New Economics Papers
on Business, Economic and Financial History
Issue of 2007‒08‒27
nineteen papers chosen by

  1. The Operation of the Moratorium on New Bank Licenses on the Hong Kong banking system 1965-81 By Catherine R. Schenk
  2. Cycles of violence, riots, and terrorist attacks index for the State of California By Gómez-sorzano, Gustavo
  3. The Curious Dawn of American Public Schools By Sun Go; Peter H. Lindert
  4. Executive compensation: a new view from a long-term perspective, 1936-2005 By Carola Frydman; Raven E. Saks
  5. Reevaluating the Modernization Hypothesis By Daron Acemoglu; Simon Johnson; James A. Robinson; Pierre Yared
  6. What determines Financial Development? Culture, Institutions, or Trade By Nils Herger; Roland Hodler; Michael Lobsinger
  7. Canada's Pioneering Experience with a Flexible Exchange Rate in the 1950s: (Hard) Lessons Learned for Monetary Policy in a Small Open Economy By Michael Bordo; Ali Dib; Lawrence Schembri
  8. Painful Transitions: The Impact of Economic Growth and Government Policies on Hong Kong's 'Chinese' Banks, 1945-70 By Leo F. Goodstadt
  9. Behavioral industrial organization, firm strategy, and consumer economics By Azar, Ofer H.
  10. Three Liquidity Crises in Retrospective: Implications for Central Banking Today By Sauer, Stephan
  11. 32 Years of Housing Data By HUD - PD&R
  12. The rise and fall of the patient forum By Warwick, Philip
  13. Evolucion del coeficiente de ZIPF para Colombia en el siglo XX By Gloria Lucía Bernal Nisperuza; Carlos Enrique Nieto Trujillo
  14. Escape from the City? The Role of Race, Income, and Local Public Goods in Post-War Suburbanization By Leah Platt Boustan
  15. Governance, Economic Growth and Development since the 1960s By Mushtaq H. Khan
  16. The Effect of Federal Government Size on Long-Term Economic Growth in the United States, 1792-2004 By Federico Guerrero; Elliott Parker
  17. Coming and leaving. Internal mobility in late Imperial Austria By Annemarie Steidl; Engelbert Stockhammer
  18. Strengthening the governance and performance of state-owned financial institutions By Scott, David H.
  19. The Roles of Ethnicity and Language Acculturation in Determining the Interprovincial Migration Propensities in Canada: from the Late 1970s to the Late 1990s By Xiaomeng Ma; Kao-Lee Liaw

  1. By: Catherine R. Schenk (University of Glasgow)
    Abstract: In the mid-1960s two major institutional changes decreased the freedom for competition among banks in Hong Kong. In 1964, in response to a supposed ¡¥interest rate war¡¦ the Exchange Banks Association (the precursor to the Hong Kong Association of Banks) was able to negotiate an Interest Rate Agreement that applied to all banks operating in the colony. Secondly, in May 1965, after two waves of banking crisis in February and April of that year, the government imposed a moratorium on new bank licenses. Both restrictions were retained (in amended form) until 2001. The longevity of both of these anticompetitive regulations in Hong Kong had a profound impact on the development of the banking system in the 36 years they were in force. This paper investigates the operation and impact of the moratorium on the banking system of Hong Kong. It will first show how the regulation of price competition in Hong Kong led to calls from banks for further protection from non-price competition and how this became specifically aimed at foreign banks. Secondly, the paper will discuss the changes in the operation of the moratorium and how it influenced foreign acquisition. This turned out to be an inadequate solution to poor governance partly because the barriers to entry increased the bargaining power of local banks in the acquisition process. Finally, the paper assesses the moratorium¡¦s impact on the expansion of deposit taking finance companies outside the prudential regulations of the banking system, and how the regulation of these new institutions was only reluctantly introduced by the government. The general conclusions are that the moratorium and the interest rate agreement together decreased the regulatory breadth of the government, and reduced the incentives for mergers and acquisitions that might have improved governance. Evidence of fraud and poor governance immediately after the lifting of the moratorium show that it was not an effective cure for the governance problems of the Hong Kong banking system. Barriers to entry were not a substitute for effective prudential supervision.
