Unreal wages? Real income and economic growth in England, 1260-1850

Abstract of the new EHES working paper:

Jacob Weisdorf, University of Southern Denmark.

Jane Humphries, University of Oxford

Historical estimates of workers’ earnings suffer from the fundamental problem that annual incomes are inferred from day wages without knowing the length of the working year. This uncertainty raises doubts about core growth theories that rely on existing income estimates to explain the origins of the wealth of nations. We circumvent the problem by building an income series of workers employed on annual rather than casual contracts. Our data suggests that existing annual income estimates based on day wages are badly off target, because they overestimate the medieval working year but underestimate the working year during the industrial revolution. Our revised annual income estimates (see Figure) indicate that modern economic growth began almost two centuries earlier than commonly thought and was driven by an ‘Industrious Revolution’.

Figure: Estimated real annual incomes in England from day rates (grey) and annual rates (black), 1260-1850

The working paper can be downloaded here: http://www.ehes.org/EHES_121.pdf

Mikołaj Malinowski won the Figuerola Prize awarded biennially for the best article published in the European Review of Economic History

Mikołaj Malinowski is a Postdoctoral
Fellow at Lund University

Serfs and the city: market conditions, surplus extraction institutions, and urban growth in early modern Poland 

European Review of Economic History. 2016, 2, volume 20, pp. 123–146.

Abstract of the article: I investigate the relation between institutions, markets, and preindustrial economic growth. In particular, I analyze the impact of coercive agricultural class structures on urban population growth in Poland. My main point is that the impact of the demesne economy based on serfdom on urban growth was neither inherently negative nor positive. Instead, I suggest that the effect of serfdom depended on market conditions. I propose a new mechanism that explains how higher monetary and labor duties charged by landlords to their enserfed tenant farmers could have made urban settlements more resilient to a market crisis. I find empirical support for this idea with use of new database on urban settlements.

Browse the list of previous winners

Thor Berger won the Gino Luzzatto Dissertation Competition for to the best PhD Dissertation on any subject relating to the economic history of Europe, defended during the period July 2015 to June 2017

Thor Berger won the Gino Luzzatto Dissertation Competition for to the best PhD Dissertation on any subject relating to the economic history of Europe, defended during the period July 2015 to June 2017

Thor Berger is a postdoctoral fellow at
Lund University

Engines of Growth: Essays in Swedish Economic History

A central task for economic historians is to explain why some countries forged ahead, while others fell behind, and how some initially backward countries managed to converge with the leading industrializers in the 19th century. While these divergent growth trajectories are typically attributed to country-level differences in terms of, for example, factor prices or institutions, the vast gaps in industrialization and incomes that opened up within nations are hard to reconcile with such explanations. Against that backdrop, my dissertation analyzes regional and urban growth patterns during Sweden’s remarkable economic transformation during the half century leading up to the Great War.

As forcefully argued by Sidney Pollard, it has always been know that an industrial revolution has to be associated with a revolution in transportation. Above all, the railroad epitomized the 19th-century transport revolution to contemporary observers and the uneven spread of the emerging European railroad networks were often expected to be able to “make or break” a region. However, it has remained challenging for economic historians to identify the impact of the railroad since they often connected already rapidly growing places. In two companion chapters, I exploit the rollout of the Swedish state railroad network to identify its contribution to industrialization and short- and long-term impacts on urban growth respectively. Estimates reveal a sharp acceleration in the pace of industrialization in both cities and rural parishes that were “randomly” traversed by a railroad, while the shock of the first railroads shifted the spatial equilibrium of the urban economy that is still visible in the size distribution of cities some 150 years later.

While the railroad’s importance for Swedish economic development was emphasized already a century ago by Eli Heckscher, economic historians have more recently stressed the role of human capital in Scandinavian catch-up. Yet, it remains a puzzle how the “impoverished sophisticate” arose in the context of an extremely unequal political system, which allowed landed elites to capture local governments and block the provision of public schooling. Analyzing differences in spending across municipalities, however, show that investments in elementary education was substantially higher where local governments were dominated by landed elites, which suggests that economic and political elites were not always a barrier to educational expansions. In the final chapter, I analyze the link between agricultural productivity increases and regional growth by exploiting the potato’s introduction in the early 19th century. Evidence from welfare ratios suggest that the cheaper calories from the potato raised living standards significantly, which led to a sharp acceleration in population growth due to Malthusian adjustments in areas endowed with land suitable for potato cultivation.

A key contribution of the chapters in the dissertation is that they provide evidence of how (often minor) regional differences in terms of geography or transportation costs can be amplified to alter both short- and long-term trajectories of local economic development. At a time when regional tensions are again on the rise in Europe, the notion that economic development is not mainly a national process and that present-day patterns of regional inequality often have deep historical roots seems to be a particularly timely takeaway. 

WEast Workshop, May 19-20 2017 in Bucharest

This blog post was written by
Cristina Victoria Radu,
PhD student at University of
Southern Denmark

The WEast workshop recently took place in Bucharest on the 19th and 20th of May, bringing together scholars working on a wide range of topics in economic history, growth and development dedicated to countries from Eastern and Central Europe. The WEast initiative, which is sponsored by the European Historical Economics Society (EHES), has a long tradition of organizing annual workshops on these subjects in different cities of Eastern Europe and is organized by Dr Mikolaj Malinowski (Lund University), Dr Tamás Vonyó (Bocconi University), and Prof Jacob Weisdorf (University of Southern Denmark).

The Bucharest workshop was hosted by two leading local universities: The Faculty of Theoretical and Applied Economics at the Bucharest University of Economic Studies, and the Faculty of History at University of Bucharest. The local organizers, who made sure the event was a successful one, were: Prof Florentina Nițu, Dean of the Faculty of History at University of Bucharest; Prof Grigore Piroșcă, Dean of the Faculty of Theoretical and Applied Economics at Bucharest University of Economic Studies; Prof Roxana Sârbu, Vice-Rector of the Bucharest University of Economic Studies, and myself - Cristina Victoria Radu, PhD student in economics at the University of Southern Denmark.

