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on Business, Economic and Financial History |
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Issue of 2017‒03‒05
seventeen papers chosen by |
| By: | Michael D. Bordo |
| Abstract: | This chapter revisits the history of the origins, operation and demise of the Bretton Woods International Monetary System. The Bretton Woods system was created by the !944 Articles of Agreement to design a new international monetary order for the post war at a global conference organized by the US Treasury at the Mount Washington Hotel in Bretton Woods ,New Hampshire at the height of World War II. The Articles represented a compromise between the American plan of Harry Dexter White and the British plan of John Maynard Keynes. The compromise created an adjustable peg system based on the US dollar convertible into gold at $35 per ounce along with capital controls. It was designed to combine the advantages of fixed exchange rates of the pre World War I gold standard with some flexibility to handle large real shocks. The compromise gave members both exchange rate stability and the independence for their monetary authorities to maintain full employment. It took over a decade for the fully current account convertible system to get started. The system only lasted for 12 years from 1959 to 1971 but it did deliver remarkable economic performance. The BWS evolved into a gold dollar standard which depended on the US monetary authorities following sound low inflation policies. As the System evolved it faced the same severe fundamental problems as in the interwar gold exchange standard of: adjustment, confidence and liquidity. The adjustment problem meant that member countries with balance of payments deficits, in the face of nominal rigidities, ran the gauntlet between currency crises and recessions. Surplus countries had to sterilize dollar inflows to prevent inflation. The U.S. as center country faced the Triffin dilemma. With the growth of trade and income member countries held more and more dollars instead of scarce gold as reserves generated by a growing US balance of payments deficit. As outstanding dollar liabilities grew relative to the US monetary gold stock confidence in the dollar would wane raising the likelihood of a run on Fort Knox.This led to the possibility that the US would follow tight financial policies to reduce the deficit thereby starving the rest of the world of needed liquidity leading to global deflation and depression as occurred in the 1930s. Enormous efforts by the US, the G10 and international institutions were devoted to solving this problem. As it turned out, after 1965 the key problem facing the global economy was inflation, not deflation, reflecting expansionary Federal Reserve policies to finance the Vietnam war and the Great Inflation. US inflation was exported through the balance of payments to the surplus countries of Europe and Japan leading them in 1971 to begin converting their outstanding dollar holdings into gold. In reaction President Richard Nixon closed the US gold window ending the BWS. |
| JEL: | N10 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23189&r=his |
| By: | Gallardo Albarr (Groningen University) |
| Abstract: | Few topics in economic history have received more attention than the profound transformations undergone by Great Britain during the 18th and 19th century. Even though the positive outcomes of this process for human living standards nowadays are not disputed, the same does not apply to the century spanning from 1750 to 1850 in Great Britain. Studies looking at key well-being dimensions individually such as income, health, working time and inequality individually often show contradictory evidence. To account for differences in their evolution, this paper presents a new framework grounded on economic theory to integrate them in a single measure and put their development into a broader perspective. I conclude that the new welfare measure does not support the idea of a two-phase process in the evolution of British living standards during the period 1781-1851 which indeed can be observed when considering the individual indicators of income, health or working time separately. The reason for this is that welfare gains came first almost exclusively from health improvements until the 1810s and then from wages (and to a lower extent non-working time). Secondly, the discrepancies between different real wage estimates in the literature appear less substantial in a framework that extends the concept of wellbeing. And thirdly, real wages typically underestimate the extent to which welfare increased over this period. Actually, health might have contributed to an improvement in well-being at least as substantial as the most optimistic estimate of real wages. |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:gro:rugggd:gd-159&r=his |
| By: | Sebastian Edwards |