    Date: 2006–10
  2. By: Gómez-sorzano, Gustavo
    Abstract: I apply the Beveridge-Nelson business cycle decomposition method to the time series of per capita murder in the State of California. (1933-2005). Separating out “permanent” from “cyclical” murder, I hypothesize that the cyclical part coincides with documented waves of organized crime, internal tensions, breakdowns in social order as riots, crime legislation, social, and political unrest, and recently with the periodic terrorist attacks to the U.S. The estimated cyclical component of murder, or attacks index found is optimal, and warns that terrorist attacks against the U.S., and riots in California have created estimated turning point dates marked by those tragic events. The index peaked to point out the World Trade Center Bombing in 1993, and 9/11 2001, and for California it amazingly well captured the riots of 1965 and 1992. This paper belongs to the series of papers helping the U.S, and Homeland Security identify the closeness of terrorist attacks through the construction of Attacks indexes across the U.S. Other indexes constructed include the Index for the U.S., New York State, New York City Arizona State Massachusetts State These indexes must be used as dependent variables in structural models for terrorist attacks, and in models assessing the effects of terrorism over the U.S. economy.
    Keywords: A model of cyclical terrorist murder in Colombia; 1950-2004. Forecasts 2005-2019; the econometrics of violence; terrorism; and scenarios for peace in Colombia from 1950 to 2019; scenarios for sustainable peace in Colombia by year 2019; decomposing violence: terrorist murder in the twentieth in the United States; using the Beveridge and Nelson decomposition of economic time series for pointing out the occurrence of terrorist attacks; decomposing violence: terrorist murder and attacks in New York State from 1933 to 2005; terrorist murder; cycles of violence; and terrorist attacks in New York City during the last two centuries.
    JEL: K14 O51 D74 N42 C22 K42 H56
    Date: 2007–01–23
  3. By: Sun Go; Peter H. Lindert
    Abstract: How did a frontier nation filled with agricultural and mineral potential become a leader in education? How did a nation supposedly born of aversion to taxes and government become a pioneer in using property taxes to pay for much, and eventually most, of its primary schooling? The puzzle is best explained by a combination of schooling affordability, local autonomy, and especially political voice. We present two kinds of evidence: broad contrasts with Europe, and statistical investigation of the differences among U.S. counties in the mid-nineteenth century. Two political voice variables stand out as determinants of schooling among U.S. counties: The extent of local suffrage and the ability of Southern elites to dominate the electorate. Other standard explanations of the demand for primary education need to be revised. Past writers have overemphasized the passage of national and state laws. Contrary to another common view, cities lagged in school attendance, while the Northern countryside led the way, because political voice was more widespread in the small Northern towns.
    JEL: H52 H75 I22 N11 N31
    Date: 2007–08
  4. By: Carola Frydman; Raven E. Saks
    Abstract: We analyze the long-run trends in executive compensation using a new panel dataset of top executives in large firms from 1936 to 2005. In sharp contrast to the well-known steep upward trajectory of pay of the past 30 years, the median real value of compensation was remarkably flat from the late 1940s to the mid-1970s, highlighting a weak relationship between compensation and aggregate firm size. While this correlation has changed considerably over the century, the cross-sectional relationship between pay and firm size has remained stable. Another surprising finding is that the sensitivity of changes in an executive's wealth to firm performance was not inconsequentially small for most of our sample period. Thus, recent years were not the first time when compensation arrangements served to align managerial incentives with those of shareholders. Overall, these trends pose a challenge to several common explanations for the recent surge in executive pay.
