos Martínez
    Abstract: En virtud de las exenciones tributarias y arancelarias que dispuso el gobierno con el fin de reactivar la economía de la zona afectada por la erupción del volcán-nevado del Ruiz en 1985, la industria tolimense experimentó un período de auge entre 1990 y 1995, durante el cual creció la base industrial y se logró cierto grado de diversificación; sin embargo, la crisis de los años 1998 y 1999, que golpeó duramente algunas de las principales ramas industriales de la región, así como la finalización de los incentivos fiscales, condujeron a que un número importante de factorías cerrara sus puertas o trasladara sus plantas a otras partes del país, donde se instituyeron estímulos tributarios tales como las denominadas Leyes Páez y Quimbaya para paliar nuevas catástrofes naturales.
    Date: 2004–12–31
  5. By: Massa, Massimo; Simonov, Andrei
    Abstract: We study the link between portfolio choice and different college-based interaction – defined as the one that relates the portfolio choice of an investor to that of the other investors who went to the same college. We explain it in terms of a common cultural imprinting and the development of long-term friendship and alumni network and we directly quantify this bonding effect. We use a new dataset with information on portfolio choice – broken down at the stock level – wealth, income and demographic characteristics of a big panel of investors as well as information on the college they attended and their family situation at the time. We compare college-based interaction to other forms of social interaction, such as educational, professional and geographical interaction, properly controlling for all the standard motivations of portfolio theory, such as hedging of non-financial income risk, familiarity and information effects, wealth and income effect, a host of demographic, geographic and professional dummies, trend-chasing and momentum behaviour. All the different sources of social interaction significantly affect stock-picking as well as the choice between direct and delegated investment, both statistically and economically. College-based interaction is, however, the most important of them and the third single most important factor affecting stock picking. The impact of college-based interaction aggregates at the market level and affects stock prices. For each company, we construct measures of the degree of strength of college-based interaction among shareholders. We show that an increase in the strength of interaction reduces stock return and volatility. This can be rationalized in terms of recent theories on the impact of dispersion of beliefs in the presence of short-sale constraints.
    Keywords: asset pricing; education; portfolio choice; social interaction
    JEL: G11 G14
    Date: 2004–12
  6. By: Lindsey, David E; Orphanides, Athanasios; Rasche, Robert H
    Abstract: This study offers a historical review of the monetary policy reform of October 6, 1979, and discusses the influences behind it and its significance. We lay out the record from the start of 1979 through the spring of 1980, relying almost exclusively upon contemporaneous sources, including the recently released transcripts of Federal Open Market Committee (FOMC) meetings during 1979. We then present and discuss in detail the reasons for the FOMC’s adoption of the reform and the communications challenge presented to the Committee during this period. Further, we examine whether the essential characteristics of the reform were consistent with monetarism, new, neo, or old-fashioned Keynesianism, nominal income targeting, and inflation targeting. The record suggests that the reform was adopted when the FOMC became convinced that its earlier gradualist strategy using finely tuned interest rate moves had proved inadequate for fighting inflation and reversing inflation expectations. The new plan had to break dramatically with established practice, allow for the possibility of substantial increases in short-term interest rates, yet be politically acceptable, and convince financial markets participants that it would be effective. The new operating procedures were also adopted for the pragmatic reason that they would likely succeed.
    Keywords: Federal Reserve; FOMC; monetary reform; operating procedures; Paul Volcker
    JEL: E52 E58 E61 E65
    Date: 2005–01
  7. By: Castanheira, Micael; Crutzen, Benoît SY; Sahuguet, Nicolas
    Abstract: We analyse how the governance structure of political parties influences electoral competition. Parties choose their organization to manipulate the incentives of politicians to provide effort. We show that intra- and inter-party competition interact to shape these incentives. We also get new insights on the role of information, polarization, and on the value of rents from office. More extreme parties tend to prefer less democratic governance structures. Instead, democratic structures are preferred when voters are ill informed about the candidates’ performance and when the rents from office are low. We use our theory to interpret the introduction of the Direct Primary system in the USA at the beginning of the 20th century.
