nep-his New Economics Papers
on Business, Economic and Financial History
Issue of 2014‒12‒13
twenty papers chosen by

  1. Temporary Shocks and Persistent Effects in the Urban System: Evidence from British Cities after the U.S. Civil War By W. Walker Hanlon
  2. Economic inequality and growth before the industrial revolution: A case study of the Low Countries (14th-19th centuries) By Wouter Ryckbosch
  3. The fall of the elephant. Two decades of poverty increase in Côte d’Ivoire (1988-2008) By Cogneau, Denis; Houngbedji, Kenneth; Mesplé-Somps, Sandrine
  4. Schumpeter and Goodwin By Hanappi, Hardy
  5. Mutual assistance between Federal Reserve Banks, 1913-1960 as prolegomena to the TARGET2 debate By Eichengreen, Barry; Mehl, Arnaud; Chiţu, Livia; Richardson, Gary
  6. Back to the failure: An analytic narrative of the De Lorean debacle By Brownlow, Graham
  7. A Distant Mirror of Debt, Default, and Relief By Carmen M. Reinhart; Christoph Trebesch
  8. Deflation and Economic Growth in Long-Term Perspective By Pavel Ryska
  9. The Federal Reserve's Abandonment of its 1923 Principles By Julio J. Rotemberg
  10. Historia de la Economía Cafetera: Colombia By Estrada, Fernando
  11. . . . and the Cross-Section of Expected Returns By Campbell R. Harvey; Yan Liu; Heqing Zhu
  12. The Impact of the German Autobahn Net on Regional Labor Market Performance: A Study Using Historical Instrument Variables By Möller, Joachim; Zierer, Marcus
  13. Father's Employment and Sons' Stature: The Long Running Effects of a Positive Regional Employment Shock in South Africa's Mining Industry By Martine Mariotti
  14. The Ricardian rent theory two centuries after By Christian Bidard
  15. Counterparty Risk and the Establishment of the New York Stock Exchange Clearinghouse By Asaf Bernstein; Eric Hughson; Marc D. Weidenmier
  16. History and Performance of the Double Eagle Club By LaDue, Eddy
  17. La crisis económica actual. Análisis de sus antecedentes By Mauricio Nieto Potes
  18. The unsolved contradictions of the modernists. Economic policy expectations and political crisis in France 1978-2012 By Bruno Amable
  19. Dealing with financial crises: How much help from research? By Pagano, Marco
  20. Consommation marchande et contraintes non monétaires au Canada (1969-2008) By Julien Boelaert; François Gardes

  1. By: W. Walker Hanlon
    Abstract: Urban economies are often heavily reliant on a small number of dominant industries, leaving them vulnerable to negative industry-specific shocks. This paper analyzes the long-run impacts of one such event: the large, temporary, and industry-specific shock to the British cotton textile industry caused by the U.S. Civil War (1861-1865), which dramatically reduced supplies of raw cotton. Because the British cotton textile industry was heavily concentrated in towns in Northwest England, I compare patterns in these cotton towns to other English cities. I find that the shock had a persistent negative effect on the level of city population lasting at least 35 years with no sign of diminishing. Decomposing the effect by industry, I show that the shock to cotton textiles was transmitted to other local firms, leading to increased bankruptcies and long-run reductions in employment. This transmission occurred primarily through the link to capital suppliers, such as machinery and metal-goods producers. Roughly half of the reduction in city-level employment growth was due to the impact on industries other than cotton textiles.
    JEL: F14 N63 N93 R12
    Date: 2014–09
  2. By: Wouter Ryckbosch
    Abstract: This paper studies a collection of data on economic inequality in fifteen towns in the Southern and Northern Low Countries from the late Middle Ages until the end of the nineteenth century. By using a single and consistent source type and adopting a uniform methodology, it is possible to study levels of urban economic inequality across time and place comparatively. The results indicate a clear growth in economic inequality in the two centuries prior to the industrial revolution and the onset of sustained economic growth per capita. The general occurrence of this rise throughout regions with dissimilar economic trajectories contradicts the existence of a straightforward trade-off between growth and inequality as conjectured by Simon Kuznets (1955). Instead, the results presented lend support to the ÔclassicalÕ economistsÕ explanation of inequality as the consequence of a changing functional distribution of income favouring capital over labour in the long run.