    Date: 2007
  5. By: Daron Acemoglu; Simon Johnson; James A. Robinson; Pierre Yared
    Abstract: This paper revisits and critically reevaluates the widely-accepted modernization hypothesis which claims that per capita income causes the creation and the consolidation of democracy. We argue that existing studies find support for this hypothesis because they fail to control for the presence of omitted variables. There are many underlying historical factors that affect both the level of income per capita and the likelihood of democracy in a country, and failing to control for these factors may introduce a spurious relationship between income and democracy. We show that controlling for these historical factors by including fixed country effects removes the correlation between income and democracy, as well as the correlation between income and the likelihood of transitions to and from democratic regimes. We argue that this evidence is consistent with another well-established approach in political science, which emphasizes how events during critical historical junctures can lead to divergent political-economic development paths, some leading to prosperity and democracy, others to relative poverty and non-democracy. We present evidence in favor of this interpretation by documenting that the fixed effects we estimate in the post-war sample are strongly associated with historical variables that have previously been used to explain diverging development paths within the former colonial world.
    JEL: O10 P16
    Date: 2007–08
  6. By: Nils Herger; Roland Hodler; Michael Lobsinger
    Abstract: This paper endeavours to explain the vast differences in the size of capital markets across countries, by drawing together theories emphasising cultural values, dysfunctional institutions, or impediments to trade as obstacles to financial development. To account for endogeneity, instrumental variables pertaining to culture, geography, and colonial history are employed. We find that trade openness and institutions constraining the political elite from expropriating financiers exhibit a strong positive effect on the size of capital markets. Conversely, cultural beliefs and the cost of enforcing financial contracts seem not to introduce significant obstacles for financial development.
    Keywords: Financial Development, Culture, Institutional Quality, Trade
    Date: 2007–06
  7. By: Michael Bordo; Ali Dib; Lawrence Schembri
    Abstract: This paper revisits Canada's pioneering experience with floating exchange rate over the period 1950–1962. It examines whether the floating rate was the best option for Canada in the 1950s by developing and estimating a New Keynesian small open economy model of the Canadian economy. The model is then used to conduct a counterfactual analysis of the impact of different monetary policies and exchange rate regimes. The main finding indicates that the flexible exchange rate helped reduce the volatility of key macroeconomic variables. The Canadian monetary authorities, however, clearly did not understand all of the implications of conducting monetary policy under a flexible exchange rate and a high degree of capital mobility. The paper confirms that monetary policy was more volatile in the post-1957 period and Canada's macroeconomic performance suffered as a result.
    Keywords: Exchange rates; Economic models
    JEL: E32 E37 F31 F32 N1
    Date: 2007
  8. By: Leo F. Goodstadt (University of Dublin)
    Abstract: Hong Kong¡¦s Chinese banks survived the loss in 1949 of their traditional role in serving the trade and currency needs of Mainland clients and the restrictions imposed on the local gold market. But they allowed foreign banks to overtake them in financing the new manufacturing sector in Hong Kong. Using unpublished archival material, this paper traces how official banking policies encouraged them to cling to their traditional business model until forced to change by a collapse in the property market.
    Date: 2006–11
  9. By: Azar, Ofer H.
    Abstract: The field of behavioral economics is one of the fastest-growing fields in economics in recent years. Not long ago this was a small field, but over the last decade or so, the field gained more recognition, and today it seems clear that psychological motivations and biases affect economic behavior in many important ways. Insights from psychology were incorporated in several areas of economics. This paper offers a short review of the application of behavioral economics to industrial organization, which can be denoted “behavioral industrial organization,” and on the relationship between behavioral industrial organization, firm strategy, and consumer economics.
    Keywords: industrial organization; behavioral economics; strategy; firm strategy; business strategy; economic psychology; behavioral industrial organization; consumer behavior; consumer economics
    JEL: D40 L10 M20 A12 M30 D10
    Date: 2006
  10. By: Sauer, Stephan
    Abstract: Liquidity problems lie at the heart of crises on financial markets as demonstrated in this paper by detailed descriptions of the stock market crash in 1987, the LTCM-crisis in 1998 and the financial market consequences of 11 September 2001. The events also demonstrate that modern central banks, in particular the U.S. Federal Reserve under Alan Greenspan, provided emergency liquidity to limit the negative effects of such crises. However, the anecdotal and empirical evidence from the three crises shows that such emergency liquidity assistance implies risks to goods price stability if it is not focused on the interbank market and quickly sterilised.
