nep-his New Economics Papers
on Business, Economic and Financial History
Issue of 2006‒02‒12
fifteen papers chosen by
Bernardo Batiz-Lazo
Bristol Business School

  1. Lessons from Italian Monetary Unification By James Foreman-Peck
  2. Bankruptcy Law, Creditors’ Rights and Contractual Exchange in Europe, 1808-1914 By Jérôme Sgard
  3. Interlocking directorates in Spanish banking in the twentieth century By Francisco J. Pueyo
  4. European Banks and their Impact on the Banking Industry in Chile and Brazil: 1862 - 1913 By Ignacio Briones; André Villela
  5. Patience Capital and the Demise of the Aristocracy By Doepke, Matthias; Zilibotti, Fabrizio
  6. The Logic of Compromise: Monetary bargaining in Austria-Hungary 1867-1913 By Flandreau, Marc
  7. Did Genoa and Venice Kick a Financial Revolution in the Quattrocento? By Michele Fratianni; Franco Spinelli
  8. 150 Issues of The Australian Economic Review: The Changing Face of a Journal over Time By Daina McDonald
  9. Transfer Problem Dynamics: Macroeconomics of the Franco-Prussian War Indemnity By Michael B. Devereux; Gregor W. Smith
  10. Real GDP in Pre-War East Asia: A 1934-36 Benchmark Purchasing Power Parity Comparison with the U.S. By Kyoji Fukao; Debin Ma; Tangjun Yuan
  11. Are There Waves in Merger Activity After All? By Dennis Gaertner; Daniel Halbheer
  12. Models and methods for economic policy; 60 years of evolution at CPB. By Henk Don; Johan Verbruggen
  14. Textile and Apparel: an historical and "glo-cal" perspective. The Italian case from an economic agent's point of view By Michele Tronconi
  15. Legal-Political Factors and the Historical Evolution of the Finance-Growth Link By Michael D. Bordo; Peter L. Rousseau

  1. 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.
    Date: 2006–01–23
  2. By: Jérôme Sgard (CEPII and Université de Paris-Dauphine.)
    Abstract: Recent historical research on bankruptcy has been centred almost exclusively on Common law countries, especially the United States. The consequence is that the research agenda includes issues which may, or may not, have broader relevance. This paper is an attempt at including within a larger historical and comparative perspective the evolution observed in continental Europe, during the 19th century. A data set has thus been assembled which includes the main features of a total of 51 codes or statutes, in 15 countries of all legal traditions. An early conclusion is that all these laws defended strongly creditors’ rights during bankruptcy, during the whole period under review. This goes against the thesis defended i.a. by La Porta et alii (1998) which state that “legal origins” have a strong, differentiated effect on property and creditors’ rights, which would be permanent over history. Two dimensions are then analysed. First, the status of the failed debtor, and whether he was subjected to repression; second, the degree to which the law supported or not the attempts of the parties to negotiate a composition, or continuation arrangement. An early period witnessed repressive, highly regulated frameworks: the paradigm is the Napoleonic, 1808 Code de commerce, though its main features were still highly visible half a century latter, in almost all countries. Then emerged a liberal model, between 1865 and 1885 with again a fair degree of convergence: the personal and civic fate of the debtor became much more immune to commercial failure; and the parties get more autonomy to bargain, though a bifurcation emerged between a “menu approach” to re-negotiation in England and in the French law countries, and a “single-option” procedure in German law countries. Beyond, it is proposed that these broad trends reflect the growing capacity of the institutional environment to reduce risks of moral hazards, and more generally transaction costs. By the end of the century, bargaining on bankruptcy had become easier and safer, so that judicial guarantees could be eased.
    Date: 2006–05–01
  3. By: Francisco J. Pueyo
    Abstract: Spanish banking historiography asserts that the largest banks performed in the twentieth century as though they constituted a monopoly. One of their main coordination schemes would have been a network of interlocking bank directors that would include most of the financial firms. Evidence available for the 1920s and 1960s seems to confirm the veracity of this hypothesis. In this paper, more systematic evidence is presented to cover the whole twentieth century with the aim of checking whether these networks persisted over the entire period or they were by-products of temporary situations. Our results show that no general network remained for more than a decade. Therefore, it should be ruled out that interlocking directorates worked as a coordination device of an alleged banking cartel.
    Keywords: Monopolization strategies, Interlocking directorates, Spanish banking
    JEL: L12 L14 N24
    Date: 2006–01
  4. By: Ignacio Briones (Business School, Universidad Adolfo Ibáñez, Chile); André Villela (Escola de Pós-Graduação em Economia, Fundação Getulio Vargas, Brazil)
    Abstract: The history of foreign banks in Chile and Brazil in the late XIXth century and early XXth century is the history of British and German banks. Their penetration in both countries was significant, and not neutral in terms of its impact on the Chilean and Brazilian banking industry. In the main, we found that in both countries foreign banks appear to have had a positive effect at least in some of the dimensions identified by the current literature. However, the extent of this influence is different depending on the country. First, even if a formal banking industry emerged roughly simultaneously in both countries, foreign bank entry in Chile was a more recent phenomenon than in Brazil. Second, while from a financial point of view native and foreign banks in Chile behaved in a relatively similar fashion, in Brazil we observe differences, although a tendency towards convergence was observable by the eve of WWI.