| Abstract: | In this paper I analyze the London Monetary and Economic Conference of 1933, an almost forgotten episode in U.S. monetary history. I study how the Conference shaped dollar policy during the second half of 1933 and early 1934. I use daily data to investigate the way in which the Conference and related policies associated to the gold standard affected commodity prices, bond prices, and the stock market. My results show that the Conference itself did not impact commodity prices or the stock market. However, it had a small effect on bond prices. I do find that the events associated with the abandonment of the gold standard impacted prices in a significant way, even before the actual monetary and currency channels were at work. These results are consistent with the “change in regime” hypothesis of Sargent (1983). |
| JEL: | B21 B22 B26 E3 E31 E42 F31 N22 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23204&r=his |
| By: | George J. Borjas (Harvard University); Joan Monras (CEMFI, Centro de Estudios Monetarios y Financieros) |
| Abstract: | The continuing inflow of hundreds of thousands of refugees into many European countries has ignited much political controversy and raised questions that require a fuller understanding of the determinants and consequences of refugee supply shocks. This paper revisits four historical refugee shocks to document their labor market impact. Specifically, we examine: The influx of Marielitos into Miami in 1980; the influx of French repatriates and Algerian nationals into France at the end of the Algerian Independence War in 1962; the influx of Jewish émigrés into Israel after the collapse of the Soviet Union in the early 1990s; and the exodus of refugees from the former Yugoslavia during the long series of Balkan wars between 1991 and 2001. We use a common empirical approach, derived from factor demand theory, and publicly available data to measure the impact of these shocks. Despite the differences in the political forces that motivated the various flows, and in economic conditions across receiving countries, the evidence reveals a common thread that confirms key insights of the canonical model of a competitive labor market: Exogenous supply shocks adversely affect the labor market opportunities of competing natives in the receiving countries, and often have a favorable impact on complementary workers. In short, refugee flows can have large distributional consequences. |
| Keywords: | Immigration, refugees, supply shocks, labor demand. |
| JEL: | J2 J15 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:cmf:wpaper:wp2016_1616&r=his |
| By: | Martin Fiszbein |
| Abstract: | This paper examines the role of agricultural diversity in the process of development. Using data from U.S. counties and exploiting climate-induced variation in agricultural production patterns, I show that mid-19th century agricultural diversity had positive long-run effects on population density and income per capita. Examining the effects on development outcomes over time, I find that early agricultural diversity fostered structural change during the Second Industrial Revolution. Besides stimulating industrialization, agricultural diversity boosted manufacturing diversification, patent activity, and new labor skills, as well as knowledge- and skill-intensive industries. These results are consistent with the hypothesis that diversity spurs the acquisition of new ideas and new skills because of the presence of cross-sector spillovers and complementarities. |
| JEL: | N11 N12 N51 O13 O14 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23183&r=his |
| By: | Daniel Kaufmann (KOF Swiss Economic Institute, ETH Zurich, Switzerland) |
| Abstract: | I study the link between real activity and deflation, taking into account measurement problems in 19th century CPI data. Replications based on modern data show that measurement problems spuriously increase the volatility of inflation as well as the number of deflationary episodes, and they lower inflation persistence. As a consequence, estimates of the link between real activity and deflation may be attenuated because of the errors-in-variables problem. I find that real activity was on average substantially lower during 19th century deflations in the US, after controlling for measurement error using an IV-regression approach. Moreover, the average short-fall in real activity was not significantly different compared to the Great Depression. Using well-measured data for a panel of 17 industrialized economies shows that milder deflations were associated with a lower output gap. But, the association with GDP growth is not statistically significant. |
| Keywords: | Deflation, Real activity, Measurement error, Monetary history, IV |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:kof:wpskof:16-421&r=his |
| By: | Raphaël Franck; Oded Galor |
| Abstract: | The research explores the effect of industrialization on human capital formation. Exploiting exogenous regional variations in the adoption of steam engines across France, the study establishes that, in contrast to conventional wisdom that views early industrialization as a predominantly deskilling process, the industrial revolution was conducive for human capital formation, generating wide-ranging gains in literacy rates and educational attainment. |