    Keywords: Liquidity Crises; Financial Stability; Monetary Policy
    JEL: E58 E44 G10
    Date: 2007–08
  11. By: HUD - PD&R
    Abstract: The United States has experienced extensive demographic changes in the last three and a half decades—changes that have significantly affected the nation’s housing stock. The population has grown from 203 million in 1970 to 302 million in 2007 and has undergone some fundamental shifts.
    JEL: N00
    Date: 2007–07
  12. By: Warwick, Philip
    Abstract: The circular, ‘A Stronger Local Voice’ (Department of Health 2006) published in July announced that Patient Forums in England will be abolished to be replaced by local authority run Local Involvement Networks (LINks). What went wrong with Forums? What was wrong with Community Health Councils before them? Will LINks be more successful than either of them? Is there anything to be gained from another major reorganisation of public involvement arrangements?
    Date: 2006–09
  13. By: Gloria Lucía Bernal Nisperuza; Carlos Enrique Nieto Trujillo
    Abstract: El cumplimiento de la ley de Zipf para la distribución del tamaño de las ciudades es uno de los temas de investigación en la literatura sobre economía urbana y regional. La ley de Zipf constituye un caso particular de la distribución de rango- tamaño (rank-size distribution), en la que el rango de una ciudad o región es inversamente proporcional a su tamaño. El objetivo de este estudio consiste en estimar el coeficiente de la distribución de rango-tamaño (o coeficiente de Zipf) para Colombia en diferentes periodos del siglo veinte, describir su evolución, y ofrecer posibles explicaciones para los cambios en el valor del coeficiente que tienen en cuenta hechos históricos ocurridos a lo largo del período que se analiza. Se encuentra que la ley de Zipf no se cumple para ninguno de los censos de población entre 1918 y 1993, y que el coeficiente de la distribución de rango tamaño decrece a lo largo del siglo veinte excepto el período entre 1973 y 1985. La caída del coeficiente antes del 1973 se explica principalmente por mejoras en la red nacional de transportes y el aumento de la participación de la industria en la economía. El leve aumento del coeficiente entre 1973 y 1985 se explica por la bonanza cafetera de la década de los 70 y por la disminución de la participación de la industria en el producto interno bruto. La caída del coeficiente entre 1985 y 1993 se explica por factores como el desplazamiento forzado de la población y el final de la bonanza cafetera en la década de los 80. La evidencia empírica es consistente con la migración de la población hacia los grandes centros urbanos del país.
    Date: 2006–10–31
  14. By: Leah Platt Boustan
    Abstract: Suburbs allow for sorting across towns, increasing inequality in resources for education and other local public goods. This paper demonstrates that postwar suburbanization was, in part, a flight from the declining income and changing racial composition of city residents. I estimate the marginal willingness to pay for town-level demographics -- holding neighborhood composition constant -- by comparing prices for housing units on either side of city-suburban borders (1960-1980). A one standard deviation increase in residents' median income was associated with a 3.5 percent housing price increase. Homeowners value the fiscal subsidy associated with a higher tax base, and the fiscal isolation from social problems (for example, spending on police). In addition, white households avoided racially diverse jurisdictions, particularly those that experienced rioting or underwent school desegregation.
    JEL: H71 H72 H73 N92 R21
    Date: 2007–08
  15. By: Mushtaq H. Khan
    Abstract: Liberal economists have developed a framework of good governance as market-enhancing governance, focusing on governance capabilities that reduce transaction costs and enable markets to work more efficiently. In contrast, heterodox economists have stressed the role of growth-enhancing governance, which focuses on governance capacities to overcome entrenched market failures in allocating assets, acquiring productivity-enhancing technologies and maintaining political stability in contexts of rapid social transformation. The two are not necessarily mutually exclusive, but current policy exclusively focuses on the former, and ignores the strong empirical and historical evidence supporting the latter to the detriment of the growth prospects of poor countries.