    Keywords: candidates; incentives; internal organization; parties
    JEL: D23 D72 D81
    Date: 2005–02
  8. By: van der Ploeg, Frederick
    Abstract: After a brief review of classical, Keynesian, New Classical and New Keynesian theories of macroeconomic policy, we assess whether New Keynesian Economics captures the quintessential features stressed by JM Keynes. Particular attention is paid to Keynesian features omitted in New Keynesian workhorses such as the micro-founded Keynesian multiplier and the New Keynesian Phillips curve. These theories capture wage and price sluggishness and aggregate demand externalities by departing from a competitive framework and give a key role to expectations. The main deficiencies, however, are the inability to predict a pro-cyclical real wage in the face of demand shocks, the absence of inventories, credit constraints and bankruptcies in explaining the business cycle, and no effect of the nominal as well as the real interest rate on aggregate demand. Furthermore, they fail to allow for quantity rationing and to model unemployment as a catastrophic event. The macroeconomics based on the New Keynesian Phillips curve has quite a way to go before the quintessential Keynesian features are captured.
    Keywords: bankruptcy; inventories; Keynesian economics; liquidity; monetary policy; monopolistic competition; New Keynesian Phillips curve; nominal wage rigidity; pro-cyclical real wage; unemployment; welfare
    JEL: E12 E32 E63
    Date: 2005–02
  9. By: Morrison, Alan; Wilhelm Jr, William J
    Abstract: Until 1970, the New York Stock Exchange prohibited public incorporation of member firms. After the rules were relaxed to allow joint stock firm membership, investment-banking concerns organized as partnerships or closely-held private corporations went public in waves, with Goldman Sachs (1999) the last of the bulge bracket banks to float. In this paper we ask why the Investment Banks chose to float after 1970, and why they did so in waves. In our model, partnerships have a role in fostering the formation of human capital (Morrison and Wilhelm, 2003). We examine in this context the effect of technological innovations which serve to replace or to undermine the role of the human capitalist and hence we provide a technological theory of the partnership’s going-public decision. We support our theory with a new dataset of investment bank partnership statistics.
    Keywords: collective reputation; going-public decision; human capital; investment bank; partnership
    JEL: G24 G32 J24 J41 L14 L22
    Date: 2005–02
  10. By: Maurin, Eric; McNally, Sandra
    Abstract: The famous events of May 1968, starting with student riots, threw France into a state of turmoil. The period of ‘revolution’ coincided with the time in which important examinations are undertaken. As a result, normal examination procedures were abandoned and the pass-rate for various qualifications increased enormously in that one year. These events were particularly important for students at an early (and highly selective) phase of higher education. They are shown to have pursued further years of education because thresholds were lowered at critical stages (i.e. at entry to university and in the early years of university). These historic events provide a natural experiment to analyse the returns to years of higher education for the affected generation and to consider consequences for their children. Thus, we can contribute to the debate on two very controversial questions in the economics of education: What is the true causal relationship between educational attainment and its labour market value? Is there a causal relationship between the education of parents and that of their children? Much of the existing literature considers the effect of interventions altering an individual’s years of compulsory schooling on the margin rather than an intervention which occurs at a later stage. Our results are based on the latter and show a higher return for an additional year of education than would be suggested by many of the former studies. This may reflect higher returns from an additional year of university education rather than an additional year of compulsory education. Furthermore, the treatment group considered here is on the margin of the higher education system. This study suggests that expanding the university system to accommodate such people can yield very high private returns. There is also evidence of a strong causal relationship between obtaining an additional year of higher education and the educational outcomes of children. Hence our study suggests very positive effects of the ‘1968 events’ for affected cohorts and is of contemporary relevance given the current debate in many countries about widening access to higher education.
    Keywords: higher education; intergenerational; wages
    JEL: I20
    Date: 2005–03
  11. By: Broadberry, Stephen N; Gupta, Bishnupriya
    Abstract: Contrary to the claims of Pomeranz, Parthasarathi and other ‘world historians’, the prosperous parts of Asia between 1500 and 1800 look similar to the stagnating southern, central and eastern parts of Europe rather than the developing northwestern parts. In the advanced parts of India and China, grain wages were comparable to those in northwestern Europe, but silver wages, which conferred purchasing power over tradable goods and services, were substantially lower. The high silver wages of northwestern Europe were not simply a monetary phenomenon, but reflected high productivity in the tradable sector. The ‘Great Divergence’ between Europe and Asia was already well underway before 1800.