On the morning of the first day, the workshop was held in a building of the Faculty of Theoretical and Applied Economics, starting with a warm welcome address by the local organizers. Our first keynote speaker was Sheilagh Ogilvie (Cambridge University) who opened the meeting with a captivating lecture entitled: “The Second Serfdom in Early Modern Central Europe” in which she offered an interesting perspective of the impact of the second serfdom on peasants’ lives in Czech villages. One of the pillars of her speech was the advocacy for shifting focus from the question “did serfdom matter?” to “how did serfdom matter?”. By her way of lecturing, she established a very positive energy, which lasted for the rest of the workshop. 

After a short 15 minutes break, which was mainly used to set the Wi-Fi connection on the phones, the first session of the meeting began. Named “Institutional development and markets”, the session was (strictly!) chaired by Jacob Weisdorf. The first presenter, Mikolaj Malinowski (Lund University) talked about “Economic Consequences of Anarchy; Legal state capacity and market integration in Poland, 1505‐1772” arguing that the early modern Polish parliament had a strong impact on lowering transaction costs, thus the Polish parliamentary crisis contributed to domestic market fragmentation. This suggests that legal state capacity could have been important for market development in preindustrial Europe, and could partially explain the origins of the Little Divergence. The second speaker was Iosif Marin Balog (“George Baritiu” Institute of History Cluj Napoca) who presented his paper: “State‐economy relationship in the Habsburg Monarchy at the Middle nineteenth century: some considerations”. He pointed out the main aspects of the economic policies of Vienna in Transylvania between 1850-1867 and concluded that the legal and institutional mechanisms had major and lasting effects on the economy, while the state showed little interest in large scale economic activities in this province. Further on, Constantin Ardeleanu (Utrecht University and New Europe College, Bucharest) gave a presentation about “The coming of capitalism to the lower Danube. Grain trade, transport infrastructure, international institutions, and national economic policies (1829–1914)” in which he touched upon the important moments in the history of Romania’s maritime ports, with quantitative details and relevant national and international developments. The last presenter from this session was Olga Ivashchenko (The Institute of Sociology, National Academy of Sciences of Ukraine) who spoke about “Post‐soviet Ukraine 25 years way of transition: overcoming the inherited market obstacles and ideological traps”, presenting an analysis of how the soviet ideology affected the social transformation to a market economy in the country.

The second session was chaired by Mikolaj Malinowski and was called “Ethnicity, violence and welfare”. Jacob Weisdorf (University of Southern Denmark) initiated the session with a presentation entitled “Living standards in Eastern Europe in the long run”. Building on Allen’s paper from 2001 (The Great Divergence in European Wages and Prices from the Middle Ages to the First World War), his animated talk inoculated the belief that collecting data on wages and prices for Eastern Europe is actually feasible, which would help place this part of the continent in the Great Divergence debate. The next presenters, Jörg Baten and Thomas Keywood (University of Tübingen) jointly offered a presentation of their paper named “Determinants of Violence in Eastern Europe, 5th‐19th Century” for which they used regicide (the murder of royalty) as a proxy for societal violence, comparing Eastern and Western Europe between the 5th and 18th centuries AD.

Thomas Keywood and Joerg Baten. – debates in the second session at The Faculty of Theoretical and Applied Economics

The subsequent speaker, Beatrice Nicolle Crețu (University of Bucharest) presented “Into the Rose Garden: The Impact of Humanitarian Assistance on the Economy of a City under Siege (Sarajevo, 1992 – 1996)” and provided insights about the effects of humanitarian assistance on the lives of people from Sarajevo in terms of the distribution of food, water, medicine and other items of value during the siege. Her work shows that despite an inherent development of black markets, the humanitarian relief was crucial for their well-being. Young‐ook Jang (London School of Economics) closed up the session by presenting his paper “The Road Home‐the role of ethnicity in Soviet and post Soviet migration”. In this study, he constructed a new dataset for regional ethnic migration by using Soviet and post-Soviet census data and administrative vital records, employing it to bring evidence that ethnic identity was an important factor in shaping migration patterns during the transition period.

After the two interactive sessions with constructive debates, we had lunch at a quiet cantine in the university, enjoying tasteful traditional Romanian dishes among which the “Ciorba de perisoare” (meatball soup) was included. Later, we had a walk, accompanied by sunny weather and pleasant conversations, to the Faculty of History at the University of Bucharest. There, we started the third session of the workshop (a bit later than we had initially planned) chaired by Marta Christina Suciu and labeled “Financial development and business networks”. The first presenter was Anna Gladysheva (Russian Academy of Sciences) with her paper “Joint stock companies – construction element for the new economic relations between the USSR and Central and South‐Eastern European Countries” in which she described the Soviet joint stock companies and their role in Romania and Hungary for the period 1945-1949, showing that the Soviet intervention had a positive influence on the economic recovery for this particular case. Another author, Alexander Opitz (University of Hohenheim) presented “The network of corporate banks in interwar Germany” analyzing the profitability and market valuation of all Berlin-listed German corporate banks in 1920, in context of the formation of a business network through bankers holding various board memberships.

Alexander Optiz during his talk, and the audience

Further, Nikolaos Leonidakis (University of Crete) conveyed a presentation of his essay “Post Greek civil war loans in Greek textile companies ‐ The example of Erioklostiria Pennie‐Lanara Bros SA” in which he studied the economic progress of the textile industry, before and after receiving funds from the Marshall Plan, concluding that the centralized postwar Greek credit system favored a close relationship between the political and the business banking elite. The last speaker from this session was Robert Nagy (Babeș‐Bolyai University) who delivered the talk entitled “State policy and capital investments in Transylvania 1800‐1918” in which he presented the major economic trends and processes as well as the main branches of the economy that saw significant foreign investment in the period 1880-1918, for historical Transylvania and for the Eastern parts of the Hungarian Kingdom. 

After a break and some savory pastries, the 4th session began, having Christian Nasulea as chair. The session was called “Economic and social policies” and started with Suzana Mihajlović Babić (University of Belgrade) presenting “The economic thought influence on the social policy development in the nineteenth century in Serbia”. The main objectives of her work were the description of the economic policies of that period, highlighting the link between the influence of  Enlightenment, civic economic thought and the economic thought of socialism with measures in the field of social policy. Afterwards, Dragoș Sebastian Becheru (University of Bucharest) gave a presentation named “Romanian trade with the Middle East, under the influence of the Arab League’s Central Bureau of Boycott. 1970‐1978” describing Romania’s diplomatic and commercial relations during this period and their impact on the economy. Based on financial data, he analyzed overall and individual losses suffered by Romanian companies during the duration of the Arab League’s boycott. Roberta Stanef‐Puică (The Bucharest University of Economic Studies) closed the session with a paper entitled “Considering the new historical and economic context is the EU forced to adopt a Common Defense Policy?” presenting the key features of the Common Security and Defense Policy, how current global events have undermined the EU's role as a security actor in recent years, and the necessity of a common defense policy. 