    Date: 2006–04–01
  5. By: Doepke, Matthias (University of California, Los Angeles); Zilibotti, Fabrizio (Institute for International Economic Studies, Stockholm University)
    Abstract: We model the decision problem of a parent who chooses an occupation and invests in the patience of her children. The two choices complement each other: patient individuals choose occupations with a steep income profile; a steep income profile, in turn, leads to a strong incentive to invest in patience. In equilibrium, society becomes stratified along occupational lines. The most patient people are those in occupations requiring the most education and experience. The theory can account for the demise of the British land-owning aristocracy in the nineteenth century, when rich landowners proved unable to profit from new opportunities arising with industrialization, and were thus surpassed by industrialists rising from the middle classes.
    Keywords: discount factor; patience; British aristocracy; Industrial Revolution; capital accumulation; income distribution
    JEL: N23 O14 O15 Z10
    Date: 2005–04–01
  6. By: Flandreau, Marc
    Abstract: This paper examines the historical record of the Austro-Hungarian monetary union, focusing on its bargaining dimension. As a result of the 1867 Compromise, Austria and Hungary shared a common currency, although they were fiscally sovereign and independent entities. By using repeated threats to quit, Hungary succeeded in obtaining more than proportional control and forcing the common central bank into a policy that was very favourable to it. Using insights from public economics, this paper explains the reasons for this outcome. Because Hungary would have been able to secure quite good conditions for itself had it broken apart, Austria had to provide its counterpart with incentives to stay on board. I conclude that the eventual split of Hungary after WWI was therefore not written on the wall in 1914, since the Austro-Hungarian monetary union was quite profitable to Hungarians.
    Keywords: free riding; market integration; monetary union; secession
    JEL: F31 N32
    Date: 2006–01
  7. By: Michele Fratianni (Indiana University, Kelley School of Business, Department of Business Economics and Public Policy); Franco Spinelli (Università degli Studi di Brescia, Dipartimento di economia.)
    Abstract: Did the city-states of Genoa and Venice kick a financial revolution all the way back in the Quattrocento, much sooner than the financial revolutions of the Netherlands, England and America? To answer this question we analyze the classic revolutions in terms of three key criteria: credibility of debtor’s promises, the role of national banks in facilitating the development of financial markets, and the extent and depth of financial and monetary innovations. We then compare the record of Genoa and Venice with the benchmark from the three classic financial revolutions. The upshot is that the two maritime city-states had developed many of the features that were to be found later on in the Netherlands, England and the United States. The importance of Genoa and Venice as financial innovators has been eclipsed by the fact that these two city-states did not survive politically. Instead, the innovations were absorbed in the long chain of financial evolution and, in the process, lost the identity of their creators.
    Date: 2006–01–18
  8. By: Daina McDonald (Melbourne Institute of Applied Economic and Social Research, and Intellectual Property Research Institute of Australia, The University of Melbourne)
    Abstract: The June 2005 issue of The Australian Economic Review (AER) was its 150th issue. This paper describes the changing face of the AER over this period. When it was launched in the late 1960s, the new journal was modelled on the National Institute Economic Review (NIESR) and its aims were similar. The content of the AER has changed over the years and it is no longer a clone of the NIESR. Neither is it a standard academic journal whose only or dominant aim is to publish refereed, contributed articles. The changes in content over time reflect the balancing of aims such as the dissemination of knowledge, participation in the economic policy debate and the maintenance of a readership base in a period during which there have been rapid advances in information technology, a growth in sub-specialties in economics, a greater use of “objective” measures of performance for academics and major changes in printing and publication technology.
    Date: 2006–01
  9. By: Michael B. Devereux (University of British Columbia); Gregor W. Smith (Queen's University)
    Abstract: We study the classic transfer problem of predicting the effects of an international transfer on the terms of trade and the current account. A two-country model with debt and capital allows for realistic features of historical transfers: they follow wartime increases in government spending and are financed partly by borrowing. The model is applied to the largest historical transfer, the Franco-Prussian War indemnity of 1871-1873. In these three years, France transferred to Germany an amount equal to 22 percent of a year's GDP. When the transfer is combined with measured shocks to fiscal policy and a proxy for productivity shocks over the period, the model provides a very close fit to the historical sample paths of French GDP, terms of trade, net exports, and aggregate consumption. This makes a strong case for the dynamic general equilibrium approach to studying the transfer problem.
