New Economics Papers
on Business, Economic and Financial History
Issue of 2009‒09‒26
23 papers chosen by

  1. Catch Me If You Can: Education and Catch-up in the Industrial Revoluti on By Woessmann, Ludger; Hornung, Erik; Becker, Sascha O.
  2. Monetary Policy and the Dollar By Peter L. Rousseau
  3. Riding the Wave of Trade: Explaining the Rise of Labor Regulation in the Golden Age of Globalization By Michael Huberman; Christopher M. Meissner
  4. Part-Paid Stock, Corporate Finance, and Investment: Economic Consequences of the Part-Paid Stock System and Supplementary Installments in the Early 1930s of Japan By Takashi Nanjo; Makoto Kasuya
  5. Business Marketing of the Agricultural Co-operatives Association in Aomori Prefecture in the l900s and l910s: Building Cooperative Relationships among the Association, Associate partners, and Wholesalers By Izumi Shirai
  6. Credit Crises, Money and Contractions: an historical view By Michael D. Bordo; Joseph G. Haubrich
  7. The Rise of the Current Banking System in Japan, 1868-1936 By Hassouna Moussa; Jiro Obata
  8. Beyond the Competition Approach to Money: a Conceptual Framework applied to the Early Modern France By Jérôme Blanc
  9. Something Rational in the State of Denmark? The Case of an Outsider in the Cobden-Chevalier Network 1860-1875 By Markus Lampe; Paul Sharp
  10. Waterloo et les regard croisés de l'interprétation By Mongin, Philippe
  11. The anti-materialist project of "The Bourgeois Era" By McCloskey, Deirdre Nansen
  12. This Time It’s Different: Eight Centuries of Financial Folly-Preface By Reinhart, Carmen; Rogoff, Kenneth
  13. This Time It’s Different: Eight Centuries of Financial Folly-Chapter 1 By Reinhart, Carmen; Rogoff, Kenneth
  14. Securing Human Rights Intellectually: Philosophical Inquiries about the Universal Declaration By Risse, Mathias
  15. Newspapers and Parties: How Advertising Revenues Created an Independent Press By Maria Petrova
  16. Rethinking Regional Path Dependence: Beyond Lock-in to Evolution By Ron Martin
  17. Towards a Political Economy of the Hunters and Gatherers: A Study in Historical Materialism By Hagendorf, Klaus
  18. A Historical Analysis of Central Bank Independence in Latin America: The Colombian Experience, 1923-2008 By Adolfo Meisel; Juan David Barón
  19. Financial Crises and Economic Activity By Stephen G. Cecchetti; Marion Kohler; Christian Upper
  20. Persistence of Civil Wars By Daron Acemoglu; Davide Ticchi; Andrea Vindigni
  21. Extensive and Intensive Investment Over the Business Cycle By Boyan Jovanovic; Peter L. Rousseau
  22. What is Happening to the Impact of Financial Deepening on Economic Growth? By Peter L. Rousseau; Paul Wachtel
  23. "Empirical Assessment of Merger and its Remedies: the Yawata-Fuji Case (1970)" " (in Japanese) By Hiroshi Ohashi; Tsuyoshi Nakamura; Satoshi Myojo

  1. By: Woessmann, Ludger; Hornung, Erik; Becker, Sascha O.
    Abstract: Existing evidence, mostly from British textile industries, rejects the importance of formal education for the Industrial Revolution. We provide new evidence from Prussia, a technological follower, where early-19th-century institutional reforms created the conditions to adopt the exogenously emerging new technologies. Our unique school-enrollment and factory-employment database links 334 counties from pre-industrial 1816 to two industrial phases in 1849 and 1882. Controlling extensively for pre-industrial development, we use pre-industrial education as an instrument to identify variation in later education that is exogenous to industrialization itself. We find that basic education significantly accelerated nontextile industrialization in both phases of the Industrial Revolution.
    Keywords: Prussian economic history; industrialization; Human capital
    Date: 2009–09
  2. By: Peter L. Rousseau (Department of Economics, Vanderbilt University)
    Abstract: In this essay I propose that the adoption of the U.S. dollar as a common currency shortly after the ratification of the Federal Constitution and the accompanying transition from a fiat to specie standard was a pivotal moment in the nationÕs early history and marked an improvement over the monetary systems of colonial America and under the Articles of Confederation. This is because the dollar and all that came with it monetized the modern sector of the U.S. economy and tied the supply of money more closely to the capital market and the provision of creditø feats that were not possible in an era when colonial legislatures were unable to credibly commit to controlling paper money emissions. The switch to a specie standard was at the time necessary to promote domestic and international confidence in the nascent financial system, and paved the way for the long transition to the point when the standard was no longer required.