The day ended with the second key-note lecture by Bogdan Murgescu (University of Bucharest), entitled “Explaining the Ups and Downs of Economic Performance in European Socialist Systems. Structural Change, Human Capital and Institutions in Romania (1948‐1989)”. He gave a stimulating and motivating overview of the performance of Romania’s economic history during the communist period, seen in an international context.

Bogdan Murgescu giving his keynote lecture at the Faculty of History

Emerging background music coming from a nearby concert along with the key-note lecture, signaled that a fruitful day of presentations had come to an end, so that we could receive a well-deserved dinner at “Casa Universitarilor”. The official day was completed with an affectionate speech by WEast organizer Mikolaj Malinowski, followed by unexpected chocolate gifts from the WEast organizers to the local organizers.

The second day of the workshop started with a provocative session named “Urbanization, growth and development”, chaired by myself. Katarzyna Wagner (University of Warsaw) opened the session by presenting her paper “Did large cities exist in the 17th century Polish‐Lithuanian Commonwealth? An attempt at definition”. Analyzing the registers of both municipal szos and Swedish contributions, attempts were made to define the metropolis status in the 17th century Crown by taking into account big discrepancies between the wealth of city residents, as well as type of housing, number of tenants and occupational structure of the residents. The session continued with Uygar Karaca (Koç University) offering a presentation named “A Comparative Analysis of Economic Development and Urbanization in Southeast European and Western Anatolian Towns, 1840‐1940”. This paper, coauthored with M. Erdem Kabadayı, analyzed micro-level occupational data extracted from the 1845 Ottoman tax survey to compare levels of urban economic development. This data, together with migration data, painted a picture of structural change, at the end of the Ottoman Empire, in Southeast Europe and Anatolia. The third presenter, Michal Ďurčo (Slovak academy of sciences) provided an innovative talk entitled “Road infrastructure development as a prerequisite for socio‐economic development of the regions of Slovakia during the interwar period” in which he discussed construction policy, motorization and the impact of the new roads. The speaker who ended the workshop was Ilya Voskoboynikov (National Research University Higher School of Economics) with “Labor productivity growth and structural change in the union republics of the USSR in 1966‐1990”. His research, based on a new dataset on input-output tables, analyzed the consequences of the planned economy of the Soviet Union for long run economic growth. 

After the session, final remarks and conclusions were expressed by the audience and key-note speakers, followed by a lovely excursion to one of Romania’s most beautiful scenes: the mountain resort of Sinaia and the Peleș Castle.

Group photo at the Peles Castle in Sinaia

This blog post was written by Cristina Victoria Radu, PhD student in economics at the University of Southern Denmark

Resource endowments and agricultural commercialization in colonial Africa: Did labour seasonality and food security drive Uganda’s cotton revolution?

Michiel de Haas is PhD student at
Wageningen University

Agricultural commercialization was a key driver of African economic change during the colonial era. Why did some African smallholders adopt cash crops on a considerable scale, while most others were hesitant to do so? 
In recent years, debates on the determinants of African development have been dominated by institutional explanations (Acemoglu and Robinson, 2010). However, there is also a current of literature pointing at the importance of ecological factors and resource endowments (Austin, 2008; Tosh, 1980). In this study, we investigate and test the plausible claim that factor endowments crucially shaped the degree to which export crops were adopted by smallholders in colonial tropical Africa. 

Kostadis Papaioannou is Post Doc
at London School of Economics 

In his seminal contribution, Tosh (1980) made a strong case for a resource endowments perspective on African agricultural commercialization during the colonial era. Tosh argued that different responses of African farmers to export crop cultivation can be explained by the distinction between ‘forest’ and ‘savanna’ areas, in which farmers faced distinct resource endowments. Forest areas have fertile soils and well-distributed rainfall patterns, and are suitable for crops that yield high caloric returns per unit of labour (such as yam, banana) as well as lucrative cash crops (such as coffee and cocoa). Savanna areas, instead, were characterized by a brief growing season during which farmers struggled to secure their subsistence requirements. Not only were labour demands unevenly distributed under such dryer savannah conditions, but farmers also had to rely on drought-resistant but labour intensive grain cultivation, and less lucrative cash crops such as cotton and groundnuts. Consequently, insufficient labour was available to cultivate cash crops without facing food insecurity. 

Uganda’s cotton revolution

We conduct an in-depth case study of the ‘cotton revolution’ in colonial Uganda to put Tosh’ argument to the test. Ugandan smallholders, unlike their counterparts elsewhere in Sub-Saharan Africa, adopted cotton on a substantial scale. Cotton was first exported in the early 1900s, and already by the 1920s, Uganda had become the world’s fourth cotton exporter in per capita terms (and 11th in terms of total production). Two common explanations exist in the literature for the exceptional cotton uptake by Ugandan farmers. Firstly scholars arguing from a resource endowment perspective have argued that the success of cotton in Uganda should be attributed to cultivation of the perennial banana by Uganda’s cotton growers. Bananas yielded high caloric returns to labour and left farmers with sufficient labour to cultivate an inedible and labour intensive export crop (Elliot, 1969; Tosh, 1980). However, as illustrated by Figure 1, bananas were only grown in some parts of Uganda, while smallholders in grain growing regions were equally invested in the cultivation of cotton. In other words, this crop-based version of the resource endowments explanation does not hold up to the historical record. Secondly, scholars taking an institutional perspective have argued that Ugandan cotton adoption was the outcome of particularly effective colonial coercion (Hanson, 2003; Young, 1994). Again, however, the explanation does not hold up to the historical evidence: while the most outright Ugandan colonial coercive policies were scaled back during the 1920s, cotton production in this period accelerated.

