New Economics Papers
on Business, Economic and Financial History
Issue of 2006‒04‒22
nineteen papers chosen by

  1. Did Vasco da Gama Matter for European Markets? Testing Frederick Lane's Hypotheses Fifty Years Later By Jeffrey G. Williamson; Kevin H. O'Rourke
  2. Why and how to measure stock market fluctuations? The early history of stock market indices, with special reference to the French case. By Pierre-Cyrille Hautcoeur
  3. Bubbles and Busts: The 1990s in the Mirror of the 1920s By Eugene N. White
  4. How Occupied France Financed Its Own Exploitation in World War II By Filippo Occhino; Kim Oosterlinck; Eugene N. White
  5. The Specificities of Finnish Industrial Policy - Challenges and Initiatives at the Turn of the Century By Christopher Palmberg; Pekka Ylä-Anttila
  6. Real Wages and the ‘Malthusian Problem’ in Antwerp and South-Eastern England, 1400 - 1700: A regional comparison of levels and trends in real wages By JOHN H MUNRO
  7. Does Neoclassical Theory Account for the Effects of Big Fiscal Shocks? Evidence From World War II By Ellen R. McGrattan; Lee E. Ohanian
  8. Antebellum Tariff Politics: Coalition Formation and Shifting Regional Interests By Douglas A. Irwin
  9. War and Welfare: Britain, France and the United States 1807-14 By Kevin H.O'Rourke;
  10. Le tour du monde: les memoires de voyage d’un emigrant de Schio en Russie et au Canada au début du XXe siècle By Giovanni Favero
  11. Exploring Changes in Earnings Inequality during Industrialization: Barcelona, 1856-1905 By Natalia Mora-Sitja
  12. Tariff Incidence in America%u2019s Gilded Age By Douglas A. Irwin
  13. Teaching urban history in Italian universities By Giovanni Favero; Paola Lanaro
  15. Structural breaks in Iron-Ore prices: The impact of the 1973 oil crisis By Angelov, Nikolay
  16. Old and new ceramics: manufactures, products and markets in the Venetian Republic in the 17th and 18th centuries By Giovanni Favero
  17. The New Promised Land: Black-White Convergence in the American South, 1960-2000 By Jacob L. Vigdor
  18. The Making of Asia's First Bilateral FTA - Origins and Regional Implications of the Japan-Singapore Economic Partnership Agreement By Takashi Terada
  19. Historical Development and Applications of the EPIC and APEX Models By Philip W. Gassman; Jimmy R. Williams; Verel W. Benson; R. Cesar Izaurralde; Larry Hauck; C. Allan Jones; Jay D. Atwood; James Kiniry; Joan D. Flowers

  1. By: Jeffrey G. Williamson; Kevin H. O'Rourke
    Abstract: In his seminal publications between the 1930s and 1960s, Frederick Lane offered three hypotheses regarding the impact of the Voyages of Discovery that have guided debate ever since. First, pepper and other spice prices did not rise in European markets in the century before the 1490s, and thus could not have ‘pulled in’ the oceanic explorations by their rising scarcity. Second, Portuguese circumnavigation of Africa did not lower European spice prices across the 16th century, implying that the discovery of the Cape route had no permanent effect on Euro-Asian market integration. Third, 15th century Venetian spice markets were already well integrated with those in Iberia and northern Europe, implying that Portugal could not have had an intra-European market integrating influence in the 16th century. Lane developed these influential hypotheses by relying heavily on nominal spice prices from Venice and the Levant. This paper revisits Lane’s hypotheses by using instead relative spice prices, that is, accounting for inflation. It also draws on evidence from Iberia and northern Europe. In addition, it explores European market integration before and after 1503, the year when da Gama returned from his financially successful second voyage. Lane’s three hypotheses are rejected: the impact of the Portuguese was profound on all fronts. We conclude by using a simple model of monopoly and oligopoly to decompose the sources of the Cape route’s impact on European markets.