| JEL: | N33 N34 O14 O33 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23197&r=his |
| By: | Irmen, Andreas; Tabakovic, Amer |
| Abstract: | We scrutinize Thomas Piketty’s (2014) theory concerning the relationship between an economy’s long-run growth rate, its capital-income ratio, and its factor income distribution put forth in his recent book Capital in the Twenty-First Century. We find that a smaller long-run growth rate may be associated with a smaller capital-income ratio. Hence, Piketty’s Second Fundamental Law of Capitalism does not hold. However, in line with Piketty’s theory a smaller long-run growth rate goes together with a greater capital share. These findings obtain in variants of Romer’s (1990) seminal model of endogenous technological change. Here, both the economy’s savings rate and its growth rate are endogenous variables whereas in Piketty’s theory they are both exogenous parameters. |
| JEL: | E10 O33 E25 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145700&r=his |
| By: | Quamrul H. Ashraf; Oded Galor |
| Abstract: | The importance of evolutionary forces for comparative economic performance across societies has been the focus of a vibrant literature, highlighting the roles played by the Neolithic Revolution and the prehistoric “out of Africa” migration of anatomically modern humans in generating worldwide variations in the composition of human traits. This essay surveys this literature and examines the contribution of a recent hypothesis regarding the evolutionary origins of comparative economic development, set forth in Nicholas Wade’s A Troublesome Inheritance: Genes, Race and Human History , to this important line of research. |
| JEL: | N10 N30 O11 Z10 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23199&r=his |
| By: | Kiesel, Konstantin; Noth, Felix |
| Abstract: | Over-indebtedness of individuals is attributed to unemployment, low education, financial illiteracy or age. We emphasize an additional determining factor: attitudes towards debt formed by religious beliefs. For Christians, debt is associated closely with guilt and sin yielding a negative "preconceived opinion" on debt. Yet, contrary to Catholicism, Protestant history and writings indicate also elements of a positive attitude towards debt. We hence test the effect of religious denomination on over-indebtedness using county-level data for Germany. To approach endogeneity, we apply the distance to important churches (Cathedrals, Dome, Münster) and historical events as instruments for a counties' percentage of Catholics and Protestants. We find that more widespread Catholicism in an area indeed leads to a lower share of over-indebted persons. |
| JEL: | D12 G11 Z12 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145774&r=his |
| By: | MORI Tomoya |
| Abstract: | This paper investigates the evolution of the Japanese economy between 1980 and 2010 from the viewpoint of population and industrial structure of cities. With the rural-to-urban transformation settling by the 1970s, Japan experienced the second stage of urbanization through the integration of nearby cities. This led, on average, to a disproportionate 24% population growth of a set of core cities. In the meantime, cities experienced substantial churning of industrial composition: on average, 35% of the three-digit manufacturing industries present in a city in 1980 had left by 2010, while on average, 30% of industries present in a city in 2010 were absent in the same city in 1980. Remarkably, these substantial relocations of population and industries among cities took place while preserving a simple yet rigid relationship between the size and industrial composition of cities characterized by the roughly constant elasticity between the number and average size of cities in which an industry was present. This paper discusses the policy implications of this persistent regularity and the possible underlying mechanisms. |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:17013&r=his |
| By: | Fenge, Robert; Scheubel, Beatrice |
| Abstract: | Fertility has long been declining in industrialised countries and the existence of public pension systems is considered as one of the causes. This paper provides detailed evidence on the mechanism by which a public pension system depresses fertility, based on historical data. Our theoretical framework highlights that the effect of a public pension system on fertility is ex ante ambiguous while its size is determined by the internal rate of return of the pension system. We identify an overall negative effect of the introduction of pension insurance on fertility using regional variation across 23 provinces of Imperial Germany in key variables of Bismarck's pension system, which was introduced in Imperial Germany in 1891. The negative effect on fertility is robust to controlling for the traditional determinants of the first demographic transition as well as to other policy changes. |
| JEL: | H55 J13 N33 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145689&r=his |
