New Economics Papers
on Business, Economic and Financial History
Issue of 2005‒11‒05
fourteen papers chosen by

  1. Politics and efficiency of separating capital and ordinary government budgets By Marco Bassetto; Thomas J. Sargent
  2. Lessons from Italian Monetary Unification By James Foreman-Peck
  3. Financial Vergangenheitsbewältigung: The 1953 London Debt Agreement By Timothy W. Guinnane
  4. "Governor Eugene Meyer and the Great Contraction." By James L. Butkiewicz
  5. Review of A History of the Federal Reserve. Volume 1 (2003) by Allan H. Meltzer By Michael D. Bordo
  6. Kings and Vikings: On the Dynamics of Competitive Agglomeration By Matthew J. Baker; Erwin H. Bulte
  7. Central Banks as Agents of Economic Development By Gerald Epstein
  8. The New England-China relationship in 2005 By Lynn E. Browne
  9. Le développement des transferts publics d'éducation et d'assurance vieillesse par génération en France : 1850-2000 By Stéphane Zuber; Antoine Bommier; Jérôme Bourdieu; Akiko Suwa-Eisenmann
  10. The Evolution of Development Thinking: Theory and Policy By Gustav Ranis
  11. Industrial Development in Republican China,Newly Revised Index: 1912-1948 By Toru Kubo
  12. Arthur Lewis' Contribution to Development Thinking and Policy By Gustav Ranis
  13. The Role of Automation in Trade Facilitation By Michael Engman; Tadashi Yasui
  14. The Indian Economy Since Liberalisation: the Structure and Composition of Exports and Industrial Transformation (1980 – 2000) By Abhijit Sharma; Michael Dietrich

  1. By: Marco Bassetto; Thomas J. Sargent
    Abstract: We analyze the democratic politics and competitive economics of a ‘golden rule’ that separates capital and ordinary account budgets and allows a government to issue debt to finance only capital items. Many national governments followed this rule in the 18th and 19th centuries and most U.S. states do today. We study an economy with a growing population of overlapping generations of long-lived but mortal agents. Each period, majorities choose durable and nondurable public goods. In a special limiting case with demographics that make Ricardian equivalence prevail, the golden rule does nothing to promote efficiency. But when the demographics imply even moderate departures from Ricardian equivalence, imposing the golden rule substantially improves the efficiency of democratically chosen allocations of public goods. We use some examples calibrated to U.S. demographic data and find greater benefits from adopting the golden rule at the state level or with 19th century demographics than under current national demographics.
    Date: 2005
  2. By: James Foreman-Peck (Cardiff Business School)
    Abstract: This paper examines whether the states brought together in the Italian monetary union of the nineteenth century constituted an optimum monetary area, either before or after unification. Interest rate shocks indicate close relations between states in northern Italy but negative correlations between the North and the South before unification, suggesting some advantages of continued Southern monetary independence. The proportion of Southern Italian trade with the North was small, in contrast to intra- Northern trade, and therefore monetary independence imposed a light burden. Changes in the wheat market indicate that the South and North after unification (though not probably because of it) increasingly specialised according to their comparative advantages. Coupled with differences in economic behaviour of the Southern economy, this meant that monetary policies appropriate for the North were less so for the South. In the face of agricultural shocks originating in the New World and in France, the South would have gained from depreciating its exchange rate against the North or against the non-Italian world. As it was, nineteenth century Italian monetary union did not create the conditions for its own success, contrary to the findings of Frankel and Rose (1998) for the later twentieth century.
    JEL: E42 N23 F15 F33
    Date: 2005
  3. By: Timothy W. Guinnane (Economic Growth Center, Yale University)
    Abstract: The 1953 London Debt Agreement settled Germany's debts from the period between the two world wars, and allowed the country to re-establish its role in international capital markets. The Agreement wrote-down the overall debt by about 50 percent and gave the debtors a much longer period to repay. One interesting clause in the Agreement allowed Germany to postpone some payments until such time as re-unification. The Agreement reflects a subtle and responsible understanding of the problems associated with the reparations and debt crises of the 1920s and 1930s, as well as fears about the moral hazard problems that would arise with making any part of the Agreement contingent on events Germany could influence. Recent advocates of third-world debt relief have held up the London Debt Agreement of 1953 as a precedent for debt relief for poor countries today. That argument reflects a misunderstanding of the historical circumstances of the early 1950s, as well as the economic principles reflected in the Agreement.