    Keywords: Colonial money, early US growth, quantity theory of money, backing theory, monetization
    JEL: N11 N21 E42 E44
    Date: 2009–09
  3. By: Michael Huberman; Christopher M. Meissner
    Abstract: This paper challenges the received view that pins the adoption of labor regulation before 1914 on domestic forces, particularly the rises in income and voter turnout. Building on standard state-year event history analysis, we find that trade was also a main pathway of diffusion. Countries that traded with each other were more likely to establish a level playing field. The transmission mechanism was strongest in north-west Europe because intra-industry trade was significant in the region. When states failed to emulate the superior labor regulations of their most important trading partners, they left themselves vulnerable to embargos and sanctions on their exports. Threats of market loss were not credible in the New World because it exported mainly primary products and prices were fixed by world demand and supply. Domestic forces trumped international pressures to converge, with the result that labor regulation developed more slowly in regions of new settlement than in the European core.
    JEL: J8 N3 N40 N70
    Date: 2009–09
  4. By: Takashi Nanjo (Deputy Director and Institute for Monetary and Economic Studies (IMES), Bank of Japan (E-mail:; Makoto Kasuya (Professor, University of Tokyo (E-mail:
    Abstract: Under Japanfs prewar capital stock system of joint-stock companies, rather than paying the full face value of a share in one lump sum, shareholders paid for stocks in multiple installments. This system was transplanted from industrialized Western nations during the Meiji Era to make it easier for investors to buy company shares and to promote capital concentrations. Company directors determined the amount of supplementary installments on part-paid stocks and when these installments were paid. The Commercial Code and Corporate articles of association specified sanctions for nonpayment, giving companies the backing needed to call in supplementary installments. Supplementary installments functioned as a last resort for corporate fund-raising in times of financial distress and played a role in corporate cash management and investment. Studies of historical documents such as financial statements and company histories show that in the early 1930s of the Great Depression, in a time of tight financial markets, many companies raised funds through supplementary installments, applying these funds to make investments and repay debts. As part of our study, we construct a new corporate financial data set with data on supplementary installments encompassing 174 firms, based on the Mitsubishi Economic Research Institutefs Honpo Jigyo-Seiseki Bunseki (Performance analysis of Japanese companies) and Toyo Keizaifs Kabushiki Gaisha Nenkan ( Company Year Book) and estimate cross-sectional investment functions for the fiscal year of 1932. Regression results suggest that while corporate investments were subject to liquidity and debt constraints, supplementary installments stabilized corporate cash management and promoted corporate investment activities.
    Keywords: part-paid stock, joint-stock company, corporate finance, investment, financial system, interwar period, Great Depression
    JEL: E22 G32 G38 N15 N25
    Date: 2009–09
  5. By: Izumi Shirai (Graduate School of Economics, Osaka University)
    Abstract: This article analyzed the business marketing of the Agricultural Co-operatives Association established in Takedate Village in the Tsugaru district of Aomori Prefecture in 1907. In the early stages of the Meiji period, this area was considered as backward in terms of commodity production and circulation. However, the Agricultural Co-operatives Association has been highly evaluated for its business marketing across the nation ever since the mid-1910s, and has built a brand name for itself, We obtained the followings results. (1) By means of production inspection before packaging, the association made an effort toward not only the production of high-quality apples but also their trusted shipment in accordance with the brand name and standards established for itself. All these were extremely advanced efforts in agricultural commodity transactions. (2) However, until the early 1910s, the business sales of the association encountered certain problems. One problem was that the association partners had illegally sold apples to merchants and therefore, could not gather enough apples to sell. Another problem was that the specification wholesalers in the great city did not make all their payments smoothly. While being such status, the association thought much of the trust and the autonomy at the partners and the wholesales. It supported without laying down compulsion and a penalty regulation. (3) The problems mentioned in the above point were solved after the association received special awarding in 1916. The association became flagrant nationwide and succeeded in establishing a brand name image. The partners recognized that apples sold on behalf of the association should be done so at favorable prices. As the associationfs apples became famous in the markets of consuming regions, wholesalers came to recognize special wholesale contracts with this association as an honor. Consequently, the association grew to be an economic organization that took the initiative in product sales to wholesalers even in important cities such as Tokyo.