    Keywords: governance, market failures, transaction costs
    JEL: O20 O30 O40 P14 P16
    Date: 2007–08
  16. By: Federico Guerrero (Department of Economics, University of Nevada, Reno); Elliott Parker (Department of Economics, University of Nevada, Reno)
    Abstract: In this paper, we consider whether there is statistical evidence for a causal relationship between federal government expenditures and growth in real per-capita GDP in the United States, using available data going back to 1792. After studying the time-series properties of these variables for stationarity and cointegration, we investigate Granger causality in detail in the context of a Vector Error Correction Model. While we find causal evidence supporting Wagner’s Law, we find no evidence supporting the common assertion that a larger government sector leads to slower economic growth.
    Keywords: long-term economic growth, federal government size, Wagner’s Law, United States, cointegration, Granger causality, vector autoregression, vector error correction model
    JEL: G32 G15 D92 E65 F39
    Date: 2007–08
  17. By: Annemarie Steidl (University of Vienna, Department of Economic and Social History); Engelbert Stockhammer (Department of Economics, Vienna University of Economics & B.A.)
    Abstract: The paper investigates the determinants of internal migration within late imperial Austria. In contrast to the modernization paradigm which studies onedirectional migration flows from rural to urban areas, our approach highlights that spatial mobility consisted of movements in both directions. Using data on all districts of the Austrian part of the Hapsburg Monarchy, we find that in- and outmigration rates are positively correlated, and that the modernization paradigm in migration research is consistent with our results for net-migration rates, but inconsistent with those for out-migration.
    JEL: N30 F22
    Date: 2007–08
  18. By: Scott, David H.
    Abstract: Corporate governance arrangements define the responsibilities, authorities and accountabilities of owners, boards of directors, and executive managers of a company. Good corporate governance is as important for state financial institutions as for private sector companies. Many of the problems that commonly afflict state financial institutions can be associated with, if not attributed directly to, weaknesses in corporate governance. This note draws on guidelines recently published by the OECD and the Basel Committee for Banking Supervision to compile a comprehensive corporate governance evaluation framework relevant to state-owned commercial and development finance institutions. It highlights aspects of this framework that are considered to be of particular importance to state financial institutions by citing innovative practices in a number of countries. Finally, it presents a detailed case study of the governance arrangements in place at the Development Bank of Southern Africa.
    Keywords: National Governance,Corporate Law,Emerging Markets,Debt Markets,Banks & Banking Reform
    Date: 2007–08–01
  19. By: Xiaomeng Ma; Kao-Lee Liaw
    Abstract: The main purpose of this paper is to study the roles of ethnicity and language acculturation in determining the propensities to make interprovincial migration in Canada in 1976-81, 1981-86, and 1996-2001, based on the micro data of the 1981, 1986 and 2001 censuses. Since these propensities are also subject to the strong effects of other explanatory factors, a multivariate analysis using a binomial logit model is conducted. An important methodological contribution of this paper is the clarification of the interpretational mistakes in the previous multivariate analyses of Trovato and Halli (1983 and 1990) that depended on the widely used log linear models. Our empirical findings turn out to be substantively more sensible than the earlier findings in the literature. With respect to the less complicated case of non-French minority ethnic groups, the empirical data are found to be mostly supportive of the following two hypotheses. H1: The propensities to make inter- provincial migration are lower for minority ethnic groups than for the mainstream ethnic group. H2: The use of English as home language, which represents an important cultural shift towards the mainstream, increases the inter-provincial migration propensities of minority ethnic groups. The very strong support for these two hypotheses by the Italian ethnic group and the lack of support for H2 by the Jewish ethnic group are highlighted and explained. With respect to the more complicated case of the French ethnic group, our findings are supportive of the following two hypotheses. H3: Among those residing outside Quebec, the propensities to make inter-provincial migration are greater for the French ethnic group than for the mainstream ethnic group. H4: This difference is greater for the French ethnic group that continues to use French as the home language than for the French ethnic group that has shifted the home language to English. It is unfortunate that the support for H4, which could aggravate the spatial polarization of the French and Non-French populations between Quebec and the rest of Canada, became successively stronger towards the late 1990s. Fortunately, this trend was countered by a mild narrowing of the extremely wide gap in the propensities to leave Quebec between the English-speaking British and the French-speaking French.
    Keywords: Interprovincial Migration, Ethnic Selectivity, Language Acculturation, Canada
    JEL: J61
    Date: 2007–06

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