Figure 1: Average annual cotton cultivation in Uganda’s colonial districts (1925-1960) (click to enlarge)

Figure 2. Bi-modal rainfall and Cotton Planting in Uganda (click to enlarge)

Rainfall patterns, labour seasonality and cash crop adoption

We argue that the previous literature has focused too much on crops and coercion, and has overlooked a crucial environmental condition that characterized all of Uganda’s cotton growing regions, namely its equatorial bimodal rainfall patterns (see Figure 2). Bimodal rainfall – i.e. the occurrence of two distinct rainy season per year – gave smallholders an important edge over their counterparts farming in conditions of unimodal rainfall, and enabled them to cultivate cash crops while retaining food security. The benefits were two-pronged.

Firstly, the occurrence of two rainy seasons meant that agricultural labour demands were more smoothly distributed throughout the year, effectively enabling farmers to use more labour to grow crops. Indeed, farmers used the first rainy season to grow food crops, and relegated cotton to the second rainy season. The benefit of spreading out farming operations over two rainy seasons is best illustrated by a comparison between the Teso region of Uganda and northern Côte d’Ivoire (Figure 3). If we assume that the month with the greatest labour input in Figure 3 signifies the potential maximum monthly household labour capacity, this would imply that, because of a more favourable seasonal distribution, farmers in the three Ugandan cases were able to use between 69 and 71 per cent of their annual labour capacity in agriculture, while farmers in Côte d’Ivoire, could only effectively exploit 49 per cent of their labour capacity to produce crops. This gap of just over 20 percentage points may well account for the difference between cotton adoption and rejection.

Figure 3. Intra-annual distribution of labour inputs (left axis) and rainfall (inches, right axis) (click to enlarge)

Secondly, having two chances to secure subsistence per year mitigated the impact of a single harvest failure, and allowed farmers to take greater risks, such as devoting one of the rainy seasons to the cultivation of an inedible cash crops. We show that farmers relegated cotton to the second rainy season, and hypothesize that the allocation of labour to cotton depended on the degree of food security achieved in the first rainy season.

Food security and cotton cultivation: an empirical analysis

To test this hypothesis, we perform a panel analysis on a newly constructed, strongly balanced, district-level dataset of cotton acres per capita over a 36 year period (1925-1960). Food crop yield data are impossible to obtain in a smallholder economy with very limited administrative capacity. To proxy for food crop harvests in the first rainy season, we look at rainfall deviation. An extensive body of previous research has shown that rainfall deviation is a reliable estimate of harvest outcomes (Papaioannou, 2017; Papaioannou & De Haas, 2017 for further discussion). Usually, studies look at rainfall on an annual basis, but for our analysis and bimodal context, we take rainfall deviation of the first six months of the year – that is before the planting of cotton. Our panel analysis indicates that rainfall deviation in the first season had a negative impact on subsequent cotton cultivation, suggesting that food security trumped cotton cultivation, and that farmers shifting resources from cotton to food during the second reason to compensate for the disappointing food crop harvest. The effect is stable and highly significant (at the 1% confidence level), and holds up to numerous robustness checks. Interestingly, when we do not find heterogeneity between the grain and banana districts, indicating that rainfall patterns rather than farming systems were decisive to smallholders’ willingness and ability to adopt cotton. 

Conclusion

Our study highlights the importance of food security and labour seasonality as important determinants of agricultural commercialization in colonial tropical Africa. We propose that, in a colonial context, bimodality was a close-to-necessary condition for a ‘cash crop revolution’ to occur. At the same time, we are careful not to argue that cash crop adoption can be understood and explained solely by looking at labour seasonality, or even resource endowments more broadly. In this study, we have treated thin markets for credit and food, and limited adoption of agricultural technologies as exogenously given. In reality, of course, such limitations were an outcome of the policies of colonial governments, which operated on a shoestring and were unwilling to invest to any large extent in the agricultural development of their colonies. That resource endowments mattered so much testifies to the poor institutional context in which famers operated.

The working paper can be downloaded here: http://www.ehes.org/EHES_111.pdf

References

Acemoglu, D., and J.A. Robinson. 2010. “Why is Africa poor?” Economic History of Developing Regions 25 (1):21-50.

Austin, G. 2008. “Resources, techniques, and strategies south of the Sahara: revising the factor endowments perspective on African economic development, 1500-2000.” The Economic History Review 61 (3):587-624.

Elliot, C.M. 1969. “Agriculture and economic development in Africa: theory and experience 1880-1914.” In Agrarian change and economic development, edited by E.L. Jones and S.J. Woolf. London: Methuen.

Frankema, Ewout, Jeffrey Williamson, and Pieter Woltjer. 2015. An economic rationale for the African scramble: the commercial transition and the commodity price boom of 1845-1885. National Bureau of Economic Research.

Papaioannou, Kostadis J. 2017. ““Hunger makes a thief of any man”: Poverty and crime in British colonial Asia.” European Review of Economic History 21 (1):1-28.

Papaioannou, Kostadis J., and Michiel de Haas. 2017. “Weather Shocks and Agricultural Commercialization in Colonial Tropical Africa: Did Cash Crops Alleviate Social Distress?” World Development 94:346-365.

Tosh, John. 1980. “The cash-crop revolution in tropical Africa: an agricultural reappraisal.” African Affairs 79 (314):79-94.

Young, Crawford. 1971. “Agricultural policy in Uganda: capability and choice.” In The state of the nations: constraints on development in independent Africa, edited by M.F. Lofchie, 141-164.

How Extractive Was Colonial Trade?

Federico Tadei is Profesor Visitante
at Universitat de Barcelona

Extractive colonial institutions have been considered one of the main causes of current African underdevelopment (Acemoglu, Johnson, and Robinson, 2001; Nunn, 2007). Yet, since colonial extraction is hard to quantify and its precise mechanisms are not well understood, a paucity of research has examined exactly how successful the colonizers were in extracting wealth from Africans. 

In a new paper, I tackle this issue by focusing on colonial trade in French Africa. The French colonizers, in fact, made great use of trade monopsonies and compulsory harvest quotas to obtain agricultural commodities from African producers at very low prices and resell them in Europe for large profits (Coquery-Vidrovitch, 1972; Suret-Canale, 1971). Given this specific feature of French trade, I argue that it is possible to measure colonial extraction by looking at the gap between the prices that the African producers received and the prices that they should have obtained if colonial trade had been competitive. 

I examine this hypothesis as follows:

1) First, by using a variety of colonial publications, I reconstruct yearly estimates of prices at the French port, African producer prices, and trading costs (including shipping, insurance, inland transportation, port charges, and export taxes) for the main exported commodities between 1900 and 1960.