    Keywords: asia; development; europe; prices; wages
    JEL: N10 N30 O10
    Date: 2005–03
  12. By: Angelini, Paolo; Lippi, Francesco
    Abstract: The introduction of the euro notes and coins during the first months of 2002 was followed by a lively debate on the alleged inflationary effects of the new currency. In Italy, as in the rest of the euro area, survey-based measures signaled a much sharper rise in inflation than measured by the official price indices, whose quality was called into question. In this paper we gather indirect evidence on the behaviour of prices from the analysis of cash withdrawals from ATM and their determinants. Since these data do not rely on official inflation statistics, they provide an independent check for the latter. We present a simple theoretical model in which the relationship between aggregate ATM withdrawals and aggregate expenditure is not homogenous of degree one in the price level, a prediction which is strongly supported by the data. This feature allows us to test the hypothesis that, after the introduction of the euro notes and coins, consumer prices underwent an increase not recorded by official inflation statistics. We do not find evidence in support of this hypothesis.
    Keywords: currency; euro changeover; inflation
    JEL: E31 E41
    Date: 2005–03
  13. By: Claessens, Stijn; Underhill, Geoffrey R D
    Abstract: The international financial system has been the subject of much debate following the financial crises of the 1990s. While many reforms have been proposed for and implemented by mostly developing countries, few changes have been made to the international financial system itself. Fundamentally, the design, institutions, and governance of the international system remain very similar to those of two decades ago. The major changes in global financial markets, financial services industries and economies during this period, however, have rendered the international financial system and its governance of out date. In this paper, we analyse the causes and consequences of the failure to reform. We highlight the forces driving the need for changes in the governance of the international financial system, in particular the combination of the global integration processes and the increased role of the private sector. We then provide insights into the desirable institutional structure for international financial decision-making, also as it relates to the legitimacy of the international system in the eyes of the public worldwide. We also discuss the (political economy) factors inhibiting reform. We conclude with suggestions for future research.
    Keywords: international financial arrangements; international financial institutions; international governance; legitimacy; political economy
    JEL: F33 F34 K33 N20 O19 P50
    Date: 2005–03
  14. By: Ferguson, Thomas; Voth, Hans-Joachim
    Abstract: We examine the effect of close ties with the NSDAP on the stock price of listed firms in 1932-33. We consider not only links between the National Socialists and executives, as was common in earlier work, but also with supervisory board members – whose importance is hard to overestimate in the case of German industry. One implication of our work is that, weighted by stock market capitalization in 1932, more than half of listed firms on the Berlin stock exchange had substantive links with the NSDAP. Crucially, stock market investors recognized the value of these links, sending the share prices of connected firms up as the new regime became firmly established. While the market as a whole rose after Hitler’s accession to power, firms with board members known to favour the party (or backing it financially) outperformed the market by 5-10% between January and May 1933. We show that this finding is robust to a range of additional control variables and alternative estimation techniques.
    Keywords: market efficiency; Nazi party; political connections; stock market returns
    JEL: E60 G14 G18 N24
    Date: 2005–04
  15. By: Clingingsmith, David; Williamson, Jeffrey G
    Abstract: India was a major player in the world export market for textiles in the early 18th century, but by the middle of the 19th century it had lost all of its export market and much of its domestic market. Other local industries also suffered some decline, and India underwent secular de-industrialization as a consequence. While India produced about 25% of world industrial output in 1750, this figure fell to only 2% by 1900. We use an open, specific-factor model to organize our thinking about the relative role played by domestic and foreign forces in India’s de-industrialization. The construction of new relative price evidence is central to our analysis. We document trends in the ratio of export to import prices (the external terms of trade) from 1800 to 1913, and that of tradable to non-tradable goods and own-wages in the tradable sectors going back to 1765. With this new relative price evidence in hand, we ask how much of the de-industrialization was due to local supply-side influences (such as the demise of the Mughal empire) and how much to world price shocks (such as world market integration and rapid productivity advance in European manufacturing), both of which had to deal with an offset – the huge net transfer from India to Britain before 1815. Whether the Indian de-industrialization shocks and responses were big or small is then assessed by comparisons with other parts of the periphery.