    Keywords: Income Inequality, Pre-Industrial, Economic Growth, super Kuznets curve.
    Date: 2014–11
  3. By: Cogneau, Denis; Houngbedji, Kenneth; Mesplé-Somps, Sandrine
    Abstract: At the end of the 1980s, Côte d’Ivoire entered a deep macroeconomic crisis that put an end to the often-praised ‘Ivorian miracle’. After the death of the founding father Houphouet-Boigny, unrestrained political competition added to bad economic conditions and led to the nightmare of civil war. Drawing from a series of five household surveys covering two decades (1988-2008), we tell the story of this descent into hell from the standpoint of poverty and living standards. In 2008, after five years of civil war and another episode yet to come (2010-11), the extreme US$1.25 poverty headcount had reached a historical record, with Northern areas deeply impoverished by the partition.
    Keywords: Economic history; poverty; Côte d’Ivoire; welfare;
    JEL: I32 N17 N37 O55
    Date: 2014–11
  4. By: Hanappi, Hardy
    Abstract: This paper discusses the works of Joseph Schumpeter and Richard Goodwin using the common perspective that both were theoretical mavericks of mainstream economic theory development in the 20th century. In particular the fact that their activities overlapped during their cooperation at Harvard University is explored. Their contributions are interpreted as entrepreneurial activity in the domain of theory building - with some spillovers to economic policy intervention. It is argued that maverick theoretical activity is indispensable for progress in evolutionary political economy.
    Keywords: Evolutionary political economy, Schumpeter, Goodwin, history of thought
    JEL: B3 B31 B41 B50 O31
    Date: 2014–11–12
  5. By: Eichengreen, Barry; Mehl, Arnaud; Chiţu, Livia; Richardson, Gary
    Abstract: This paper reconstructs the forgotten history of mutual assistance among Reserve Banks in the early years of the Federal Reserve System. We use data on accommodation operations by the 12 Reserve Banks between 1913 and 1960 which enabled them to mutualise their gold reserves in emergency situations. Gold reserve sharing was especially important in response to liquidity crises and bank runs. Cooperation among reserve banks was essential for the cohesion and stability of the US monetary union. But fortunes could change quickly, with emergency recipients of gold turning into providers. Because regional imbalances did not grow endlessly, instead narrowing when region-specific liquidity shocks subsided, mutual assistance created only limited tensions. These findings speak to the current debate over TARGET2 balances in Europe. JEL Classification: F30, N20
    Keywords: Federal Reserve System, gold standard, liquidity and financial crises, monetary policy, risk sharing, TARGET2 balances
    Date: 2014–07
  6. By: Brownlow, Graham
    Abstract: There has been a recent identification of a need for a New Business History. This discussion connects with the analytic narrative approach. By following this approach, the study of business history provides important implications for the conduct and institutional design of contemporary industrial policy. The approach also allows us to solve historical puzzles. The failure of the De Lorean Motor Company Limited is one specific puzzle. Journalistic accounts that focus on John De Lorean's alleged personality defects as an explanation for this failure miss the crucial institutional component. Moreover, distortions in the rewards associated with industrial policy, and the fact that the objectives of the institutions implementing the policy were not solely efficiency-based, led to increased opportunities for rent-seeking. Political economy solves the specific puzzle; by considering institutional dimensions, we can also solve the more general puzzle of why activist industrial policy was relatively unsuccessful in Northern Ireland.