    Keywords: Japanese Economic History, Agricultural Co-operatives Association, Business Marketing, Market
    JEL: N55 N75 N85
    Date: 2009–09
  6. By: Michael D. Bordo; Joseph G. Haubrich
    Abstract: The relatively infrequent nature of major credit distress events makes an historical approach particularly useful. Using a combination of historical narrative and econometric techniques, we identify major periods of credit distress from 1875 to 2007, examine the extent to which credit distress arises as part of the transmission of monetary policy, and document the subsequent effect on output. Using turning points defined by the Harding-Pagan algorithm, we identify and compare the timing, duration, amplitude and co-Âmovement of cycles in money, credit and output. Regressions show that financial distress events exacerbate business cycle downturns both in the nineteenth and twentieth centuries and that a confluence of such events makes recessions even worse.
    JEL: E32 E50 G21
    Date: 2009–09
  7. By: Hassouna Moussa; Jiro Obata
    Abstract: Learning by doing convinced the Japanese government to create in 1882 a relatively transparent and credible central bank, Bank of Japan, and adopted the gold standard in 1898 to prove it. Unfortunately, the government did not see it fit to enforce transparency on other financial and non financial institutions in an effort to maximize the supply of capital and reduce its cost. To remedy for this deficiency, the government imposed on Bank of Japan to offer implicit deposit insurance. For a long period, this arrangement helped the government of Japan to place the Japanese economy on a fast development track but it also created a serious moral hazard problem. Through various subterfuges, the government was able to escape the necessity to enforce a minimum amount of transparency. World War I brought about golden opportunities that the Japanese economy exploited full at the cost of high rates of inflation thanks to the exit of most developed countries, including Japan, out of the gold standard. The return of the US to the gold standard soon after the end of the war at the old parity forced Japan to reconsider moving to a flexible exchange rate regime or returning to the gold standard either at the old parity at the cost of a depression or at a new parity with a devaluation. For ten years, the government of Japan did not make up its mind. Instead, it instructed Bank of Japan to continue offering free implicit deposit insurance. The moral hazard problem became acute dragging the Japanese economy into many financial crises but the government refused to impose transparency. After falling initially for two decades following the creation of Bank of Japan, real and nominal interest rates meandered without any clear direction and remained on average relatively high. Finally, the government decided to return to the gold standard at the old parity to clean up the weaker and inefficient institutions and reduce the cost of capital. We demonstrate that the government walked into this trap knowing well the economic consequences. Thanks to the naiveteÌ of an otherwise brilliant economist and a former governor of Bank of Japan, the return ended up in a disaster and the government still refused to enforce transparency, preferring instead to impose financial repression out of which the current banking system was born.
    Date: 2009
  8. By: Jérôme Blanc (LEFI - Laboratoire d'Economie de la Firme et des Institutions - Université Lumière - Lyon II)
    Abstract: As other European countries of that time, Early modern France was characterized by its monetary plurality. The purpose of the text is to present this plurality and analyse the ways it was articulated. After a presentation of the intention of the paper, Section 2 presents the problem of monetary articulations, referring to existing literature: competition is too often the only articulation mode referred to by economists; however, an other one is increasingly analyzed, complementarity. We state that complementarity is too vague to be relevant enough and build a conceptual framework identifying four distinct articulation modes : competition, simultaneousness, supplementarity and autonomy. Section 3 presents a short overview of monetary plurality in the French early modern period and it applies the theoretical framework to it in order to stress the various possible combinations of articulation modes of money. It emphasizes the case of royal coins as being close to supplementarity, the case of gold coins as being close to competition, and the case of méreaux as being between supplementarity and autonomy. Section 4 addresses briefly the question as to whether the monetary complexity of that period means chaos. The role of social stratification and intermediates in reducing the complexity of monetary plurality is emphasized. Section 5 concludes.
    Keywords: Monetary history;monetary plurality;competition;complementarity;Early modern France
    Date: 2009–08–03
  9. By: Markus Lampe (Department of Food and Resource Economics, University of Copenhagen); Paul Sharp (Department of Economics, University of Copenhagen)
    Abstract: We examine the case of an important outsider to the Cobden-Chevalier network of bilateral treaties in the second half of the nineteenth century. We attempt to explain this through a study of the structure of Danish trade and protection. We demonstrate, in contrast to previous accounts that have considered Danish trade policy somewhat irrational, that Denmark was right to remain outside. She had little to gain from concluding treaties, since her main trading partners offered free trade for her exports, agricultural goods, and she needed her own tariffs for revenue purposes.