    Keywords: 18th and 19th century; de-industrialization; globalization; India; price shocks
    JEL: F10 N70 O20
    Date: 2005–05
  16. By: Blattman, Christopher; Hwang, Jason; Williamson, Jeffrey G
    Abstract: Most countries in the periphery specialized in the export of just a handful of primary products for most of their history. Some of these commodities have been more volatile than others, and those with more volatile prices have grown slowly relative both to the industrial leaders and to other primary product exporters. This fact helps explain the growth puzzle noted by Easterly, Kremer, Pritchett and Summers more than a decade ago: that the contending fundamental determinants of growth - institutions, geography and culture - exhibit far more persistence than do the growth rates they are supposed to explain. Using a new panel database for 35 countries, this paper estimates the impact of terms of trade volatility and secular change on country performance between 1870 and 1939. Volatility was much more important for accumulation and growth than was secular change. Additionally, both effects were asymmetric between Core and Periphery, findings that speak directly to the terms of trade debates that have raged since Prebisch and Singer wrote more than 50 years ago. The paper also investigates one channel of impact, and finds that foreign capital inflows declined steeply where commodity prices were volatile.
    Keywords: growth; periphery; terms of trade; volatility
    JEL: F10 N10 O10
    Date: 2005–05
  17. By: O'Rourke, Kevin H
    Abstract: The paper provides a comparative history of the economic impact of the Revolutionary and Napoleonic Wars. By focussing on the relative price evidence, it is possible to show that the conflict had major economic effects around the world. Britain's control of the seas meant that it was much less affected than other nations, such as France and the United States. Explicit welfare calculations are provided for four countries, Britain, France, Sweden and the United States. Welfare losses were largest in the US, where they were of the order of 5-6% per annum; by contrast, they lay between 3-4% per annum in France, and between 1.7-1.8% per annum in Britain. On the other hand, the conflict helped pave the way for the more liberal international economic environment of the long 19th century.
    Keywords: trade; war
    JEL: F10 N70
    Date: 2005–05
  18. By: Dell, Fabian; Piketty, Thomas; Saez, Emmanuel
    Abstract: This paper presents homogeneous series on top shares of income and wealth in Switzerland since 1913 using personal income and wealth tax return statistics. In contrast to other countries such as Canada, France, the United Kingdom, the Netherlands or the United States, top income and wealth shares in Switzerland are strikingly flat over the century, and display no secular downtrend from the early part of the century to the post-World War II period. Switzerland hardly ever implemented a very progressive income and wealth tax structure and top income and wealth tax rates have been very low relative to other developed countries. Therefore, our findings for Switzerland lead much credence to the view that the development of very progressive taxation is the central factor explaining the sustained decline in wealth and income concentration in countries such as Canada, France, the United Kingdom, the Netherlands, or the United States.
    Keywords: income inequality; taxation; wealth inequality
    JEL: O15 O52
    Date: 2005–05
  19. By: Luis Bertola
    Abstract: Este trabajo aborda las tendencias de la distribución del ingreso en Uruguay desde aproximadamente 1870, recurriendo a diferentes fuentes: los movimientos de los precios relativos entre 1870 y 2000 (rentas/salarios, alquileres/salarios, términos de intercambio), estimaciones del ingreso personal de los principales sectores de actividad económica (1908-1966) y las más recientes estimaciones en base al ingreso de los hogares de los años ’60. Los resultados se discuten en diálogo con la curva de Kuznets buscando ampliar la perspectiva mediante comparaciones con países de nuevo asentamiento: Argentina, Australia y Nueva Zelanda. Se encuentra un patrón común a estos países: creciente desigualdad durante la primera globalización, una tendencia igualitaria desde los ‘20 y profundizada durante la ISI, y una nueva tendencia a la desigualdad en la segunda globalización. En Uruguay no aparecen correlaciones estables entre crecimiento y equidad, ni en el largo plazo, ni en las fases de los movimientos cíclicos tipo Kuznets.