    JEL: N N7
    Date: 2006–04–05
  2. By: Pierre-Cyrille Hautcoeur
    Abstract: Stock market indices are today a vital and daily tool for both economists and actors in the financial world. The multiplication and the very importance given to these indices raise the question of their accuracy and of the reliability of the methods that are used to construct them. We begin an investigation on these questions by studying the early history of these indices. We show that stock market indices appeared in the daily press in the United States at the end of the 19th century; that around World War One, they became the focus of the interest of very different groups of people, so that their construction became a more complex and specialized task. The scientific study of indices did not result initially from the stock market's importance in finance (for firms financing, for savers' portfolio choices or for investment banks' decisions), since most of the initial interest came from economists that looked at the stock market only as a measure or an index of the macroeconomic situation. The development of indices dedicated to financial studies came only in the late 1920s, and accelerated only with the birth of modern finance. This article describes the origins of stock-market indices in the interwar period, with an emphasis on France and the United States. It links this evolution with contemporary economic theories, index number theory, financial practices, and the other motivations of their authors. It examines the consequences of the methodological choices that were made and suggests that they had a surprisingly large impact on the results. In particular, we analyse in detail the motivations and technical characteristics of the most important indices that were produced during the interwar period by the French government statistical office (the Statistique générale de la France or SGF). We suggest that these indices cannot be easily compared to most usually discussed indices for other countries and that new calculations are required before international comparisons.
    Date: 2006
  3. By: Eugene N. White
    Abstract: This paper surveys the twentieth century booms and crashes in the American stock market, focusing on a comparison of the two most similar events in the 1920s and 1990s. In both booms, claims were made that they were the consequence a “new economy” or “irrational exuberance.” Neither boom can be readily explained by fundamentals, represented by expected dividend growth or changes in the equity premium. The difficulty of identifying the fundamentals implies that central banks would not be successful in preventing pre-emptive policies, although they still would have a critical role to play in preventing crashes from disrupting the payments system or sparking an intermediation crisis.
    JEL: E5 G1 N1 N2
    Date: 2006–04
  4. By: Filippo Occhino; Kim Oosterlinck; Eugene N. White
    Abstract: The occupation payments made by France to Nazi Germany between 1940 and 1944 represent one of the largest recorded international transfers and contributed significantly to financing the overall German war effort. Using a neoclassical growth model that incorporates essential features of the occupied economy and the postwar stabilization, we assess the welfare costs of French policies that funded payments to Germany. Occupation payments required a 16 percent reduction of consumption for twenty years, with the draft of labor to Germany and wage and price controls adding substantially to this burden. Vichy’s postwar debt overhang would have demanded large budget surpluses; but inflation, which erupted after Liberation, reduced the debt well below its steady state level and redistributed the adjustment costs. The Marshall Plan played only a minor direct role, and international credits helped to substantially lower the nation’s burden.
    JEL: E1 E6 N1 N4
    Date: 2006–04
  5. By: Christopher Palmberg; Pekka Ylä-Anttila
    Keywords: Finland, industrial policy, innovation systems, clusters, globalization
    JEL: O31 O38
    Date: 2006–04–03
    Abstract: In a path-breaking but largely overlooked study, published in a festchrift thirty years ago (1975), Herman Van der Wee provided a comparison of prices and real wages of building craftsmen in the regions of Antwerp and south-eastern England, from 1400 to 1660. To do so, he constructed a composite price index modelled as closely as possibly on the famous ‘basket of consumables’ price index that Phelps Brown and Hopkins had produced, for south-eastern England, in 1956. His graphs revealed that real wages for these craftsmen in Antwerp did not suffer the same deterioration as did comparable real wages in England, and in many other parts of Europe, during the era of the Price Revolution, ca. 1520 - ca. 1640 – although the actual levels of the real wages were not shown. Most economic historians have attributed that significant fall in real wages, especially in England, to the consequences of population growth during this era: i.e., to a fall in the marginal productivity of labour, with a dramatic alteration in the land:labour ratio. There is, however, an alternative explanation: the consequences of monetarily-induced inflation, when nominal wages failed to keep pace with the rise in consumer prices (especially those for foodstuffs). This study examines the role of demographic, monetary, and also institutional factors in producing these diverging trends in real-wages. But the major contribution is to expand upon Van der Wee’s study – which used only disembodied index numbers – by calculating the annual values of the baskets of consumables in both England and the Antwerp region, and thus in presenting the actual levels of real wages, in terms of the number of such baskets that building craftsmen could purchase with their annual money wages (for 210 days of employment), in each region, combining wage rates for summer and winter work (seasonal wages). The results are very striking. As measured in 50-year harmonic means, the level of real wages for master masons in Antwerp was only 83.79% of that for master masons in south-east England, in 1401-50; and worse, only 78.15% of the level for English masons in 1451-1500; but then real wages for Antwerp master masons began to climb above those for their English counterparts: reaching 102.60% in 1501-50, 136.34% in 1551-1600; and, for the peak achievement, 154.49% in 1601-50, before falling back, somewhat, to a level of 125.58% in the final half century studied, in 1651-1700. But part of that gain or achievement for master masons in Antwerp was at the expense of the real incomes for their journeymen-labourers, who did not fare quite as well, in comparison with the English journeymen labourers: earning just 68.94% of their English counterparts in 1401-50; 69.38% in 1451-1500; 91.18% in 1501-50; 107.60% in 1551-1600; 133.46% in 1601-50; and 109.88% in the final period, 1651-1700. Oddly enough, the Antwerp masons (both masters and journeymen) fared the very best after Antwerp had passed its Golden Age. The hypothetical explanations for these divergencies may be even more interesting than the data themselves. The study concludes by examining the statistical and theoretical nature of ‘real wages’: in terms of the purchasing power of the annual nominal money wage; in terms of the marginal productivity of labour; in terms of the marginal revenue product of labour; and in terms of the Total Factor Productivity of the occupation or economy as a whole.