    Keywords: bilateral treaties; Cobden-Chevalier network; Denmark
    JEL: N7
    Date: 2009–09
  10. By: Mongin, Philippe
    Abstract: The interpretations of the Waterloo campaign are numerous, diverse and constantly reworked, so they are part of history no less than the event itself. This article briefly reviews them before considering more carefully two selected interpreters, i.e., Clausewitz and Stendhal. It likens the former to a rational choice theorist who makes a step away from intelligible narrative in the direction of modelling, and it represents the latter, who expresses himself through his character Fabrice, as a theoretically informed critique of the inert categories of the historical discourse. Despite their opposing trends towards unification and dissolution, both examples testify to general features, which the end of this essay tries to bring out, of the concepts of interpretation and plurality of interpretations.
    Keywords: Waterloo; campaign of 1815; Napoleon; Clausewitz; Stendhal; The Charterhouse of Parma; interpretation; interpretative plurality; intelligible narrative; rational choice theories
    JEL: B49 C72 N43
    Date: 2009–01–01
  11. By: McCloskey, Deirdre Nansen
    Abstract: It is a materialist prejudice common in scholarship from 1890 to 1980 that economic results must have economic causes. But ideas caused the modern world. The point can be made by looking through each of the materialist explanations, from the “original accumulation” favored by early Marxist historians to the "new institutionalism” favored by late Samuelsonian economists. The book present does so, and finds them surprisingly weak. The residual is ideas, in particular the Bourgeois Revaluation of the 17th and 18th centuries in northwest Europe. The argument takes six books, constituting a full-scale defense of capitalism. One is already published (The Bourgeois Virtues: Ethics for an Age of Commerce 2006), and this is volume 2. Volume 3 will explore exactly how the Revaluation occurred, first in Holland and then by imitation in England, Scotland, Pennsylvania, and the world. Volume 4 explores the balance of interest (Max U) and language in explaining the Industrial Revolution and its longer-term consequences; volume 5 explains why the clerisy of elite artists and intellectuals turned against innovation after 1848; and volume 6 asks which of the present-day complaints about free-market economies has merit. Since the sestet (“The Bourgeois Era”) is a defense, one can expect not to find arguments that globalization is bad for the poor, or that innovation has destroyed the environment. Both left and right are suspicious of the modern world, often for the same reasons. “The Bourgeois Era” argues that both are mistaken: that innovation has elevated people, in more than goods alone.
    Keywords: bourgeois era; innovation; economics; economic history; economic causes; ideas; modern world; capitalism
    JEL: N10 N13 N0
    Date: 2009–06–09
  12. By: Reinhart, Carmen; Rogoff, Kenneth
    Abstract: Throughout history, rich and poor countries alike have been lending, borrowing, crashing--and recovering--their way through an extraordinary range of financial crises. Each time, the experts have chimed, "this time is different"--claiming that the old rules of valuation no longer apply and that the new situation bears little similarity to past disasters. We stress that premise is wrong. Covering sixty-six countries across five continents, This Time Is Different presents a comprehensive look at the varieties of financial crises, and guides us through eight astonishing centuries of government defaults, banking panics, and inflationary spikes--from medieval currency debasements to today's subprime catastrophe. We argue that financial combustions are universal rites of passage for emerging and established market nations. The authors draw important lessons from history to show us how much--or how little--we have learned. We document that financial fallouts occur in clusters and strike with surprisingly consistent frequency, duration, and ferocity. We examine the patterns of currency crashes, high and hyperinflation, and government defaults on international and domestic debts--as well as the cycles in housing and equity prices, capital flows, unemployment, and government revenues around these crises. While countries do weather their financial storms, we show that short memories make it all too easy for crises to recur.