    Date: 2005–05
  20. By: Richard G. Anderson; William H. Greene; Bruce D. McCullough; H. D. Vinod
    Abstract: This essay examines the role of data and program-code archives in making economic research "replicable." Throughout science, replication of published results is recognized as an essential part of the scientific method. Yet, historically, both the "demand for"and "supply of" replicable results in economics has been minimal. Previous authors have interpreted this absence of replication as a market failure in which the rational choices of iThis essay examines the role of data and program-code archives in making economic research "replicable." Throughout science, replication of published results is recognized as an essential part of the scientific method. Yet, historically, both the "demand for" and "supply of" replicable results in economics has been minimal. Previous authors have interpreted this absence of replication as a market failure in which the rational choices of individual researchers do not achieve the same equilibrium as would an omnipotent social planner. In this equilibrium, "respect for the scientific method" is not sufficient to motivate either economists or editors of professional journals to ensure the replicability of published results. We enumerate the costs and benefits of mandatory data and code archives, and argue that the benefits far exceed the costs. Progress has been made since the gloomy assessment of Dewald, Thursby and Anderson some twenty years ago in the American Economic Review, but much remains to be done before empirical economics ceases to be a "dismal science" when judged by the replicability of its published results.
    Keywords: Econometrics ; Research
    Date: 2005
  21. By: Thomas Piketty; Gilles Postel-Vinay; Jean-Laurent Rosenthal
    Abstract: Using large samples of estate tax returns we construct new series on wealth concentration in Paris and France from 1807 to 1994. Wealth concentration in Paris and in France increased until World War I and then fell abruptly. The rise in inequality prior to WWI accelerated (rather than stabilized) during the 1860-1913 period. This was largely driven by the growth of large industrial and financial estates and coincided with the decline of aristocratic fortunes (until the 1840s, the share of aristocrats and real estate in top estates was actually rising). The decline in wealth concentration that followed World War I appears to have been prompted by the 1914-1945 shocks rather than by a two-sector, Kuznets-type process. Inequality fell both in Paris and in the rest of France. Finally, individuals who lived on capital income rather than active entrepreneurs were responsible for the very high levels of wealth concentration observed on the eve of World War I. In the late nineteenth and early twentieth century top wealth holders were in their 70s and 80s, whereas they had been in their 50s in the early the nineteenth century and would be so again after WWII. These results shed new light on the ongoing debate about wealth inequality and growth in the presence of capital constraints.
    Keywords: wealth concentration, inequality
    JEL: J14 N20 H20
    Date: 2005–05
  22. By: Mary MacKinnon; Daniel Parent
    Abstract: The scale of the persistent, concentrated immigration from Mexico is a source of concern to many in the United States. The perception is that Mexicans are not assimilating into mainstream America as previous generations of immigrants did. In this paper we look at the emigration of approximately 1 million French-Canadians who moved to the United States, with the bulk of the migration occurring between the end of the Civil War and 1930 and with most settling in neighboring New England. What makes this episode particularly interesting is the fact that the French-Canadian immigrants exerted considerable efforts to maintain their language and to replicate their home country institutions, most notably the schooling system, in their new country. This explicit resistance to assimilation generated considerable attention and concern in the U.S. over many years. The concerns are strikingly similar to those often invoked today in discussions of policy regarding immigration from hispanic countries, notably Mexico. We look at the convergence in the educational attainment of French Canadian immigrants across generations relative to native English-speaking New Englanders and to other immigrants. The educational attainment of Franco-Americans lagged that of their fellow citizens over a long period of time. Yet, by the time of the 2000 Census, they eventually, if belatedly, appeared to have largely achieved parity. Additionally, we show that military service was a very important factor contributing to the assimilation process through a variety of related channels, namely educational attainment, language assimilation, marrying outside the ethnic group, and moving out of New England. Finally, when we compare Franco-Americans to French-speaking Canadians of the same generations, it is clear that Franco-Americans substantially upgraded their educational attainment relative to what it would have been if they had not emigrated. This suggests that the "pull" factor eventually exerted a dominating influence.
