New Economics Papers
on Business, Economic and Financial History
Issue of 2014‒05‒09
fifteen papers chosen by

  1. Financial history and financial economics By Turner, John D.
  2. Making the market: Trading debt at the Eighteenth-Century Bank of England By Murphy, Anne L.
  3. A Colonial Bank under Spanish and American Sovereignty: The Banco Español de Puerto Rico, 1888-1913 By Pablo Martín-Aceña; Inés Roldán de Montaud
  4. Financing U.S. External Trade, 1790-1819 By Javier Cuenca-Esteban
  5. Health, Height and the Household at the Turn of the 20th Century By Roy E. Bailey; Timothy J. Hatton; Kris Inwood
  6. The Efficiency of Private E-Money-Like Systems: The U.S. Experience with State Bank Notes By Warren E. Weber
  7. Banking Crises in the US: the Response of Top Income Shares in a Historical Perspective By Salvatore Morelli
  8. Elite education, mass education, and the transition to modern growth By Strulik, Holger; Werner, Katharina
  9. Do Institutions Matter? Estimating the Effect of Institutions on Econo- mic Performance in China By Ying Fang; Yang Zhao
  10. The Effect of Regional Entrepreneurship Culture on Economic Development - Evidence for Germany By Michael Fritsch; Michael Wyrwich
  11. International Trade as an Instrument to Consolidate Peace and Stability in the Mediterranean Area By Michele Gradoli
  12. Futures Premium and Efficiency of the Rice Futures Markets in Prewar Japan By Mikio Ito; Kiyotaka Maeda; Akihiko Noda
  13. Geography, Economics and Political Systems: A Bird’s Eye View By Elise S. Brezis; Thierry Verdier
  14. Does housing capital contribute to inequality? A comment on Thomas Piketty’s Capital in the 21st Century By Odran Bonnet; Pierre-Henri Bono; Guillaume Chapelle; Etienne Wasmer
  15. Globalization and local profiles of economic growth and industrial change By Dauth, Wolfgang; Suedekum, Jens

  1. By: Turner, John D.
    Abstract: This essay looks at the bidirectional relationship between financial history and financial economics. It begins by giving a brief history of financial economics by outlining the main topics of interest to financial economists. It then documents and explains the increasing influence of financial economics upon financial history, and warns of the dangers of applying financial economics unthinkingly to the study of financial history. The essay proceeds to highlight the many insights that financial history can potentially provide to financial economics. The main conclusion of the essay is that financial economics can potentially learn more from financial history than vice versa. --
    Keywords: financial economics,financial history,asset pricing,agency,corporate finance,behavioural finance,options
    JEL: G00 N01 N20
    Date: 2014
  2. By: Murphy, Anne L.
    Abstract: As the market for the trading of the British state's debt developed during the eighteenth century, the Bank of England found itself in a difficult position. It was the self-styled guardian of public credit, an institution which stood aloof as mediator between the state and its creditors, and, at the same time, the location of a market that was often criticized for its supposed attempts to undermine the stability of the state. The Bank dealt with this seeming contradiction by attempting to create both physical and commercial separation between the business of managing the public credit and the business of trading the government's debt. This paper will show that these attempts were largely unsuccessful but that the implications of those failures for the credibility of Britain's public finances were not entirely negative. --
    Keywords: Bank of England,credible commitment,financial markets,sovereign debt
    JEL: N23 G14 G21 H63
    Date: 2014
  3. By: Pablo Martín-Aceña (Universidad de Alcalá,Madrid,Spain); Inés Roldán de Montaud (Consejo Superior de Investigaciones Científicas,Madrid,Spain)
    Abstract: This paper offers the history of the Banco Español de Puerto Rico from its creation in 1888 to its liquidation in 1913. The Banco Español was the sole note-issuing institution of the island until 1898, when Puerto Rico was transferred to the United States. The establishment of the Bank was plagued with difficulties and during its first decade of existence it met with diverse obstacles that hindered its financial development. However, it contributed to diversifying the underdeveloped banking structure of the colony, to bringing down the cost of credit, and to modernizing the island’s monetary system. The transfer of sovereignty was traumatic since the Bank lost its issue monopoly and had to adjust to US banking legislation. In 1905, its name was changed to Banco de Puerto Rico and its by-laws were reformed. The last years of the Bank’s life were prosperous and it once again made an important contribution to the island’s economy. All in all, the history of the institution is a mixture of errors and achievements, a history of setbacks and successes.
    Keywords: Puerto Rico, banks, financial system, economic development, Spain, United States of America.