    Keywords: institutions,analytic narrative,Northern Ireland,industrial policy,entrepreneurship
    Date: 2014
  7. By: Carmen M. Reinhart; Christoph Trebesch
    Abstract: We take a first pass at quantifying the magnitudes of debt relief achieved through default and restructuring in two distinct samples: 1979-2010, focusing on credit events in emerging markets, and 1920-1939, documenting the official debt hangover in advanced economies that was created by World War I and its aftermath. We examine the economic performance of debtor countries during and after these overhang episodes, by tracing the evolution of real per capita GDP (levels and growth rates); sovereign credit ratings; debt servicing burdens relative to GDP, fiscal revenues, and exports; as well as the level of government debt (external and total). Across 45 crisis episodes for which data is available we find that debt relief averaged 21 percent of GDP for advanced economies (1932-1939) and 16 percent of GDP for emerging markets (1979-2010), respectively. The economic landscape after a final debt reduction is characterized by higher income levels and growth, lower debt servicing burdens and lower government debt. Also ratings recover markedly, albeit only in the modern period.
    JEL: E6 F3 H6 N0
    Date: 2014–10
  8. By: Pavel Ryska (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nábreží 6, 111 01 Prague 1, Czech Republic)
    Abstract: This paper deals with the relationship between deflation and economic growth. Although there are numerous theories on the potential effects of deflation on real output, empirical evidence in this field is still scarce and partial. In order to explore the relationship between prices and output in a more comprehensive way, I use a large panel data set of 19 countries over roughly 150 years, which contains frequent deflationary episodes. I employ the fixed effects model to look at both contemporaneous and lagged correlation between prices and output, and I include control variables to remove potential bias. There are several important results. First, there is no general relationship between prices and output. The lagged negative effect of deflation on output growth, alleged by some authors, disappears after adding a control variable. Second, monetary regimes seem to affect the relationship. Deflation appears to become associated with output slightly negatively with the advent of the fiat money system, while it was benign under the classical gold standard. Third, well-known episodes of deflation differ a lot. The Great Depression is the only period where deflation seems to be strongly associated with recession. By contrast, Japan in the 1990s and 2000s bears no resemblence to it. Here, both empirically and theoretically, deflation is highly unlikely to have caused economic stagnation.
    Keywords: deflation; price level; economic growth; monetary systems; panel data; economic history
    JEL: E31 E42 C33 N10
    Date: 2014–05
  9. By: Julio J. Rotemberg
    Abstract: This paper studies the persistence and some of the consequences of the eventual abandonment by the FOMC of the principles embedded in the Federal Reserve's Tenth Annual Report of 1923. The three principles I focus on are 1) the discouraging of speculative lending by commercial banks, 2) the desire to meet the credit needs of business and 3) the preference of a focus on credit over a focus on monetary aggregates. I show that the first two principles remained important in FOMC deliberations until the mid-1960's. After this, the FOMC also spent less time discussing the composition of bank loans.
    JEL: E42 E58 N1
    Date: 2014–09
  10. By: Estrada, Fernando
    Abstract: Fundamental research of the coffee economy have shown that regional class alliances were established imprecisely in the territories, usually in the central mountains of Colombia (although not exclusively or only way) and organized by the State being a necessary response to the inevitable need to defend certain values as embodied and structured regional coherence. Partnerships proposals actively promoted favorable conditions.
    Keywords: Colombia, coffee, Latin America History, household income
    JEL: B20 B25 L11 N50 N56 N9 O54 Q13 Q18
    Date: 2014
  11. By: Campbell R. Harvey; Yan Liu; Heqing Zhu
    Abstract: Hundreds of papers and hundreds of factors attempt to explain the cross-section of expected returns. Given this extensive data mining, it does not make any economic or statistical sense to use the usual significance criteria for a newly discovered factor, e.g., a t-ratio greater than 2.0. However, what hurdle should be used for current research? Our paper introduces a multiple testing framework and provides a time series of historical significance cutoffs from the first empirical tests in 1967 to today. Our new method allows for correlation among the tests as well as missing data. We also project forward 20 years assuming the rate of factor production remains similar to the experience of the last few years. The estimation of our model suggests that a newly discovered factor needs to clear a much higher hurdle, with a t-ratio greater than 3.0. Echoing a recent disturbing conclusion in the medical literature, we argue that most claimed research findings in financial economics are likely false.