    Keywords: Immigration, education, long term convergence
    JEL: J1 J6 N3
    Date: 2005
  23. By: Edward L. Glaeser
    Abstract: New York has been remarkably successful relative to any other large city outside of the sunbelt and it remains the nation's premier metropolis. What accounts for New York's rise and continuing success? The rise of New York in the early nineteenth century is the result of technological changes that moved ocean shipping from a point-to-point system to a hub and spoke system; New York's geography made it the natural hub of this system. Manufacturing then centered in New York because the hub of a transport system is, in many cases, the ideal place to transform raw materials into finished goods. This initial dominance was entrenched by New York's role as the hub for immigration. In the late 20th century, New York's survival is based almost entirely on finance and business services, which are also legacies of the port. In this period, New York's role as a hub still matters, but it is far less important than the edge that density and agglomeration give to the acquisition of knowledge.
    JEL: N0
    Date: 2005–06
  24. By: Gary S. Shea (University of St. Andrews)
    Abstract: We present evidence of rational pricing South Sea Company liabilities and call options written on South Sea shares. A previously unstudied dataset on South Sea share options is presented. The Company's capital structure of the firm is redefined so that the application of modern financial economic theories can be applied to its valuation. We present evidence that a significant portion of South Sea equity liabilities was in the form of share warrants and conversion (from bonds to shares) privileges and should be so valued. Finally we present a model of the cross-sectional behaviour of share prices, South Sea Company debt and call option values. The model is calibrated and simulated in order to produce estimates of the required return on the Company’s debt and the volatility of the firm’s asset values. We conclude that the jointly estimated value of the firm, its constituent liabilities, third-party call option values and implied volatilities are consonant with rational pricing behaviour during the Bubble, although the model requires extension in several directions in order to present a more complete picture of the South Sea Bubble.
    Keywords: financial revolution in England, South Sea Company, call options, warrants, convertible bonds
    JEL: N23 G13
  25. By: Gary S. Shea (University of St. Andrews)
    Abstract: The values of the famous Subscription Shares issued by the South Sea Company in 1720 have to be split into two components before they can be understood. One component was a fractional claim upon one original share in the firm. The other component, however, was a bundle of share warrants. The information contained in share warrant values is potentially helpful in understanding the South Sea Bubble. Warrant values might also be especially sensitive to "events" and "news" and could provide new ways of marking the turning points in the South Sea Bubble and testing for efficiency of markets. The level and volatility of subscription share prices are both consistent with the hypothesis that the subscription shares were essentially share warrants.
    Keywords: South Sea Bubble, Royal African Company, arbitrage, market efficiency, call options
    JEL: N23 G13
  26. By: Tetsuji Okazaki (Faculty of Economics, University of Tokyo)
    Abstract: During the Second World War, the Japanese government and private sector searched for and implemented new mechanisms for coordination and motivation. One of these was sangyo hokokukai (sanpo). Sanpo unit was basically an organization of the employer and employees of each firm, which held meetings to moderate labor relations. Due to the government policy to promote sanpo units, around 70% of the total workers in Japan were organized into sanpo units in the early 1940s. As the members of labor unions and the workers of the companies which had factory committees, were only 7 % and 5% of the total workers in 1936 respectively, sanpo was the first large scale mechanism for Japanese employees to voice. In this paper, I examined the role of sanpo, using prefecture level data and firm level data, based on a framework integrating the "voice view" of unionism and the transaction cost economics. It was found that sanpo reduced the participation rate in labor disputes, and enhanced labor productivity at least in some period.
    Date: 2005–06
  27. By: James Crotty; Kang-Kook Lee
    Abstract: As late as October 1997 the IMF declared that the Korean economy was experiencing a temporary liquidity squeeze, not a solvency problem. Yet in December 1997 Deputy Managing Director Stanley Fischer declared that Korea suffered from a systemic “breakdown of economic relations” so complete that only radical economic restructuring could restore prosperity. The IMF attached what it called “extreme structural conditionality” to its loan agreements with Korea, demanding a complete and rapid transition from Korea’s traditional East Asian economic model to a globally integrated neoliberal model. We subject the IMF’s assertion that the allocative efficiency of the Korean economy had collapsed by 1997 to a number of empirical tests, including time series and cross-section analyses of capital productivity and corporate profitability, and firm and industry level econometric tests of the proposition that investment spending was excessive and misallocated in the pre-crisis period. This evidence does not support the IMF’s systemic breakdown claim. We conclude that the IMF’s imposition of “extreme structural conditionality” on Korea is best understood as an illegitimate and antidemocratic exercise of power designed to meet the needs of the IMF’s key constituents rather than those of the majority of Korea’s people.