    Keywords: transfer problem, current account, terms of trade
    JEL: F32 F41 N14
    Date: 2005–08
  10. By: Kyoji Fukao; Debin Ma; Tangjun Yuan
    Abstract: This article provides estimates of purchasing power parity (PPP) converters for expenditure side GDP of Japan/China and Japan/U.S through a detailed matching of prices for more than 50 types of goods and services in private consumption and about 20 items or sectors for investment and government expenditure. Based on our finding and linking with the earlier studies on the relative price levels of Taiwan and Korea, we derive the mid-1930s benchmark PPP adjusted per capita income of Japan, China, Taiwan and Korea at 31%, 10%, 23%, and 12% of the U.S. level respectively for the mid-1930s. These estimates corrected the consistent downward bias in East Asian income levels based on market exchange rate conversions. While confirming Angus Maddisonfs estimates for China and Taiwan based on the 1990 benchmark back-projection method, they do point to a 23% and 85% overestimate in his comparable figures for Japan and Korea respectively for the mid-1930s period. This article develops a preliminary theoretical and empirical framework to demonstrate the possible source of the biases in the back-projection method. We briefly discuss the implications of our findings on the initial conditions and long-term growth dynamics in East Asia and beyond.
    Date: 2006–01
  11. By: Dennis Gaertner (Socioeconomic Institute, University of Zurich); Daniel Halbheer (Socioeconomic Institute, University of Zurich)
    Abstract: This paper investigates the merger wave hypothesis for the US and the UK employing a Markov regime switching model. Using quarterly data covering the last thirty years, for the US, we identify the beginning of a merger wave in the mid 1990s but not the much-discussed 1980s merger wave. We argue that the latter finding can be ascribed to the refined methods of inference offered by the Gibbs sampling approach. As opposed to the US, mergers in the UK exhibit multiple waves, with activity surging in the early 1970s and the late 1980s.
    Keywords: mergerwaves, Markov Regime Switching Regression Model, Gibbs Sampling
    JEL: G34 C32 C11 C15
    Date: 2004–09
  12. By: Henk Don; Johan Verbruggen
    Abstract: The Netherlands Bureau for Economic Policy Analysis (CPB) has been involved in econometric model building since its foundation in 1945. During the 60 years of model building and use reviewed in this Discussion Paper, CPB's models have evolved significantly. Over this period, a shift of emphasis can be observed from econometrics and empiricism to economic theory. New questions from policymakers and new features in the national economy have guided research, while new developments in econometrics and economic theory were taken on board wherever they helped to improve the quality and scope of the analysis. Although considerable progress has been achieved in several spheres, the models continue to be riddled with some long-standing limitations and weaknesses which the model users should take into account.
    Keywords: econometric models, model building, economic policy preparation
    JEL: C50 E10 N10
    Date: 2006–01
  13. By: Marc Hofstetter
    Abstract: Why is that the achievements of some disinflations from low and moderate peaks are longlived, whereas in others the gains in the inflationary front dissipate quickly? Based on an index of the sustainability of disinflations proposed in the paper, various competing explanations of what determines sustainability are tested. Three factors, potentially at the top of the list of many researchers, are shown to be insignificant: oil shocks, fiscal policy and inflation targeting. Nevertheless, other important features such as the exchange rate regime, achieving a low inflation rate during the disinflation and food price shocks are shown to be important variables driving the sustainability records.
    Date: 2005–11–30
  14. By: Michele Tronconi
    Abstract: What might happen to the Italian Textile and Apparel industry? Does it deserve to survive, even if in a reduced dimension, or is it going to disappear, simply being a piece of our past without a passport to our future? This paper call for debate and reach a better view of a changing industry, starting from a different perspective from the usual one which regards the Textile and Clothing industry as a sunset one for western Europe. With the end of the quota system the Italian industry is facing market disruption produced by the flood of exports from China. Too much, too soon, too cheap. Italian entrepreneurs are over-reacting to this and technological innovation is no longer regarded as an opportunity to cultivate differential competitive advantage. Anti - dumping, tariffs and quotas are considered as controversial issues in the search for a new global balance. To reach this, we shouldn't forget that both structural and strategic aspects are always in action when international competition is concerned. All in all, transparency is very important and could be supported by product traceability. This issue is connected with the difference of standards and the difficulty to make them become a purchasing and innovation driver.
    Date: 2005–09
  15. By: Michael D. Bordo (Rutgers University, New Brunswick, NJ USA and Research Associate, NBER.); Peter L. Rousseau (Vanderbilt University, Nashville, TN and Research Associate, NBER.)
    Abstract: Recent cross-country investigations of the role of institutional fundamentals such as the protection of property rights in promoting financial development have extended a literature that has for decades maintained that financial factors can affect real outcomes. In this paper we pursue this new direction by considering relationships between finance, growth, legal origin, and political environment in a historical cross-section of 17 countries covering the period from 1880 to 1997. We find that relationships between a county's legal origin (i.e., English, French, German, or Scandinavian) and financial development are roughly consistent with earlier findings but are not persistent. At the same time, political variables such as proportional representation election systems, frequent elections, universal female suffrage, and infrequent revolutions or coups seem linked to larger financial sectors and higher conditional rates of economic growth. Despite the explanatory power of some of our measures of the deeper "fundamentals", however, a significant part of the growth-enhancing role of financial development remains unexplained by them.
    Date: 2006–02–01

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