    Keywords: Germany, London Debt Agreement, sovereign debt, debt overhang, HIPC initiative
    JEL: N24 F34
    Date: 2004–01
  4. By: James L. Butkiewicz (Department of Economics,University of Delaware)
    Abstract: Eugene Meyer was a highly respected financier and government official when he was appointed Governor of the Federal Reserve Board in 1930. Through his force of character, he dominated economic policy making during the last years of Hoover’s administration. He initially found that sizable foreign short-term claims had put the Fed in a precarious position. After reductions in interest rates reduced foreign claims relative to the Fed’s gold reserves, he developed a plan for expansion. His initial plans were constrained by the weak institutional structure of the Fed and the lack of free gold. He obtained legislation creating the Reconstruction Finance Corporation and section 3 of the 1932 Glass-Steagall Act, temporarily allowing use of government securities as collateral for Federal Reserve notes, overcoming the free gold problem. However, when the 1932 open market policy failed to produce an immediate expansion of bank credit, the Federal Reserve Bank governors were able to end additional expansionary policies. Suffering from poor health, political stalemate, and possible sensing Hoover’s ultimate defeat, Meyer’s expansionary efforts effectively came to an end in August 1932. Thus, in spite of strong leadership favoring expansion, the Fed was unable to pursue a sustained expansionary policy. This failure was the direct result of the increased decentralization of power due to the creation of the Open Market Policy Conference in 1930. Foreign claims on the dollar, particularly French claims, were always a serious concern, at times imposing a dominate constraint on policy. The free gold issue was viewed as a real constraint within the Fed. The 1932 open market policy was not a disingenuous ploy to forestall other legislation. It was the direct result of Meyer’s desire to counter the deflationary forces depressing the economy.
    Keywords: Central Banking, Economic History
    JEL: E5 N
    Date: 2005
  5. By: Michael D. Bordo
    Abstract: In this essay I distill the seven major themes in A History of the Federal Reserve which covers the Federal Reserve's record from 1914 to 1951. I conclude with a critique.
    JEL: E58
    Date: 2005–10
  6. By: Matthew J. Baker (United States Naval Academy); Erwin H. Bulte (Tilburg University)
    Abstract: This paper studies the Viking age – the roughly 300 year period beginning in 800 AD – from the perspective of the economics of conflict. The Viking age is interesting because throughout the time period, the scale of conflict increased – small scale raiding behaviour eventually evolved into large scale clashes between armies. With this observation in mind, we present a theoretical model describing the incentives both the defending population and the invading population had to agglomerate into larger groups to better defend against attacks, and engage in attacks, respectively. The result is what might be called a theory of competitive agglomeration. We also apply our model in assessing the factors behind the onset of Vikings raids at the end of the 8th century.
    Date: 2005–10
  7. By: Gerald Epstein
    Abstract: In the last two decades, there has been a global sea change in the theory and practice of central banking. The currently dominant “best practice” approach to central banking consists of the following: (1) central bank independence (2) a focus on inflation fighting (including adopting formal “inflation targeting”) and (3) the use of indirect methods of monetary policy (i.e., short-term interest rates as opposed to direct methods such as credit ceilings). This paper argues that this neo-liberal approach to central banking is highly idiosyncratic in that, as a package, it is dramatically different from the historically dominant theory and practice of central banking, not only in the developing world, but, notably, in the now developed countries themselves. Throughout the early and recent history of central banking in the U.S., England, Europe, and elsewhere, financing governments, managing exchange rates, and supporting economic sectors by using “direct methods” of intervention have been among the most important tasks of central banking and, indeed, in many cases, were among the reasons for their existence. The neoliberal central bank policy package, then, is drastically out of step with the history and dominant practice of central banking throughout most of its history.
    Date: 2005
  8. By: Lynn E. Browne
    Abstract: This essay provides an overview of current trade patterns between New England and China. It was prepared for a symposium sponsored by The Boston Athenaeum comparing New England’s present-day trade with China to the region’s prominence in the U.S.-China trade of the 19th century. The essay concludes that a special trade relationship between New England and China does not exist at the present time. Although New England’s exports to China are growing rapidly, they are not growing markedly faster than exports from the rest of the country, and China does not account for an unusually large fraction of New England’s exports. Moreover, there is some indication that New England has felt the brunt of competition from Chinese imports more strongly than other regions. In one arena, New England does hold a special position: New England universities are highly regarded in China, and the region’s share of Chinese students is above its population share—although in line with its share of foreign students generally.