    Date: 2004
  28. By: Michael Meeropol
    Abstract: This paper addresses a major omission in the way textbook writers and journalists utilize Adam Smith’s concept of the “invisible hand” to make Adam Smith an intellectual precursor of modern neo-liberal economic policy. Specifically, the paper addresses the use of the concept of the “invisible hand” by Adam Smith to address two major issues in the debate over neo-liberal policy: the international flow of capital and its role in the location of investment projects and the inequality in the distribution of income that might result from certain policies. The neo-liberal mantra about Adam Smith’s invisible hand asserts that so long as there is sufficient competition and no government intervention beyond the protection of life, liberty and property, the pursuit of individual self interest will result in an improvement in the aggregate well being of society as a whole. This is true even if investments are made overseas and if economic inequality increases. Aside from some contributions to the professional literature, virtually everyone else who writes about the invisible hands ignores what Adam Smith actually said. This paper restates what Smith said when he used the term “invisible hand” in both The Wealth of Nations and in The Theory of Moral Sentiments. It places his use of the term in context to illustrate how far Smith departs from the distortions of his neo-liberal self-described admirers.
    Date: 2004
  29. By: Clara Garcia
    Abstract: Capital inflows, especially when volatile, denominated in foreign currencies and not properly hedged against exchange rate risks, may pose macroeconomic and financial problems in the recipient economy. In this paper we analyze the mechanisms through which those problems arise; and we assess the policies that national authorities may resort to in order to prevent them, under the assumption that capital inflows are the result of previous stabilization and liberalization packages. Also, we study the use and effectiveness of policy responses to capital inflows in Thailand, Malaysia, and Indonesia in the years prior to the 1997-98 financial crises. We conclude that policies that reinforce the stabilization and adjustment trends of the 1980s are more likely to be (at least partially) ineffective or even counterproductive, whereas the measures that depart from those trends appear to have a higher potential for effectiveness but face obstacles to implementation.
    Date: 2004
  30. By: Kenneth P. Jameson
    Abstract: The early twentieth century role of U.S. “money doctors” in establishing Latin American exchange rate regimes and monetary institutions is relatively well known. For example, the work of Edwin Kemmerer in the Andes has been extensively documented. Not so well-known is the work of Latin American economists on these same issues. This paper examines a number of cases where the Latin American analysts were active players and participants in analyzing the exchange rate and monetary issues and in formulating domestic policy to address them. The role of Latin American economists in a variety of international monetary conferences and commissions from 1903-1922 is investigated. In addition, the paper describes how Alberto Pani guided the formulation of Mexican economic policy after the Mexican Revolution and his ability to chart an independent course for Mexico. The conclusion is that there is evidence of “intense discussions of economic issues” based on Latin Americans’ economic analysis. The role of foreign advisors was often to break the political impasse and to recommend the policy the inviting government wanted to implement.
    Keywords: exchange rate; Latin America; depression
    JEL: B1 E42 F3
    Date: 2005–06
  31. By: Matias Vernengo
    Abstract: This paper deals with the role of economic ideas in institutional development. Conventional wisdom in Brazilian historiography suggests that, in part, the relative backwarderness of Brazil with respect to the United States was the result of the economic liberalism of its elites, represented by José da Silva Lisboa, the Viscount of Cairú. The paper argues that Cairú’s defense of an open economy, integrated to the world economy, in which agricultural production would prevail over the industrial interests, should be seen as a discourse for landowners and the mercantile class connected to the slave trade. It is also argued that, in contrast to Alexander Hamilton, Cairú and the Brazilian elites had a naive view of public finance that is central to understand the backwarderness of Brazilian financial markets. Political conservatism and a negative view of finance are seen as more relevant than liberalism in explaining the relative backwarderness of Brazil.