    JEL: C40 C43 C81 D33 E24 E31 E32 E40 E51 F40 J10 J11 J21 J22 J30 J3 J40 J51 J60 J80 L74 N13 N33 N63 N93
  7. By: Ellen R. McGrattan; Lee E. Ohanian
    Abstract: There is much debate about the usefulness of the neoclassical growth model for assessing the macro- economic impact of fiscal shocks. We test the theory using data from World War II, which is by far the largest fiscal shock in the history of the United States. We take observed changes in fiscal policy during the war as inputs into a parameterized, dynamic general equilibrium model and compare the values of all variables in the model to the actual values of these variables in the data. Our main finding is that the theory quantitatively accounts for macroeconomic activity during this big fiscal shock.
    JEL: E0 E6
    Date: 2006–04
  8. By: Douglas A. Irwin
    Abstract: Throughout U.S. history, import tariffs have been put on a sustained downward path in only two instances: from the early-1830s until the Civil War and from the mid-1930s to the present. This paper analyzes how the movement toward higher tariffs in the 1820s was reversed for the rest of the antebellum period. Tariff politics in Congress during this period was highly sectional: the North supported high tariffs, the South favored low tariffs, and the West was a “swing” region. In the 1820s, a coalition between the North and West raised tariffs by exchanging votes on import duties for spending on internal improvements. President Andrew Jackson effectively delinked these issues and destroyed the North-West alliance by vetoing several internal improvements bills. South Carolina’s refusal to enforce the existing high tariffs sparked the nullification crisis and paved the way for the Compromise Tariff of 1833, which promised to phase out tariffs above 20 percent over a nine year period. Although Congress could not credibly commit itself to the staged reductions or maintaining the lower duties, the growing export interests of the West  due, ironically, to transportation improvements that made agricultural shipments economically viable  gave the region a stake with the South in maintaining a low tariff equilibrium. Thus, the West’s changing position on trade policy helps explain the rise and fall of tariffs over this period.
    JEL: F1 N7
    Date: 2006–04
  9. By: Kevin H.O'Rourke;
    Abstract: Classification-JEL:
    Date: 2006–04–05
  10. By: Giovanni Favero (Department of Economics, University Of Venice Cà Foscari)
    Abstract: This paper deals with the problem of family links among individuals when separated, using the memoirs of an Italian emigrant in Russia and Canada during the first decades of 20th century and his letters home.
    Keywords: memoirs, emigration, family
    JEL: N33 N34
    Date: 2006
  11. By: Natalia Mora-Sitja (Nuffield College, Oxford)
    Abstract: This paper provides estimates of wage dispersion in nineteenth-century Barcelona and documents the compression of the pay distribution between 1856 and 1905. A decomposition of inequality changes by sector and gender leads to two conclusions. First, that most of the changes occurred within each industry, of which the textile industry stands out; and second, that although traditional analyses of changes in earnings inequality tend to ignore female labour and earnings arising from piecework, these seem to be, together with the new factory discipline, the key factors in explaining shifts in earnings inequality in industrializing societies.