    Keywords: banking and financial crisis; currency crash; debt; inflation; default; recession
    JEL: N1 F30 N2 F01 H6
    Date: 2009
  13. By: Reinhart, Carmen; Rogoff, Kenneth
    Abstract: Throughout history, rich and poor countries alike have been lending, borrowing, crashing--and recovering--their way through an extraordinary range of financial crises. Each time, the experts have chimed, "this time is different"--claiming that the old rules of valuation no longer apply and that the new situation bears little similarity to past disasters. We stress that premise is wrong. Covering sixty-six countries across five continents, This Time Is Different presents a comprehensive look at the varieties of financial crises, and guides us through eight astonishing centuries of government defaults, banking panics, and inflationary spikes--from medieval currency debasements to today's subprime catastrophe. We argue that financial combustions are universal rites of passage for emerging and established market nations. The authors draw important lessons from history to show us how much--or how little--we have learned. We document that financial fallouts occur in clusters and strike with surprisingly consistent frequency, duration, and ferocity. We examine the patterns of currency crashes, high and hyperinflation, and government defaults on international and domestic debts--as well as the cycles in housing and equity prices, capital flows, unemployment, and government revenues around these crises. While countries do weather their financial storms, we show that short memories make it all too easy for crises to recur.
    Keywords: banking and financial crises; currency crash; inflation; debt; default; recession
    JEL: N1 F3 F01 N2 H6
    Date: 2009
  14. By: Risse, Mathias (Harvard University)
    Abstract: This article is intended for an edited volume in the series "The New Harvard Bookshelf: Towards a Liberal Education for the 21st Century." The purpose of that collection is to bring together articles that capture the basic ideas of various courses offered in the general education curriculum of Harvard College. This article is based on the syllabus of my course Human Rights: A Philosophical Introduction (ER11). It begins with a brief historical introduction to the human rights movement and to the Universal Declaration of Human Rights. However, the main goal of this article is to explore three different approaches to arguing that human beings have rights in virtue of being human. I conclude with a few remarks on the universalism/relativism debate.
    Date: 2009–08
  15. By: Maria Petrova (New Economic School)
    Abstract: Does economic development promote media freedom? Do higher advertising revenues tend to make media outlets independent of political groups?in?uence? Using data on the 19th century American newspapers, I show that in places with higher advertising revenues, newspapers were more likely to be independent from political parties. Similar results hold when local advertising rates are instrumented by regulations on outdoor advertising and newspaper distribution. I also show that newly created newspapers were more likely to enter the market as independents in markets with higher advertising rates.
    Date: 2009–08
  16. By: Ron Martin
    Abstract: This paper argues that in its 'canonical' form, the path dependence model, with its core concept of 'lock-in, affords a very restrictive and narrowly applicable account of regional and local industrial evolution, an account moreover that is tied to problematic underpinnings based on equilibrist thinking. As such the canonical path dependence model actually stresses continuity rather than change. The paper goes on to explore recent developments in historical sociology and political science, where there are active attempts to rethink the application of path dependence to the evolution of institutions so as to emphasise change rather than continuity. These developments are used to argue for a rethinking of path dependence ideas in economic geography.
    Keywords: path dependence, lock-in, equilibrium evolution, layering, conversion, adaptation
    JEL: B52 O18 R11 R12
    Date: 2009–09
  17. By: Hagendorf, Klaus
    Abstract: This paper uses the mode of production of the hunter-gatherers as a background to explain basic economic concepts, in particular the meaning of the labour theory of value and it's relationship to optimization of resources. A proof of the marginal value theorem is presented. A new term is introduced to designate labour surplus value, roundabout labour. The analytical expression for socially necessary labour is derived and Adam Smith's paradox between labour value and the adding-up theorem of wages, rent and profit, is resolved. It is shown that far from being limited to the ancient form of society of the hunter-gatherers the labour theory of value holds also in modern times.
    Keywords: historical materialism; labour theory of value; Marxian economics; roundabout labour; Adam Smith; surplus labour; hunter-gatherer society; marginal value theorem; evolutionary ecology; modes of production; productive forces;
    JEL: D46 B51 B14 Z10 D20 D24 Q57
    Date: 2009–05
  18. By: Adolfo Meisel; Juan David Barón
    Abstract: This paper explores the relationship between central bank independence and inflation in Latin America, using as a case study the experience of Colombia (1923-2008). Since its creation, in 1923, Colombia’s central bank has undergone several reforms that have changed its objectives and degree of independence. Between 1923 and 1951, it was private and independent, with a legal commitment to price stability. In 1962 monetary responsibilities were divided between a government-dominated Monetary Board, in charge of monetary policy, and the central bank, which carried them out. In the early 1990s, the bank recovered its independence and its focus on price stability. Inflation varied substantially during these subperiods. The analysis shows that central bank independence, combined with a commitment to price stability, renders the best results in terms of price stability.