2) Then, I compute what producer prices should have been in a competitive market as the difference between prices at the French port and trading costs.

3) Finally, I compare actual and competitive producer prices to measure the level of colonial extraction related to export trade.

The figure below summarizes the main result of the paper, by showing the average gap between actual and competitive producer prices over time: on average prices to African producers were less than two thirds of what they would have been in a competitive market.

The figure shows the trend of average colonial extraction, defined as one minus the ratio between 

actual and competitive producer price.

In addition, I employ a two-fold approach to check the robustness of these results. First, I verify that price differentials in French Africa were much larger than the ones that we can observe in other markets not subject to colonial extraction, such as the trade between the United States and the United Kingdom and the trade of commodities produced in Africa by European settlers. Second, I use a regression analysis to take into account unobservable trading costs, such as risk compensation and productivity differences, and to demonstrate that an increase in the world price for a commodity did not generate a proportional increase in the African producer price.

Together, the evidence suggests that colonial trade dynamics were characterized by a considerable amount of extraction. Future research aimed at examining whether this had long-lasting consequences on current economic development is warranted.

This blog post was written by Federico Tadei, visiting professor at University of Barcelona.

The full paper is available at http://www.ehes.org/EHES_109.pdf.

References

D. Acemoglu, S. Johnson, and J. Robinson. The colonial origins of comparative development: An empirical investigation. American Economic Review, 91:1369-1401, 2001.

C. Coquery-Vidrovitch. Le Congo au temps des grandes compagnies concessionnaires, 1898-1930. Mouton De Gruyter, 1972.

N. Nunn. Historical legacies: A model linking Africa's past to its current underdevelopment. Journal of Development Economics, 83:157-175, 2007.

J. Suret-Canale. French colonialism in tropical Africa, 1900-1945. Pica Press, 1971.

Alleged Currency Manipulations and Retaliatory Tariffs. Some lessons from the 1930s

Thilo Albers is PhD student in Economic History
at London School of Economics (LSE)

How forceful can retaliations to alleged currency manipulations be? What are the effects on trade? The following research seeks answers to these questions in the interwar period.

The evidence for China still deliberately undervaluing her currency is at best weak (see Cheung et al 2016). Yet, with the new US president in office, import surcharges for alleged currency manipulation against her and other countries have become more likely. Indeed, even before he had come into office, important public figures across the political spectrum had called for an import surcharge (e.g. Krugman 2010). At the heart of such debates is the argument that the country undervaluing her currency significantly gains at the expense of others. A lower real exchange rate stimulates exports, which in turn creates current account problems abroad (Goldstein and Lardy, 2006). It is frequently invoked that a retaliatory tariff could be used to force the alleged currency manipulator to re-align her currency. According to the standard narrative (e.g. Krugman 2010), this worked smoothly towards the end of Bretton Woods, when the United States forced other countries to re-align their currencies with an import surcharge. However, this was a very particular case in a very particular setting and the final realignment might have well been reached without the surcharge (Irwin 2013). Neither does this case answer the most important question. What are the potential political and economic costs of retaliatory tariff policies?

The 1930s provide a blueprint to assess such costs. Some countries had left the gold standard and floated their currencies. Other countries alleged them of deliberately undervaluing their currencies and imposed retaliatory tariffs. In a new study focusing on French commercial policy (Albers 2017), I show that moving towards discretionary tariff policies can have high political and economic costs. The study is a first attempt to quantify the relative importance of retaliatory as opposed to general tariff increases for this commercial policy episode. The retaliatory motive for French protectionism turns out to have been at least as important as factors driving the general tariff level. The effects of retaliation on trade were comparable to those of modern trade treaties – just with the opposite sign. The analysis of historical newspapers demonstrates that leniency vanished from the public discourse and nationalist agitation took over.

Alleged currency manipulation back then

When Britain had unilaterally left the gold standard in the autumn of 1931 and other countries followed suit soon after, policymakers in these countries did not intended to manipulate their currencies. The imminent threat of further deflation and the drain of gold reserves had effectively pushed countries off the gold standard, especially Great Britain (Accominotti 2012). However, many policymakers abroad perceived this devaluation as currency manipulation. At the forefront of them, the French government retaliated by raising tariffs and introducing quotas specifically aimed at those countries that had left the gold standard.

From the villain to the victim of exchange rate policies

It is not without irony that French commercial policymakers perceived their country (and other countries on the gold standard) as the victim of currency depreciations abroad. When France stabilised her currency at 20 % of its pre-war value in 1928 while many countries such as Britain returned to their pre-war parities, this led to a massive gold influx in France. Some have argued that this played a part in causing the Great Depression, because it led to further deflation abroad (Johnson 1997, Irwin 2010). The paper shows that contemporary commentators abroad likewise argued that the Franc was undervalued. In this sense, France was the villain of exchange rate policies in the late 1920s.

After the first wave of currency depreciations had hit in the autumn of 1931, tables turned. The real value of the Franc doubled against the pound in the following two years. French policymakers now felt victimised by exchange rate policies abroad. A qualitative analysis of contemporary newspapers focusing on the Anglo-French commercial policy relationship suggests that the rhetoric shifted from leniency before the devaluations to agitation afterwards. Numbers can indeed mirror this debate as Figure 1 shows. It plots the number of articles in the Guardian per year containing keywords that identify protectionism and tariffs in general and those that contain additional references to tariff wars or retaliation. The retaliatory sentiment first peaked in 1930, when the discussion about the Smoot-Hawley tariff in the United States got heated. This local peak was far exceeded by the discussions about the devaluations two years later. These numbers and the discussion of the articles behind them lead to the conclusion that the political costs of the devaluations and the following retaliation were indeed high.

Figure 1: The Rhetoric of Retaliation

Identifying the retaliatory motive in commercial policy

Tariffs had been increasing across all countries during this episode, and mostly so in countries adhering to the gold standard (Eichengreen and Irwin 2010). The new retaliatory protectionism, however, had a new quality and severe political economy implications. Retaliation was directed at certain trading partners and thus different from the previous general increases in tariffs to either balance trade and budgets or protect the home industries. Irwin (1993) coined this bilateralism “pernicious,” but so far, we know little about its magnitude relative to the general increase of protectionism and its effects on trade.