    Date: 2006–04–10
  12. By: Douglas A. Irwin
    Abstract: In the late nineteenth century, the United States imposed high tariffs to protect domestic manufacturers from foreign competition. This paper examines the magnitude of protection given to import-competing producers and the costs imposed on export-oriented producers by focusing on changes in the domestic prices of traded goods relative to non-traded goods. Because the tariffs tended to increase the prices of non-traded goods, the degree of protection was much less than indicated by nominal rates of protection; the results here suggest that the 30 percent average tariff on imports yielded a 15 percent implicit subsidy to import-competing producers while effectively taxing exporters at a rate of 11 percent. The paper also finds that tariff policy redistributed large amounts of income (about 9 percent of GDP) across groups, although the impact on consumers was only slightly negative because they devoted a sizeable share of their expenditures to exportable goods. These findings may explain why import-competing producers pressed for even greater protection in the face of already high tariffs and why consumers (as voters) did not strongly oppose the policy.
    JEL: F1 N7
    Date: 2006–04
  13. By: Giovanni Favero (Department of Economics, University Of Venice Cà Foscari); Paola Lanaro (Department of Economics, University Of Venice Cà Foscari)
    Abstract: This paper presents the situation of Urban History teaching in Italian universities, using the results of a web search and of an inquiry performed among Italian teachers by means of a form distribution and collection.
    Keywords: urban history, teaching, Italy
    JEL: I21 N01
    Date: 2006
  14. By: Scott Atran (IJN - Institut Jean-Nicod - - CNRS : UMR8129 - Ecole des Hautes Etudes en Sciences Sociales;Ecole Normale Supérieure de Paris)
    Abstract: The "surrogate colonization" of Palestine had a foreign power giving to a nonnative group rights over land occupied by an indigenous people. It thus brought into play the complementary and conflicting agendas of three culturally distinguishable parties: British, Jews and Arabs. Each party had both "externalist" [those with no sustained practical experience of day to day life in Palestine] and "internalist" representatives. The surrogate idea was based on a "strategic consensus" involving each party's externalist camp: the British ruling elite, the leadership of the World Zionist Organization and the Hashemite Dynasty of Arabia. The collapse of this triangular consensus, which put an end to the policy but not the process of surrogate colonization, resulted from irreconcilable antagonisms within and between the major currents of each internalist camp. A focus on the land problem in Palestine highlights contradictions in each party's internalist agenda, which forestalled a rift between the Jewish and British sides of the consensus long enough for the Zionist settlement in Palestine (Yishuv) to acquire territory and to develop a largely self-sufficient economic, cultural, political and military infrastructure.
    Date: 2005–01–26
  15. By: Angelov, Nikolay (Department of Economics)
    Abstract: This paper investigates the time-series properties of the price of iron ore. The focus is on testing a unit-root null hypothesis against a trend-stationary alternative, with a structural break allowed under both hypotheses. We consider unit-root tests with or without structural breaks, applied on historical prices of five different qualities of Swedish and Brazilian iron ore. New and more accurate critical values for the exogenous-break tests are calculated, and several of the asymptotic tests are accompanied by their bootstrap counterparts due to the limited sample sizes. Using unit-root tests allowing for an exogenous structural break in 1973, the null hypothesis of a unit root is rejected for three of the five series. The sign and nature of the estimated breaks correspond to the state of the iron and steel industry during the first half of the 1970s. The bootstrap tests give results close to those from the asymptotic ones.
    Keywords: iron-ore prices; structural break; unit-root test; bootstrap
    JEL: C15 C22 Q30
    Date: 2006–01–20
  16. By: Giovanni Favero (Department of Economics, University Of Venice Cà Foscari)
    Abstract: This contribution aims to draw up a map of ceramics production sites in the Venetian area from 1600 to 1800, bearing particular attention to institutional and informal devices allowing local production to adapt to European markets trends and innovations. The paper investigates the logics of privileges allowance to pivate entrepreneurs outside of the guilds framework, conceived probably as a protection for offer more than for demand: they had to do with the exploitation of natural resources at a local level (water, raw materials), and of the services of a labor force accumulating specialized skills working in close contact with foreign invited artisans. The defence and seizure of industrial expertise was in fact the object of enduring court cases between manufacturers fighting to retain and attract highly qualified workers. These were the actual agents of innovation exchange among European, Italian and regional production centres. Continuous exchange and imitation allowed Venetian privileged firms to keep positions in econdary European markets providing most of the demand for local production.
