State dissolution, sovereign debt and default: Lessons from the UK and Ireland, 1920-1938

New EHES working paper

How do financial markets react to the dissolution of a sovereign state?  Do dissolutions lead to sovereign defaults? Events in Scotland, Spain and the Ukraine underscore the importance of these questions. In the absence of recent case studies, historical studies can provide insight. A new EHES working paper studies the breakup of the United Kingdom (UK) of Great Britain and Ireland in 1922.

Photo of an Irish land bond

Compiling daily historical data from the Dublin Stock Exchange, Nathan Foley-Fisher (Federal Reserve Board) and Eoin McLaughlin (Edinburgh) utilise a type of sovereign debt termed ‘Irish land bonds’. Before independence in 1922, all land bonds issued carried a UK government guarantee.  After independence, the Irish government guaranteed new land bond issuance. The authors exploit this institutional structure to analyse market participants’ perception of the strength of the UK’s guarantees.

Foley-Fisher and McLaughlin find persistent uncertainty about the value of the British government’s guarantee. This uncertainty lasted until 1932, when the Irish government refused to transfer payments on the land bonds to the British Treasury.  The default forced the British government to make good on its guarantees.  Demonstrating that the guarantees were sound removed the surrounding uncertainty. As a consequence, the yield spread on the pre-independence land bonds fell significantly.

'Weighted average (nominal amount outstanding) current yields on UK and Irish bonds

The main lesson is that uncertainty about fiscal responsibility can persist for a long time after independence has been declared.  Even with sovereign guarantees, market participants may expect compensation for the uncertainty in the form of higher yields. This compensation may, in turn, raise the cost of borrowing, as can be seen from the above graph.

The working paper can be downloaded here: http://www.ehes.org/EHES%2061.pdf

Nathan Foley-Fisher is an Economist at the Federal Reserve Board 

Eoin McLaughlin is an Early Career Fellow at University of Edinburgh

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New EHES working paper

Fertility and early-life mortality. Evidence from smallpox vaccination in Sweden

What is the causal effect of early-life mortality on fertility? Recent research by Philipp Ager, Casper W. Hansen and Peter S. Jensen sheds new light on this question by testing how the introduction of vaccination in Sweden at the end of 1801 affected early life mortality and fertility at the parish level.

Edward Jenner (1749-1823), father of vaccination uses cowpox vaccine to inoculate children against smallpox.

During the 18th century smallpox was a severe disease in Sweden that wiped out around 10 percent of the population; among them many infants. When vaccination reached Sweden, smallpox mortality dropped remarkably (see Figure 1), in particular, infants, who had the highest mortalities before vaccination, experienced the largest decline (see Table 1).

In line with the historical narrative, Ager, Hansen and Jensen first show that parishes in counties with higher levels of smallpox mortality prior to the introduction of vaccination indeed experienced a greater decline in infant mortality afterwards. Based on this finding, the authors argue that they can identify the causal effect of early-life mortality on fertility. They construct an instrumental variable for early-life mortality where they exploit cross-sectional differences in pre-vaccination smallpox mortality (before 1801) along with the time variation arising from the introduction of the smallpox vaccine. Their instrumental variable estimate reveals that the vaccination-induced decline in early-life mortality lowered the birth rate, while the number of surviving children and population growth remained largely unaffected. Ager, Hansen and Jensen’s conclusion is that the decline in early-life mortality cannot be considered as a major determinant of the onset of Sweden's fertility decline during the 19th century.

This working paper was written by Philipp Ager (University of Southern Denmark), Casper Worm Hansen (University of Copenhagen) and Peter Sandholt Jensen (University of Southern Denmark) and can be downloaded here: http://www.ehes.org/EHES%2058.pdf

New EHES Working Paper

The Danish Agricultural Revolution in an Energy Perspective: A Case of Development with Few Domestic Energy Sources

Is a lack of domestic energy resources necessarily a limiting factor to growth, as suggested for example by the work of Robert C. Allen? A new EHES Working Paper argues that this does not have to be the case using a case study of Denmark.

Danish energy consumption by source (%)

Denmark had historically next to no domestic energy resources, but the authors argue that Denmark’s take off at the end of the nineteenth century was in fact relatively energy dependent, which they document by presenting new historical energy accounts for the years 1800-1913.

They then relate this to Denmark’s well-known agricultural transformation and development through the dairy industry. The Danish cooperative creameries, which spread throughout the country over the last two decades of the nineteenth century, were dependent on coal – a point which has not been stressed before in the literature. Although Denmark had next to no domestic coal deposits, they demonstrate that her geography allowed cheap availability throughout the country through imports.

A Danish cooperative creamery

Thus, Denmark might be seen as the exception that proves the rule: although modern energy forms are important for growth, domestic energy resources are not necessary, as long as it is possible to import them cheaply from elsewhere.