While most studies on protectionism make use of aggregate tariff data, this study employs a novel dataset of bilateral tariff rates of France against her trading partners. This so-far widely neglected dimension of tariff data allows me to separate general tariff increases from those with a retaliatory motive by using a difference-in-differences setup. Figure 1 shows that the “tariff treatment” for those leaving the gold standard was indeed very large.

Figure 2: The "tariff treatment" for leaving the gold standard

The most conservative estimate suggests that, while the general increase (against all trading partners) amounted to 5 %, the retaliatory component of the increase in French protectionism amounted to about 7.5 %. This is very close to the average tariff reduction reached by NAFTA (Burfisher et al. 2001). Hence, retaliation was important for the increase of French protectionism, but did it matter for trade, too? A back-of-the-envelope calculation and an econometric estimate suggest that the reduction in trade implied by these tariff increases was about 20 %. This magnitude, albeit being a bit smaller, is comparable to the one of trade-creating effects of Regional Trade Agreements (see median estimate by Head and Mayer 2014). In sum, the economic costs of retaliation were large.

What do we learn?

It is almost needless to say that French policymakers did not change minds abroad with their actions, especially as the abandonment of the gold standard abroad was clearly a prerequisite for recovery (Eichengreen 2013). The chaotic manner and the absence of any coordination of the devaluations, however, led to more protectionism in those countries that decided to stay on the gold standard. The quality of this protectionism was markedly different as it targeted certain trading partners. This discretion could thus lead to tit-for-tat tariff escalations, for which the interwar period has become so infamous for. The political and economic costs of retaliatory tariffs were large by modern standards.

We should be skeptical when commentators refer to the successful case of 1971, in which the United States had employed an import surcharge to force countries to re-align their currencies. There is no guarantee for retaliatory tariffs to solve currency disputes. On the contrary, the attempt to use them as a bargaining chip might fail and instead provoke ever more protectionism. After all economic policy cooperation appears to be the best recipe to avoid disaster. 

This blog post was written by Thilo Albers, PhD candidate at the Deparment of Economic History at LSE. 

The working paper can be downloaded here: http://www.ehes.org/EHES_110.pdf

References

Accominotti, Olivier (2012): “London Merchant Banks, the Central European Panic and the Sterling Crisis of 1931,” The Journal of Economic History, Vol. 72, pp. 1–43. 

Albers, Thilo (2017): “Currency Valuations, Retaliation and Trade Conflicts Evidence from Interwar France,” LSE Economic History Working Paper, No. 258/2017

Burfisher, Mary E., Sherman Robinson, and Karen Thierfelder (2001): “The Impact of NAFTA on the United States,” The Journal of Economic Perspectives, Vol. 15, pp. 125–144.


Cheung, Yin-Wong, Chinn, Menzie and Xin Nong (2016): “Estimating currency misalignment using the Penn effect: It’s not as simple as it looks.” NBER Working Paper, No. 22539

Eichengreen and Irwin (2010): “The Slide to Protectionism in the Great Depression: Who Succumbed and Why?” Journal of Economic History, Vol. 70, pp. 871–897.

Eichengreen, Barry (2013): “Currency War or International Policy Coordination?” Journal of Policy Modeling, Vol. 35, pp. 425 – 433.


Johnson, H. Clark (1997): Gold, France, and the Great Depression, 1919–1932: Yale University Press.


Goldstein, Morris and Nicholas Lardy (2006): “China’s Exchange Rate Policy Dilemma,” The American Economic Review, Vol. 96, pp. 422–426. 

Head, Keith and Thierry Mayer (2014) “Gravity Equations: Workhorse,Toolkit, and Cookbook,” in Elhanan Helpman Gita Gopinath and Kenneth Rogoff eds. Handbook of International Economics, Vol. 4, Chap. 3, pp. 131 – 195. 

Irwin, Douglas A (1993): “Multilateral and Bilateral Trade Policies in the World Trading System: An Historical Perspective,” in Jaime De Melo and Arvind Panagariya eds. New Dimensions in Regional Integration, Vol. 5: Centre for Economic Policy Research, Cambridge University Press, pp. 90–119. 

Irwin, Douglas A. (2010): “Did France Cause the Great Depression?” NBER Working Paper, Vol. 16350 

Irwin, Douglas A. (2013): The Nixon shock after forty years: the import surcharge revisited. World Trade Review, 12(1), 29-56.

Krugman, Paul (2010): “Taking on China,” New York Times, March 14, 2010

Mankiw, Gregory N. (2009): “It’s no Time for Protectionism”, New York Times, February 7, 2009

Between war and peace: The Ottoman economy and foreign exchange trading at the Istanbul bourse

Did events during the First World War reflect in the foreign exchange rates? A new  EHES working paper by Avni Önder Hanedar, Hatice Gaye Gencer, Sercan Demiralay, and İsmail Altay from different universities in Turkey provide evidence on the foreign exchange trading at the Istanbul bourse of the Ottoman Empire to shed light on this question.

They examine the influence of political risks on the foreign exchange rates at the Istanbul bourse during the First World War. Their empirical methodology is identifying the abrupt changes in the value of Lira against the currencies of the neutral countries at the Istanbul bourse, i.e., the Dutch Guilder, the Swedish Krona and the Swiss Franc. They exploit unique data on daily foreign exchange rates announced at the Istanbul bourse from May 1918 to June 1919. The data are manually collected from the Ottoman Empire’s official newspaper, i.e., Takvim-i Vekayi.

A column of Takvim-i Vekayi showing the value of Turkish Lira against several foreign currencies on 27 August 1918 (Takvim-i Vekayi. (28 August 1918). Kambiyo: 6.

They fill the gap in the historical literature on the Ottoman economy for the period ended by the First World War, in which there is a lack of empirical research (See Hanedar, Hanedar, & Torun (2017, 2016)). Furthermore, the literature on the impacts of the First World War on foreign exchange rates is confined (See Hall (2004), Kanago & McCormick (2013)).

The findings pinpoint the sudden changes in the value of Lira against the currencies of the neutral countries at the Istanbul bourse during important war-related events pointing out that the end of WWI was approaching. The war and occupation of the Allies deteriorated the economy of the Ottoman Empire, whereby the inflation levels surmounted along with the huge budget deficits. These circumstances were reflected in the foreign exchange rates and the Lira devaluated significantly against the currencies of the neutral countries by the end of the war.