    Keywords: ceramics, guilds, privileged firms, Venetian Republic
    JEL: N63 N83 N93
    Date: 2006
  17. By: Jacob L. Vigdor
    Abstract: The black-white earnings gap has historically been larger in the South than in other regions of the United States. Since 1970, however, the male annual earnings gap outside the South has increased – dramatically, when the analysis factors in non-participants – while the gap within the South has narrowed, to the point where 2000 Census figures indicate significantly lower racial inequality in the South. Three proposed explanations for this trend focus on changing patterns of selective migration, labor market trends including reduced discrimination and the decline of manufacturing employment, and reductions in school segregation and school resource disparities in the South relative to the North. Evidence suggests that selective migration can explain about 40% of the South’s relative advance, and virtually all of the relative advance after 1980. Earlier declines can be attributed in large part to reduced industrial segregation and other labor market advances in the South. Relative improvements in school quality for Southern blacks explain at most 20% of the overall trend.
    JEL: J15 J71 N32 N92
    Date: 2006–04
  18. By: Takashi Terada (National University of Singapore)
    Abstract: This paper aims to examine how and why Japan and Singapore decided to pursue FTAs, what interests both perceived in their pursuit of FTAs, what elements contributed to both countries being linked in this trade policy arrangement, and what implications the JSEPA has had for the FTA movement in East Asia. It argues that the JSEPA was made possible mainly through Singapore’s initial offer to exclude agricultural products from tariff elimination. But Japan faced problems in seeking FTAs with other ASEAN countries which were less developed than Singapore and had a higher proportion of agricultural exports, as the exclusion of specific agricultural products, such as rice and sugar, would contradict Japan’s claim that its FTAs would bolster the WTO-based multilateral system. The proliferation of FTAs in East Asia may generate a ‘spaghetti-bowl’ effect with varying rules of origin that may divert and distort trade, but the ‘new age’ aspects of the Japan-Singapore agreement will also have some positive economic effects. Although the preferential trade elements of the agreement are detrimental, the smaller portion of tariff elimination results in a smaller trade diversion effect on trading partners. Therefore, the Japan-Singapore agreement carries symbolic meaning in terms of trade policy debates as well as signifying a paradigm shift in Japan’s international trade policy.
    Keywords: Japan, Singapore, international trade, FTA, East Asia, JSEPA, tariff elimination, preferencial trade agreement
    JEL: F16 F42 O24
    Date: 2006–03
  19. By: Philip W. Gassman (Center for Agricultural and Rural Development (CARD)); Jimmy R. Williams; Verel W. Benson; R. Cesar Izaurralde; Larry Hauck; C. Allan Jones; Jay D. Atwood; James Kiniry; Joan D. Flowers
    Abstract: The development of the field-scale Erosion Productivity Impact Calculator (EPIC) model was initiated in 1981 to support assessments of soil erosion impacts on soil productivity for soil, climate, and cropping conditions representative of a broad spectrum of U.S. agricultural production regions. The first major application of EPIC was a national analysis performed in support of the 1985 Resources Conservation Act (RCA) assessment. The model has continuously evolved since that time and has been applied for a wide range of field, regional, and national studies both in the U.S. and in other countries. The range of EPIC applications has also expanded greatly over that time, including studies of (1) surface runoff and leaching estimates of nitrogen and phosphorus losses from fertilizer and manure applications, (2) leaching and runoff from simulated pesticide applications, (3) soil erosion losses from wind erosion, (4) climate change impacts on crop yield and erosion, and (5) soil carbon sequestration assessments. The EPIC acronym now stands for Erosion Policy Impact Climate, to reflect the greater diversity of problems to which the model is currently applied. The Agricultural Policy EXtender (APEX) model is essentially a multi-field version of EPIC that was developed in the late 1990s to address environmental problems associated with livestock and other agricultural production systems on a whole-farm or small watershed basis. The APEX model also continues to evolve and to be utilized for a wide variety of environmental assessments. The historical development for both models will be presented, as well as example applications on several different scales.
    Keywords: APEX, carbon sequestration, climate change, EPIC, modeling, soil erosion, water quality.
    Date: 2005–06

General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.