    JEL: C01 C58 G0 G1 G12 G3
    Date: 2014–10
  12. By: Möller, Joachim (Institute for Employment Research (IAB), Nuremberg); Zierer, Marcus (University of Regensburg)
    Abstract: This paper analyzes the impact of the German autobahn net on the economic performance of German regions. To address endogeneity and reverse causation problems, we use historical instrument variables, i.e. a plan of the railroad net in 1890 and a plan of the autobahn net in 1937. We find a statistically and economically significant causal effect of transport infrastructure investments as measured by changes in the length of the autobahn net of West German NUTS 3 areas on regional employment and the wage bill.
    Keywords: transport infrastructure, regional labor market performance, historical instrumental variables, reverse causation, new economic geography
    JEL: L91 N73 N74 R11 R40 R49
    Date: 2014–10
  13. By: Martine Mariotti
    Abstract: I exploit the unexpected increase in employment in 1975, 76 and 77 in the South African homelands to compare the long term adult outcomes of children whose fathers benefitted from the employment increase to those who did not. Using a standard difference in difference approach I find that the shock affected males who were either newborn or in utero at the time, providing support to the fetal origins hypothesis and showing the importance of mother’s nutrition. The income increases did not raise household incomes above the poverty datum line, explaining why older individuals were not affected. This study provides previously unmeasured individual level information on the quality of life in the homelands during apartheid, an era when African living standards were neglected but unmeasured because of a lack of data collection.
    Keywords: living standards; stunting; difference-in-difference; fetal origins hypothesis
    JEL: I31 N37
    Date: 2014
  14. By: Christian Bidard
    Abstract: We propose to re-read Ricardo's theory of rent and its modern versions. Ricardo's dynamic approach follows the transformations of a long-term equilibrium with demand. Sraffa adopted the same framework while substituting a value criterion for a physical criterion to determine the incoming marginal method, but he did not state the law of succession of methods explicitly. This prevented him to realize that his critique opens the door to all complications of capital the ory, with the consequence that the Ricardian dynamics fail when a divergence appears between profitability and productivity. Contemporary studies have cast doubts on the validity of some of Ricardo's and Sraffa's over-optimistic conclusions, but the abandonment of the dynamic approach does not allow them to explain the ultimate reason of the phenomena they have pointed at. Ricardo's method has been recently rediscovered by mathematicians.
    Keywords: Classical theory, land, rent, Ricardo, Sraffa.
    JEL: B12 B51 C61 D33
    Date: 2014
  15. By: Asaf Bernstein; Eric Hughson; Marc D. Weidenmier
    Abstract: Heightened counterparty risk during the recent financial crisis has raised questions about the role clearinghouses play in global financial stability. Empirical identification of the effect of centralized clearing on counterparty risk is challenging because of the co-incidence of macro-economic turbulence and the introduction of clearinghouses. We overcome these concerns by examining a novel historical experiment, the establishment of a clearinghouse on the New York Stock Exchange (NYSE) in 1892. During this period the largest NYSE stocks were also listed on the Consolidated Stock Exchange (CSE), which already had a clearinghouse. Using identical securities on the CSE as a control, we find that the introduction of clearing reduced annualized volatility of NYSE returns by 90-173bps and increased asset values. Prior to clearing, shocks to overnight lending rates reduced the value of stocks on the NYSE, relative to identical stocks on the CSE, but this was no longer true after the establishment of clearing. We also show that at least ½ of the average reduction in counterparty risk on the NYSE is driven by a reduction in contagion risk - the risk of a cascade of broker defaults. Our results indicate that clearing can cause a significant improvement in market stability and value through a reduction in network contagion and counterparty risk.