    Keywords: International trade ; China ; New England
    Date: 2005
  9. By: Stéphane Zuber; Antoine Bommier; Jérôme Bourdieu; Akiko Suwa-Eisenmann
    Abstract: Le système public de retraite par répartition est un pilier de l'Etat Providence en France. Il se traduit par des transferts financiers des générations jeunes et actives vers les générations plus âgées et inactives. Lontgemps donné pour l'expression même de la solidarité entre générations, ce système est aujourd'hui vivement critiqué tant dans le monde politique que par certains économistes. Le système est jugé pesant, inefficace et injuste : il imposerait le fardeau des taxes nécessaires au financement des retraites, aurait des effets très négatifs sur les capacités d'épargne mais aussi sur l'activité, induirait un impact défavorable sur la fécondité, entre autres. L'injustice la plus patente tient au fait que certaines générations bénéficieraient de retraites qu'elles n'auraient pas eu à financer (les économistes parlent dans ce cas de "free lunch"). Ce serait le cas pour les générations qui atteignent l'âge de la retraite au moment où le système se met en place, comme pour celles qui ont cotisé sur la base d'une mortalité qui s'est révélée plus faible ex post. Les générations qui, au contraire, financent ou devront financer ces retraites se trouvent ainsi lésées. Une grande partie de notre tâche a consisté à reconstituer les données permettant de calculer les bénéfices reçus et taxes payées chaque année par chaque classe d'âge au titre des transferts publics d'éducation et de retraite au cours du siècle et demi passé, sans toutefois chercher pour quelles raisons historiques de tels transferts ont été mis en place. Ces données sont ensuite agrégées pour donner une mesure synthétique des transferts selon une méthode qui s'apparente à celle des travaux de comptabilité générationnelle initiés par Auerbach, Kotlikoff et Gokhale (1991). Nous pouvons ainsi quantifier l'ampleur de la redistribution inter-générationnelle.
    JEL: N3 J3
    Date: 2005–07
  10. By: Gustav Ranis (Economic Growth Center, Yale University)
    Abstract: This paper makes an effort to trace the course of development thinking and associated development policy over the past six decades. Section I focuses on the early Post-War Consensus, with theory focused on extensions of classical dualism theory and policy concentrating on creating the pre-conditions for development. Section II traces the increasing awareness of the role of prices, a diminishing reliance on the developmentalist state and an increased reliance on structural adjustment lending associated with IFI conditionality. Section III illuminates the search for "silver bullets" which can be identified as key to the achievement of success. Finally, Section IV presents the author's assessment of where we are now and where we will, or should be, heading in the effort to achieve the third world's basic development objectives.
    Keywords: Development Theory, Development Policy
    JEL: O11 O20
    Date: 2004–05
  11. By: Toru Kubo
    Date: 2005–09
  12. By: Gustav Ranis (Economic Growth Center, Yale University)
    Abstract: Arthur Lewis' seminal 1954 paper and its emphasis on dualism appeared at a time when neither the work of Keynes or Harrod-Domar nor the later neoclassical production function of Solow seemed relevant for developing countries. As a consequence, his model, rooted in the classical tradition, plus its many extensions, generated an extensive literature at the center of development theory. The approach also encountered increasingly strong criticism, some of the "red herring" variety, but some, spearheaded by neoclassical microeconomists like Rosenzweig, also raised serious challenges, focused especially on its labor market assumptions. This paper reviews this landscape and asks what theoretical or policy relevance the Lewis model retains for today's developing countries.
    Keywords: Development Theory, Dualism, Labor Markets
    JEL: O11
    Date: 2004–08
  13. By: Michael Engman; Tadashi Yasui
    Abstract: This paper analyses customs automation which is one of the most powerful tools to increase customs efficiency. It focuses in particular on the benefits and implementation costs of automation. It is part of a series of studies that analyse various aspects of trade facilitation and the objective is to contribute to discussions in the WTO Negotiating Group on Trade Facilitation. Based on cost estimations in customsrelated lending projects, the paper finds that the costs for implementing, maintaining and operating automated customs systems are substantial. However, the very great majority of WTO members have already implemented such systems and past experiences show that the financial benefits in many cases have exceeded the costs over time. Among the various lessons learned from successful implementation of automated customs systems, two are particularly worth highlighting. First, automation should not be considered a panacea for trade facilitation; and second, commitment and financial sustainability are prerequisites for successful customs modernisation involving automation.
    Keywords: customs, trade facilitation, customs automation, customs modernisation
    Date: 2005–10–17
  14. By: Abhijit Sharma (Imperial College London); Michael Dietrich (University of Sheffield UK)
    Abstract: This paper assesses empirically structural change in the Indian manufacturing based export sector, based on an analysis of 143 industries / product groupings (mainly manufacturing industries). Trade indices such as Balassa’s revealed comparative advantage (RCA) index, and other variants commonly employed in the literature are used in our analysis. Regression analysis on the RSCA indices is used to further analyse structural change. Thereafter, the stability of the RCA indices is examined, as well as the process of their intertemporal evolution. Three technology categories (high technology, medium technology and low technology) are examined individually and SITC product codes are used as proxies for export industries, in order to look at industry movements within each of these groups. This analysis enables us to assess the export performance of Indian industries in the selected product-industry groupings in detail and evaluate the prospects for growth of particular Indian industrial groupings.
    Keywords: India, revealed comparative advantage, manufacturing exports, industrial transformation
    JEL: L6
    Date: 2005–10–28

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