    JEL: G2 N16 N26
    Date: 2014–04
  4. By: Javier Cuenca-Esteban (Department of Economics, University of Waterloo)
    Abstract: In the "neutrality years" 1793-1807 and beyond, U.S. merchants drew on Spanish-American silver to finance their carrying trade and to settle deficits with Europe and the Far East. The size and direction of these payments must remain unknown, because no records of silver flows were kept until 1821. This paper infers the financial claims and liabilities involved from estimated balances of trade and services at foreign ports by geographic areas. It suggests that the seemingly central role of Spanish silver pesos in financing U.S. deficits with China is only partially explained by legal exchange between the United States and Spain, Spanish America, or Europe. The weight of evidence and argument thus points to any additional silver coin that U.S. merchants may have secured through unofficial exports directly to Spanish America.
    JEL: N71 N73 N75 N76 N77 N41 N43 N45 N46 N47
    Date: 2013–12
  5. By: Roy E. Bailey; Timothy J. Hatton; Kris Inwood
    Abstract: We examine the health and height of men born in England and Wales in the 1890s who enlisted in the army at the time of the First World War. We take a sample of the army service records and use this information to find the recruits as children in the 1901 census. Econometric results indicate that adult height was negatively related to the number of children in the household as well as to the share of earners, the degree of crowding, and positively to socioeconomic class. Adding the characteristics of the local registration district has little effect on the household-level effects. But local conditions were important; in particular the industrial character of the district, local housing conditions and the female illiteracy rate. We interpret these as representing the negative effect on height of the local disease environment. The results suggest that changing conditions at both household and locality levels contributed to the increase in height and health in the following decades.
    Date: 2014–05
  6. By: Warren E. Weber
    Abstract: In the United States prior to 1863 each bank issued its own distinct notes. E-money shares many of the characteristics of these bank notes. This paper describes some lessons relevant to e-money from the U.S. experience with state bank notes. It examines historical evidence on how well the bank notes - a privately-issued currency system with multiple issuers - functioned with respect to ease of transacting, counterfeiting, safety, overissuance and par exchange. It finds that bank notes made transacting easier and were not subject to overissuance. However, counterfeiting of bank notes was widespread, bank notes were not perfectly safe, and notes of different banks did not exchange at par and rates of exchange were volatile. The paper also examines how bank notes were regulated and supervised and how that regulation and supervision affected the functioning of the system. The U.S. experience with state bank notes suggests that a privately-issued e-money system can operate efficiently but only with appropriate government intervention, regulation, and supervision to minimize counterfeiting and to promote safety and par exchange.
    Keywords: Bank notes, E-money, Financial services
    JEL: E E4 E41 E42 E5 E58
    Date: 2014
  7. By: Salvatore Morelli (CSEF, University of Naples and INET Oxford, University of Oxford)
    Abstract: This paper examines the response of the national income shares accruing to different groups within the richest decile in the US to the occurrence of major systemic banking crises since the beginning of the twentieth century. The findings suggest that the impact of banking crises on the US top income shares is mostly small in magnitude. Indeed, the estimated total effect of crises is never bigger than one standard deviation of a specific top shares under investigation. Results are robust to a variety of checks and the analysis also highlights interesting heterogeneity across different income groups. Additional results also point out that the short-term impact of crises may be also temporary in nature as top shares recover faster in the aftermath of a shock. These findings lend indirect support to the idea that only substantial changes in government policies and institutional frameworks can bring about radical changes in income distribution.
    JEL: D31 D39 E32 E37
    Date: 2014–04–29
  8. By: Strulik, Holger; Werner, Katharina
    Abstract: For most of human history there existed a well-educated and innovative elite whereas mass education, market R&D, and high growth are phenomena of the modern period. In order to explain these phenomena we propose an innovation-driven growth model for the very long run in which the individual-specific return to education is conceptualized as an compound of cognitive ability and family background. This allows us to establish a locally stable steady state at which family background determines whether an individual experiences education and a locally stable steady state at which education is determined by cognitive ability. Compulsory schooling can move society from elite education to mass education. An interaction between education and life expectancy explains why the education period gets longer with ongoing economic development. Embedding this household behavior into a macro-economy we can explain different paths to modern growth: According to the Prussian way, compulsory education is implemented first and triggers later on the onset of market R&D and modern growth. According to the British way, market R&D and the take off to growth is initiated without mass education, which is triggered later by technical progress and economic development. --
    Keywords: long-run growth,elite education,compulsory education,longevity,R&D
    JEL: I24 J24 O30 O40
    Date: 2014
  9. By: Ying Fang; Yang Zhao
    Abstract: This paper estimates the effect of institutions on economic performance using cross-city data from China. We argue that China’s ongoing reforms are part of a long and circuitous historical transition from antiquity to modernity, which started about 150 years ago. Learning from Western countries has been a central aspect of this historical process. The West had a large influence on the early stage of this transition, which has persisted to current reforms. This study uses the enrollment in Christian missionary lower primary schools in China in 1919 as an instrument for present institutions. Employing a two-stage least squares method, we find that the effect of institutions on economic performance in China is positive and significant. The results are robust according to various tests including additional controls, such as geographic factors and government policy-related variables.