 

The value of one Lira against Swiss Franc, Dutch Guilder, and Swedish Krona, 1918–1919. The three vertical lines in the graph represent the armistices signed by Bulgaria, the Ottoman Empire, and Germany, respectively. (Click to enlarge)

The research uncovers the effect of the war-related events on the foreign exchange rates using data from the First World War and validates the significance of these events at the beginning of the 20th century. It can be suggested that even at the war conditions, the Ottoman foreign exchange market displayed efficiency to some degree in the period marking the end of WWI. 

This blog post was written by Avni Önder Hanedar, researcher in economics and econometrics at (Dokuz Eylül University and Sakarya University).



The working paper can be downloaded here: http://www.ehes.org/EHES_108.pdf




References

Hall, G. J. (2004). Exchange rates and casualties during the First World War. Journal of Monetary Economics, 51(8): 1711–1742.

Hanedar, A. Ö., Hanedar, E. Y., and Torun, E. (2016). The end of the Ottoman Empire as reflected in the İstanbul bourse. Historical Methods, 49(3):145–156.

Hanedar, A. Ö., Hanedar, E. Y., Torun, E., and Ertuğrul, M. (2017). Perceptions on the Dissolution of an Empire: Insight from the İstanbul Bourse and the Ottoman War Bond. Defence and Peace Economics, (Forthcoming).

Kanago, B. and McCormick, K. (2013). The Dollar-Pound exchange rate during the first nine months of World War II. Atl. Econ Journal, 41(4): 385–404.

Takvim-i Vekayi. 30 May 1918–11 June 1919.

Why did Argentina become a super-exporter of agricultural and food products during the Belle Époque (1880-1929)?

In the first wave of globalization the populations of some extra-European countries were also able to earn high incomes but with low levels of industrialisation. These countries had been recently colonised by Europe (Canada, Argentina, Uruguay, Australia and New Zealand), and their economic growth was based on the rapid expansion of their exports of primary products and on the linkage effects of these exports with other economic activities. 

This was the case of Argentina during these years. According to the recent estimates of world trade published by Federico and Tena-Junguito (2016), Argentine exports, which represented around 0.8% of world trade during the early 1850s, reached levels of almost 4% in the 1920s .

Figure 1. Ratio of Argentine exports over world exports (% at current prices)
Source: Federico and Tena (2016)

There are very few studies that use a cliometric perspective in order to identify the determinants of such an accelerated growth in exports, which is a necessary condition for the export-led model to work. The objective of this work is to provide a cliometric contribution to this field of study, constructing a gravity model to explain the determinants of the growth of Argentina’s exports between 1880 and 1929. 

To this end, the bilateral export data we need have been drawn from a meticulous review of the Argentine foreign trade statistics. In contrast with the vast majority of the quantitative analyses of this subject, we have studied the annual path of the principal export products; that is, the destinations of each individual product. The following chart summarises Argentine exports in current and constant values (calculated with the prices of 1913) (Figure 2).

Figure 2. Argentine exports, in current and constant values (1913 prices),
in millions of pounds, 1875-1929
Source: Own elaboration according to official Argentine statistics (1875-1929) and Cortes Conde et al. (1965).

As we can see, Argentina’s integration into international markets was successful after the 1870s. But, according to Cortes Conde (1985), it was not until the last decade of the nineteenth century that exports contributed to paying for debt services and to financing imports, which was necessary not only to transform the productive structure but also to cover the consumption needs of the domestic market. 

To analyse export growth, we have separated the products into three groups: 1) traditional livestock exports, which include wool, salted and dried cattle hides, raw sheep skins, bovines, jerked meat and tallow; 2) crop exports, that consider wheat, corn and linseed and 3) processed agrifood exports, which are composed of chilled and frozen beef, frozen mutton, wheat flour, quebracho logs and quebracho extract. As we can see first, although the first group also grew, if we ignore the fluctuations and focus on a long-term perspective, the second and the third groups grew more and at a faster pace.

Figure 3. Breakdown of Argentine exports at constant prices of 1913 (thousands of pounds). Own elaboration. Source: Argentine official statistics.

Our econometric results reveal that the increase in Argentina’s GDP was important to explain the export growth. On the one hand, new lands were successfully incorporated into the productive system. On the other hand, labour and capital, traditionally scarce factors, were supplied from abroad. 

However, obviously without a solvent demand for the type of goods in which the country successively specialised, the export business would not have developed sufficiently. Therefore, the demand for food and raw materials, particularly from the most developed European countries, was essential.

The fall in transport costs was also a contributing factor. However, during the period analysed, the increases or reductions in tariffs did not have a significant effect on the country’s exports as a whole.

These overall results are better understood when analysed by types of product. This also constitutes an original contribution since the literature has generally not differentiated between different export goods. In this case, significant peculiarities may be observed. The development of the Argentine economy constituted an obstacle for the growth of its exports of livestock products (unprocessed), as agriculture competed for the land on which this activity was developed. Furthermore, the emergence of a meat-processing industry gave rise to a preference for the export of frozen and chilled meats as opposed to live animals. The opposite was the case for raw and processed agricultural and livestock products that experienced an improvement in exports as a result of the country’s economic growth. Tariff protection only had a significant effect on agricultural products, particularly wheat, which, from the end of the nineteenth century, faced increasing obstacles in some continental countries.

Vicente Pinilla

Augustina Rayes

The blog post was written by Vicente Pinilla (Universidad de Zaragoza) and Agustina Rayes (Universidad Nacional del Centro de la Provincia de Buenos Aires).


The working paper can be downloaded here: http://www.ehes.org/EHES_107.pdf

References

Cortés Conde, R. (1985): “The Export Economy of Argentina, 1880-1920”, in R. Cortés Conde and S.J.Hunt (eds.), The Latin American economies: growth and the export sector 1880-1930, Nueva York, Holmes.
Federico, G. and Tena-Junguito, A. (2016): “World trade, 1800-1938: a new data-set”, European Historical Economics Society, Working Paper 93.