    Date: 2009–09–06
  19. By: Stephen G. Cecchetti; Marion Kohler; Christian Upper
    Abstract: We study the output costs of 40 systemic banking crises since 1980. Most, but not all, crises in our sample coincide with a sharp contraction in output from which it took several years to recover. Our main findings are as follows. First, the current financial crisis is unlike any others in terms of a wide range of economic factors. Second, the output losses of past banking crises were higher when they were accompanied by a currency crisis or when growth was low at the onset of the crisis. When accompanied by a sovereign debt default, a systemic banking crisis was less costly. And, third, there is a tendency for systemic banking crises to have lasting negative output effects.
    JEL: E32 E44
    Date: 2009–09
  20. By: Daron Acemoglu; Davide Ticchi; Andrea Vindigni
    Abstract: A notable feature of post-World War II civil wars is their very long average duration. We provide a theory of the persistence of civil wars. The civilian government can successfully defeat rebellious factions only by creating a relatively strong army. In weakly-institutionalized polities this opens the way for excessive influence or coups by the military. Civilian governments whose rents are largely unaffected by civil wars then choose small and weak armies that are incapable of ending insurrections. Our framework also shows that when civilian governments need to take more decisive action against rebels, they may be forced to build over-sized armies, beyond the size necessary for fighting the insurrection, as a commitment to not reforming the military in the future.
    JEL: H2 N10 N40 P16
    Date: 2009–09
  21. By: Boyan Jovanovic (Department of Economics, New York University); Peter L. Rousseau (Department of Economics, Vanderbilt University)
    Abstract: Investment of U.S. firms responds asymmetrically to Tobin's Q: Investment of established firms -- `intensive' investment -- reacts negatively to Q whereas investment of new firms -- `extensive' investment -- responds positively and elastically to Q. This asymmetry, we argue, reflects a difference between established and new firms in the cost of adopting new technologies. A fall in the compatibility of new capital with old capital raises measured Q and reduces the incentive of established firms to invest. New firms do not face such compatibility costs and step up their investment in response to the rise in Q. A composite-capital version of the model fits the data well using aggregates since 1900 and our new database of firm-level Qs that extend back to 1920.
    Keywords: Compatibility costs, composite capital, vintage capital, Tobin's Q, 20th century investment
    JEL: E3 N1 O3
    Date: 2009–09
  22. By: Peter L. Rousseau (Department of Economics, Vanderbilt University); Paul Wachtel (Department of Economics & Sten School of Business, New York University)
    Abstract: Although the finance-growth relationship is now firmly entrenched in the empirical literature, we show that it is not as strong in more recent data as it was in the original studies with data for the period from 1960 to 1989. We consider several explanations. First, we find that the incidence of financial crises is related to the dampening of the effect of financial deepening on growth. Excessive financial deepening or too rapid growth of credit may have led to both inflation and weakened banking systems which in turn gave rise to growth-inhibiting financial crises. Excessive financial deepening may also be a result of widespread financial liberalizations in the late 1980s and early 1990s in countries that lacked the legal or regulatory infrastructure to exploit financial development successfully. However, we find little indication that liberalizations played an important direct in reducing the effect of finance. Similarly, there is little evidence that the growth of equity markets in recent years has substituted for debt financing and led to a reduced role of financial deepening on growth.
    Keywords: Finance-growth nexus, rolling regression, robustness, cross-country growth
    JEL: E44 G10 O40
    Date: 2009–09
  23. By: Hiroshi Ohashi (Faculty of Economics, University of Tokyo); Tsuyoshi Nakamura (Faculty of Economics, Tokyo Keizai University); Satoshi Myojo (National Institute of Science and Technology Policy (NISTEP))
    Abstract: This paper estimates a dynamic oligopoly model to assess the economic consequences of a horizontal merger that took place in 1970 to create the second largest global producer of steel. The paper solves a Markov perfect Nash equilibrium for the model and simulates the welfare effects of the horizontal merger. Estimates reveal that the merger enhanced the production efficiency of the merging party by a magnitude of 4.1 %, while the exercise of market power was restrained primarily by the presence of fringe competitors. Our simulation result also indicates that structural remedies endorsed by the competition authority failed to promote competition.
    Date: 2009–08

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