    Keywords: Institutions, Christian, Geography, Policy!#O11, O53, P16, P51
    Date: 2013–10–14
  10. By: Michael Fritsch; Michael Wyrwich
    Abstract: We use the historical self-employment rate as an indicator of a regional culture of entrepreneurship and link this measure to economic growth in recent periods. The results indicate that German regions with a high level of entrepreneurship in the mid-1920s have higher start-up rates about 80 years later. Furthermore, we find that the effect of current start-up activity on regional employment is significantly higher in regions with a pronounced entrepreneurial culture. We conclude that a regional culture of entrepreneurship is an important resource for regional growth.
    Keywords: Entrepreneurship, economic development, self-employment, new business formation, entrepreneurship culture, institutions
    JEL: L26 R11 O11
    Date: 2014–04
  11. By: Michele Gradoli
    Abstract: During the last twenty years, Europe started to search for a new approach towards the Mediterranean region: after the re-start of its internal economy after the World War II, and after the re-launch of the economic integration process, Europe began a diffuse reflection on its relationships with the Northern African and Middle Eastern countries. This reflection produced several forms of partnerships and alliances and my intention with this paper is to highlight the main steps of this convergent pathway that started in 1995 with the EuroMediterranean Partnership (EMP)
    Date: 2014–03
  12. By: Mikio Ito; Kiyotaka Maeda; Akihiko Noda
    Abstract: This paper examines how the Tokyo and Osaka rice futures markets in prewar Japan were evolving in view of market efficiency. Applying a non-Bayesian time-varying model approach to analyze the famous equation for the futures premium, we find that the market efficiency of the two major rice futures markets varied with time. Such time-varying structure of the rice futures markets in prewar Japan corresponds well to historical changes in the Japanese colonial policy and domestic development of railroad system and port facilities.
    Date: 2014–04
  13. By: Elise S. Brezis (Bar-Ilan University); Thierry Verdier
    Date: 2014–04
  14. By: Odran Bonnet (Sciences Po, LIEPP, Département d'Economie); Pierre-Henri Bono (Sciences Po LIEPP); Guillaume Chapelle (Sciences Po, LIEPP, Département d'Economie); Etienne Wasmer (Département d'économie)
    Abstract: In his book, Capital in the 21st Century,Thomas Piketty highlights the risk of an explosion of wealth inequality because capital is accumulating faster than income in several countries including the US and European countries such as France. Our work challenges the conclusions of the author in three steps. First, the author’s result is based on the rise of only one of the components of capital, namely housing capital,and due to housing prices. In fact, housing prices have risen faster than rent and income in many countries.It is worth noting that “productive” capital, excluding housing, has only risen weakly relative to income over the last few decades. Over the longer run, the “productive” capital/income ratio has not increased at all. Second, rent, not housing prices, should matter for the dynamics of wealth inequality, because rent represents both the actual income of housing capital for landlords and the dwelling costs saved by “owner-occupiers” (people living in their own houses). Logically, to properly measure capital, the value of housing capital must be corrected by measuring it on actual rental price, and not housing prices. Third, when we apply this change, we find that the capital/income ratio is actually stable or only mildly higher in the countries analyzed (France, the US, the UK, and Canada) except for Germany where it rose. These conclusions are exactly opposite to those found by Thomas Piketty. However, this does not mean that housing prices do not contribute to other forms of inequality. When housing prices rise, owners of the housing capital hold a higher value that can be transformed into consumption. It is also more difficult for young adults to become homeowners. Housing incomes of owners however do not necessarily increase which casts serious doubt on Piketty’s conclusion of a potential explosive dynamics of inequality based on these trends.
    Date: 2014–05
  15. By: Dauth, Wolfgang; Suedekum, Jens
    Abstract: We analyze how globalization has affected the sectoral anatomy of regional growth in Germany over the period 1978-2008. The aggregate German economy is characterized by a secular decline of manufacturing and a rise of modern service industries. This trend - also known as Petty's law - is not uniform across space, however. Some regions exhibit it at an even accelerated pace, while other regions have reinforced their manufacturing specializations. We first categorize all German regions into one of three groups, with protrend, anti-trend or featureless growth. Afterwards we propose an explanation why a particular region ended up in one of those groups: We argue that the regional profiles of growth and change are systematically related to the initial sizes, and the import and export exposures of the local manufacturing sectors. --
    Keywords: structural change,local industry compositions,trade exposure,local employment growth
    JEL: R11 O14 F16
    Date: 2014

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