Plague and long-term development

The lasting effects of the 1629-30 epidemic on the Italian cities

Guido Alfani is
associate professor at
Bocconi University

After many years of relative neglect, plague has recently started to recover a long-lost popularity among economic historians. In particular, the Black Death pandemic of the fourteenth century has been singled out as a possible factor favouring Europe over the main Asian economies, particularly India and China (for example, Clark 2007; Voigtländer and Voth 2013). Indeed, there is evidence of a long-lasting improvement in European and Mediterranean real wages immediately after the Black Death (Pamuk 2007; Campbell 2010). However, there is also evidence that in less densely populated areas of Europe, like Ireland or Spain, the long-term consequences of plague were negative, not positive, as “[Plague] destroyed the equilibrium between scarce population and abundant resources” (Álvarez Nogal and Prados de la Escosura 2013, p. 3). More generally it can be argued that maybe, among plagues and other lethal epidemics, the Black Death is the exception in having had (mostly) positive long-run consequences (Alfani and Murphy 2017).

Indeed, in a recent article I suggested that during the seventeenth century, the epidemiology of plague differed between the North and the South of Europe (Alfani 2013a). The South, and Italy in particular, was affected much more severely than the North. In 1629-31, plague killed about one-third of the population of northern Italy. A second epidemic, in 1656-57, ravaged central-southern Italy. In the Kingdom of Naples, overall population losses are in the 30-43 per cent range (Fusco 2009). The economic consequences of these plagues were negative and indeed, I argued that the differential impact of plague contributes to explain the origin of the relative decline of the most advanced areas of Italy compared to northern Europe (Alfani 2010; 2013a; 2013b).

In a new EHES working paper which I co-authored with Marco Percoco, we introduce the largest-existing database of urban mortality rates in plague years. This allows us, first, to demonstrate the particularly high severity of the last Italian plagues (in the two seventeenth-century waves, mean mortality rates in cities were in the order of 400 per thousand), and secondly, to analyze their economic impact.

By using the methods of economic geography, we study the ability of a mortality crisis to alter the growth path followed by a city (in particular, we follow the approach introduced by Davis and Weinstein 2002). We find evidence that the 1629-30 plague affecting northern Italy was able to displace some of the most dynamic and economically advanced Italian cities, like Milan or Venice, moving them to a lower growth path. We also estimate the huge losses the epidemic caused in urban populations (Figure 1), and show that it had a lasting effect on urbanization rates throughout the affected areas (note that changes on urbanization rates and in city size are often used as an indicator of economic growth or decline over the long run: see for example Bosker et al. 2008; Percoco 2013).

Figure 1. Size of the urban population in Piedmont, Lombardy, and Veneto (1620-1700)

Our argument is further strengthened by the fact that while there is clear evidence of the negative consequences of the 1630 plague, there is very little to argue for a positive effect. As we suggest, the potential positive consequences of the plague were entirely eroded by a negative productivity shock. Our regression analysis provides indirect evidence of this, however there is also direct evidence as for key cities like Florence, Genoa and Milan we have time-series of real wages of masons covering the entire seventeenth century (Figure 2). This sample of cities includes one heavily affected by the 1630 plague (Milan: mortality rate of 462 per thousand), one relatively less affected (Florence: 137 per thousand) and one entirely spared (Genoa). Interestingly, of the three, the only one showing signs of an increase in real wages after 1630 is Genoa. 

Figure 2. Real wages of masons in cities of northern Italy and overall urban and rural real wages in central-northern Italy, 1600-1700 (index based on the average of 1620-30). 

By demonstrating that the plague had a permanent negative effect on many key Italian urban economies, we provide support to the hypothesis that the origins of the relative economic decline of the northern part of the Peninsula are to be found in particularly unfavorable epidemiological conditions. More generally, our paper provides a useful new perspective on Italian long-term economic trends, including aspects like the falling-back of northern Italy compared to its main European competitors and the final consequences of the progressive “ruralization” of the Italian economies during the seventeenth century.

The working paper can be downloaded here: http://www.ehes.org/EHES_106.pdf  

References:

Alfani, G. 2010. ‘Pestilenze e «crisi di sistema» in Italia tra XVI e XVII secolo. Perturbazioni di breve periodo o cause di declino economico?’, in S. Cavaciocchi (ed.), Le interazioni fra economia e ambiente biologico. Florence: Florence University Press: 223-247.

Alfani, G. 2013a. ‘Plague in seventeenth century Europe and the decline of Italy: and epidemiological hypothesis’, European Review of Economic History, 17 (4): 408-430

Alfani, G. 2013b. Calamities and the Economy in Renaissance Italy. The Grand Tour of the Horsemen of the Apocalypse. Basingstoke: Palgrave.

Alfani, G. and T. Murphy. 2017. ‘Plague and Lethal Epidemics in the Pre-Industrial World’, Journal of Economic History, 77(1): 314-343.

Álvarez Nogal, C. and L. Prados de la Escosura. (2013). ‘The Rise and Fall of Spain (1270-1850)’, Economic History Review, 66(1): 1–37.

Bosker, M., Brakman, S., H. Garretsen, H. de Jong, and M. Schramm. 2008, ‘Ports, Plagues and Politics: Explaining Italian City Growth 1300-1861’, European Review of Economic History, 12: 97-131.

Campbell, B. M. S. 2010. “Nature as historical protagonist: environment and society in pre-industrial England”, Economic History Review 63: 281-314.

Clark, G. 2007. A Farewell to the Alms: A Brief Economic History of the World. Princeton: Princeton University Press.

Davis, D.R. and D.E. Weinstein. 2002. ‘Bones, Bombs, and Break Points: The Geography of Economic Activity’, American Economic Review, 92(5): 1269-1289.

Fusco, I. 2009. ‘La peste del 1656-58 nel Regno di Napoli: diffusione e mortalità’, in G. Alfani, G. Dalla Zuanna and A. Rosina (eds.), La popolazione all’alba dell’era moderna, special number of Popolazione e Storia, 2/2009: 115-138.

Malanima, P. 2013. ‘When did England overtake Italy? Medieval and early modern divergence in prices and wages’, European Review of Economic History, 17: 45-70.

Pamuk, S. 2007. ‘The Black Death and the origins of the ‘Great Divergence’ across Europe, 1300-1600’, European Review of Economic History, 11: 289-317.

Percoco, M. 2013a. ‘Geography, Institutions and Urban Development: Evidence from Italian Cities’, Annals of Regional Science, 50: 135–152.

Voigtländer, N. and H.J. Voth 2013. “The Three Horsemen of Riches: Plague, War, and Urbanization in Early Modern Europe.” Review of Economic Studies 80 (2): 774–811.