| By: | Hisahiro Naito; Yu Takagi |
| Abstract: | This study re-examines the racial salary gap of National Basketball Association players by constructing a long unbalanced panel covering the 1985--1986 to 2015--2016 seasons. Contrary to the results of previous studies, we find that non-white players are paid equally to white players with similar characteristics in the 1980s and 1990s, but that white players started to be paid about 20 percent more than non-white players in the last 10 years. Our results are robust to all specification checks, such as quantile regressions, controlling sample selection, different contract types, and player nationality. We find that neither employer preference nor income gap of white and black residents explains this increasing salary gap. |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:tsu:tewpjp:2017-002&r=his |
| By: | Chan Hang Saing; Harounan Kazianga |
| Abstract: | We combined household surveys and the intensity of bombing to investigate the long-term impact of U.S. bombing during the 1969-1973 period on education, earnings, health, fertility and marriage in Cambodia. The novelty of this paper consists of the use of the quantity of bombs dropped in each geographic district, which allows the estimation of the effects of the intensity of bombing. Taking into account this intensive margin adds significant insights to using a binary exposure to bombing that has been reported in previous research. We find that one standard deviation increase in the intensity of bombing during 1969-1973 reduced years of schooling by about 0.11-0.23. The e ects for men are larger than those for women. Fertility (total births) increased by 0.20 and age at rst marriage for girls declined by 0.32 year. The reduction in years of education completed do not seem to have a ected earnings, however. Similarly, we did not detect any signi cant e ect on health. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:okl:wpaper:1707&r=his |
| By: | Ward, Felix; Chen, Yao |
| Abstract: | External adjustments during the classical gold standard – a fixed exchange rate regime – were associated with few, if any, output costs. This paper analyzes the relative importance of flexible prices, migration and mildly countercyclical monetary policy for this relatively smooth adjustment experience. For this purpose we build and estimate a structural model of the classical gold standard. We find that the sustainability of the gold standard as a fixed exchange rate regime was primarily a consequence of flexible prices. Pre-1914 price flexibility is furthermore largely explicable by large pre-1914 primary sector shares. The paper proceeds in a historical comparative fashion by relating the gold standard experience to that of another fixed-exchange rate regime – today’s eurozone. |
| JEL: | N10 F20 E50 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145930&r=his |
| By: | Biermann, Marcus |
| Abstract: | What is the effect of trade on the size distribution of firms? We collect historical data between 1882 and 1907 from the German Empire to address this question. Our data allow us to match three data sets according to the same geographic boundaries: industry census data, railway trade data and waterway trade data. The key finding is that trade liberalization impacts the firm size distribution heterogeneously across three size categories. We find evidence of a stark shift in employment share from small and medium firms towards larger firms and from small firms towards medium and large firms in firm share. A “Bartik” instrument is proposed to argue that the correlations described are indeed causal. A model of intra-industry trade sheds light on the economic mechanism at play. Comparative statics reveal that further economic integration captured by a fall in transport costs increases average firm size. |
| JEL: | F12 F15 F14 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145879&r=his |
| By: | Ochsner, Christian; Roesel, Felix |
| Abstract: | We show that migrating extremists shape political landscapes toward their ideology in the long run. We exploit the unexpected division of the state of Upper Austria into a US and a Soviet occupation zone after WWII. Zoning prompts large-scale Nazi migration to US occupied regions. Regions that witnessed a Nazi influx exhibit significantly higher voting shares for the right-wing Freedom Party of Austria (FPÖ) throughout the entire post-WWII period, but not before WWII. We can exclude other channels that may have affected post-war elections, including differences in US and Soviet denazification and occupation policies, bomb attacks, Volksdeutsche refugees and suppression by other political parties. We show that extremism is transmitted through family ties and local party branches. We find that the surnames of FPÖ local election candidates in 2015 in the former US zone are more prevalent in 1942 phonebook data (Reichstelefonbuch) of the former Soviet zone compared to other parties. |
| JEL: | R23 D72 N94 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145632&r=his |