    Keywords: Cairú; Hamilton; brazil
    JEL: B12 B31 N16 N26
    Date: 2005–08
  32. By: David Laidler (University of Western Ontario)
    Abstract: It is argued that today's Canadian monetary system has certain important characteristics in common with a free banking regime such as might have evolved had matters been left to market forces, and that the Bank of Canada's recent success probably has more than a little to do with this fact. It is also argued, however, that, in Canada at the current juncture, further progress towards "free banking" as this alternative is nowadays known, would likely involve unilateral adoption of the US dollar as the basis for the monetary system. Hence, on the 70th anniversary of the Bank of Canada's founding, the author's wish that it may enjoy many happy returns of its birthday is a particularly sincere one.
    Keywords: Bank of Canada; central banking; free banking; price stability rates; unemployment; multiplier
    JEL: B22 E24 E59
    Date: 2005
  33. By: Davide Consoli (Centre for Research on Innovation & Competition CRIC - University of Manchester)
    Abstract: This article investigates the factors that have induced and shaped the process of industry evolution of banking in the United Kingdom and, in particular, the reorganization of the retail payments system. It will look at how the effects of technical progress within a changing regulatory framework have contributed to the flourishing of new consumer services, of increasingly specialized technologies and of new models of business organization. In relation to these issues, the paper develops an interpretative framework based on the rapidly expanding body of literature on technological systems. In so doing it argues also that the organization of the payment system has evolved towards a multilayered and increasingly heterogeneous industry in which competition has been fuelled at different levels by the growing diversity of the ecology of agents involved, as well as by the emerging patterns of interaction across them.
    JEL: G21 L10 L23 O31
    Date: 2005–06–10
  34. By: Thomas Cool (1991); Jan Tinbergen (1991); Thomas Colignatus (Thomas Cool Consultancy & Econometrics, 2005)
    Abstract: When cleaning up my archives I came across a short article of April 1991 co-authored with Jan Tinbergen, on what the Soviet Union might learn from OECD countries in economics and politics. The article apparently never got published, partly since the Soviet Union collapsed in December 1991. Jan Tinbergen died in 1994. Reading the article again in 2005 shows that some arguments still have value. In 2005, an advice, purely my own now, would be that Russia and the other republics of the former Soviet Union apply for membership of the European Union.
    JEL: A00
    Date: 2005–06–05
  35. By: Manuel Gomez (No affiliation); Michael Melvin (W. P. Carey School of Business Department of Economics)
    Abstract: Many observers were surprised by the depreciation of the euro after its launch in 1999. Handicapped by a short sample, explanations tended to appeal to anecdotes and lessons learned from the experiences of other currencies. Now sample sizes are just becoming large enough to permit reasonable empirical analyses. This paper begins with a theoretical model of pre- and post-euro foreign exchange trading that generates three possible causes of euro depreciation: a reduction in hedging opportunities due to the elimination of the legacy currencies, asymmetric information due to some traders having superior information regarding shocks to the euro exchange rate, and policy uncertainty on the part of the ECB. One empirical implication of the model is that higher transaction costs associated with the euro than the German mark may have contributed to euro depreciation. However, empirical evidence on percentage spreads tends to reject the hypothesis that percentage spreads were larger on the euro than the mark for all but the first few months. This seems like an unlikely candidate to explain euro depreciation over the prolonged period observed. Reviewing evidence on market dynamics around ECB, Bundesbank, and Federal Reserve meetings, there is no evidence suggesting that the market is "front running" in a different manner than the other central banks. However, we do find empirical support for the euro exchange rate to be affected by learning. By focusing on euro-area inflation as the key fundamental, the model is structured toward the dynamics of learning about ECB policy with regard to inflation. While a stated target inflation rate of 2 percent existed, it may be that market participants had to be convinced that the ECB would, indeed, generate low and stable inflation. The theory motivates an empirical model of Bayesian updating related to market participants learning about the underlying inflation process under the ECB regime. With a prior distribution drawn from the pre-euro EMS experience and updating based upon the realized experience each month following the introduction of the euro, the evidence suggests that it was not until the fall of 2000 that the market assessed a greater than 50 percent probability that the inflation process had changed to a new regime. From this point on, trend depreciation of the euro ends and further increases in the probability of the new inflation process are associated with euro appreciation.

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NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.