    JEL: G0 G01 G1 G12 G18 G2 G23 G28 N0 N2 N21
    Date: 2014–09
  16. By: LaDue, Eddy
    Keywords: Teaching/Communication/Extension/Profession,
    Date: 2014–05
  17. By: Mauricio Nieto Potes
    Abstract: Resumen: En los inicios del siglo XX, las dos guerras mundiales constituyeron un importante antecedente económico y político para la definición de la teoría y las políticas macroeconómicas de las dos escuelas fundamentales: El Keynesianismo y la escuela neoclásica. A partir del Tratado de Versalles y con la aplicación de las políticas del Welfare State y el New Deal, los países hoy desarrollados experimentaron la llamada “época dorada”, en la cual los Estados Unidos, Europa y Japón no solo crecieron a tasas considerables sino que mejoraron significativamente su distribución del ingreso. A partir de los 80, con los procesos de “financiarización mundial” y del “triunfo de la gran corporación”, los países desarrollados están enfrentando una crisis de la cual aún no se recuperan, con deterioros del crecimiento y del GINI. El presente artículo analiza la evolución de estos hechos históricos que sirven de base a planteamientos y debates económicos actuales.
    Keywords: Crisis Wall Street; Deuda soberana; Naturaleza; Antecedentes.
    JEL: N00 N21 N23
    Date: 2014–07–03
  18. By: Bruno Amable (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, CEPREMAP - Centre pour la recherche économique et ses applications - Centre pour la recherche économique et ses applications, IUF - Institut Universitaire de France - Ministère de l'Enseignement Supérieur et de la Recherche Scientifique)
    Abstract: This paper analyses the French political crisis since the late 1970s by investigating the links between the social structure and the economic policy expectations of the electorate. To this end, data on post-electoral survey are used to estimate structural models of political support to political parties for 1978 and 2012, and the estimation results are used to propose an analysis of the French crisis. The enduring French political crisis is found to be the expression of contradictions between the economic policies implemented by the successive governments and the existence of a dominant social bloc, i.e. a coalition of social groups that would politically support the dominant political strategy. Since 1978, both the right and the left have failed to find a solution to the contradictions between the policies they implemented and the expectations of their social bases, which are themselves inhabited by tensions and contradictions that evolve with the structure of French capitalism. The failure of all governing coalitions so far is a new expression of that of the "modernists" to take into account the expectations of the popular classes.
    Keywords: France; political crisis; political economy; social base
    Date: 2014–03
  19. By: Pagano, Marco
    Abstract: Has economic research been helpful in dealing with the financial crises of the early 2000s? On the whole, the answer is negative, although there are bright spots. Economists have largely failed to predict both crises, largely because most of them were not analytically equipped to understand them, in spite of their recurrence in the last 25 years. In the pre-crisis period, however, there have been important exceptions - theoretical and empirical strands of research that largely laid out the basis for our current thinking about financial crises. Since 2008, a flurry of new studies offered several different interpretations of the US crisis: to some extent, they point to potentially complementary factors, but disagree on their relative importance, and therefore on policy recommendations. Research on the euro debt crisis has so far been much more limited: even Europe-based researchers - including CEPR ones - have often directed their attention more to the US crisis than to that occurring on their doorstep. In terms of impact on policy and regulatory reform, the record is uneven. On the one hand, the swift and massive liquidity provision by central banks in the wake of both crises is, at least partly, to be credited to previous research on the role of central banks as lenders of last resort in crises and on the real effects of bank lending and monetary policy. On the other hand, economists have had limited impact on the reform of prudential and security market regulation. In part, this is due to their neglect of important regulatory choices, which policy-makers are therefore left to take without the guidance of academic research-based analysis.
    Keywords: financial crisis,risk taking,systemic risk,financial regulation,monetary policy,politics
    JEL: G01 G18 G21 G28 H81 O16
    Date: 2014
  20. By: Julien Boelaert (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne); François Gardes (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)
    Abstract: Nous construisons un pseudo-panel long à partir de huit enquêtes canadiennes de budgets de ménages (1969-2008) afin d'estimer des fonctions de demande sur longue période. La différence entre les estimations en dimension transversale et temporelle permet de révéler les contraintes non monétaires qui influent sur les comportements de consommation des ménages, et leur évolution. Nous trouvons des évolutions différenciées de ces contraintes selon les postes de consommation, mais une tendance commune à la réduction au cours du temps de la différenciation des contraintes selon le revenu.
    Keywords: Consommation; QUAIDS; pseudo-panel; contraintes non monétaires; prix virtuels
    Date: 2013–12

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