Percentage of Energy Consumption from Coal for Selected Countries, 1800-1913

The working paper was written by Sofia Teives Henriques, University of Southern Denmark and Paul Sharp, University of Southern Denmark and can be downloaded here: http://www.ehes.org/EHES_No56.pdf

Understanding the Economic Development of Eastern Europe

The WEast Economic History Workshop titled "Understanding the Economic Development of Eastern Europe" took place in Belgrade on the 5th  and 6th  July. The Belgrade WEast Workshop was organised by Jacob Weisdorf, Mikolaj Malinowski, Matthias Morys, Stefan Nikolić and the Belgrade Banking Academy. The purpose of WEast Workshops is to foster knowledge transfer and collaboration between economic historians and economists, with shared interest in the region of CESEE, representing both western and eastern universities and research centres.

Over the duration of two days, fascinating lectures were given by Stephen Broadberry (LSE) and Branko Milanović (Graduate center, CUNY), 15 papers were presented in 5 sessions, with participants coming from 17 different institutions located in 11 different countries (both in the "West" and "East"). The Workshop was held just in the center of the Serbian capital, in an elegant ambience of a building erected in 1911, in the Secessionist style. Belgrade proved to be an excellent host, not least because it managed to nourish the participants with beautiful sunny weather so that they can explore its sights in their spare time.

Opening of the Workshop: workshop organisers, keynote lecturers and session chairs

The Workshop was opened by a keynote address by Stephen Broadberry. His lecture was titled "Accounting for the Great Divergence" and it set the tone for academic discourse in the sessions to follow. Given the nature of the workshop he put special emphasis on explaining Europe’s Little Divergence. He acknowledged recent contributions that incorporate Eastern Europe into the debate.

The first of the three academic sessions on the first day started with Ralph Hippe (LSE) and Joerg Baten (University of Tubingen) who found that for less industrialised countries in 19th century Europe there was a substantial negative effect of land inequality on human capital. Thereafter, Elena Korchmina and Ilya Voskoboynikov (both affiliated with National Research University Higher School of Economics) argued that noblemen-veterans of Napoleonic wars (1812-1814) influenced the quality of government in the Russian Ryazan province by changing the existing model of elections. Finally, Jelena Rafailović (Institute for Recent History of Serbia), analysed innovative activity in interwar Yugoslavia using an extensive data set on patent statistics.

After a lunch break with traditional Serbian food and sweets, the second session started with Matthias Morys (University of York) presenting his joint paper written with Martin Ivanov (Bulgarian Academy of Sciences). Using dynamic factor analysis the authors find a steadily increasing synchronisation of business cycles in five SEE counties with a pan-European business cycle before 1913 and the emergence of a regional business cycle in the interwar period. Next, Elena Korchmina presented her joint work with Andrei Markevich (New Economics School Moscow) in which they analyse the link between poll tax collection in XVIII century Russia (Ryazan province) and modern state formation. The session concluded with a topic quite connected to tax collection, albeit in the 20th century. Relying on income tax data, Filip Novokmet (Paris School of Economics) showed that for the interwar period concentration of income at the top of the income distribution was much more pronounced in Czechoslovakia than in Bulgaria.

The final session of the day focused on former Yugoslavia and its successor states. Milan Deskar-Škrbić (Erste & Steiermarkische Bank) presented a paper co-authored with Jurica Zrnc (Croatian National Bank) and Ivo Bićanić (Faculty of Business and Economics, Zagreb), in which they analyse points of convergence and discontinuity in the Yugoslav economy on a regional level for the period 1950-1990. Dora Tuđa (University of Tilburg) presented her joint work with Ivo Bićanić, on long term estimates of Croatian GDP data and a critique of them, to which Branko Milanović (as an author of one of the series) could provide substantial feedback. The session concluded with Leonard Kukić (LSE) presenting his research on the contribution of misallocation of resources between sectors to Yugoslav regional income disparities, in the post-WWII period. After an eventful first day of work, all the participants were invited for a relaxing and well deserved dinner.

Workshop participants enjoying a presentation

Branko Milanović started the second day of the Workshop with a lecture titled “Between Kuznets and Piketty: How to understand inequality changes in the last 200 years”. His main argument was that in the long term there are waves of upswings and downswings in inequality - which he proposed to be called the “Kuznets’ Waves” - and that we are now part of a second such wave driven by the current industrial revolution.

In contrast to the current “industrial revolution”, the first session of the day dealt with industrialisation in the East in the 19th and 20th century. Employing new time‐series of energy use and steam engines for the Czech Republic (1830-1873) and using tools of Economic Geography, Hana Nielsen (Lund University) studied the role of coal in Czech industrialisation and made a Gerschenkron-like argument, that despite the use of coal starting relatively late, eventually a fast transition towards its use was able to compensate for the delay. Stefan Nikolić (University of York) exploited regional variation in his analysis of the determinants of industrial location. Relying on a new panel data set, he argued that factor endowments were clearly more important than New Economic Geography factors in attracting industry in interwar Yugoslavia. Finally, Hrvoje Ratkajec (University of Primorska, Koper) combined Economic Geography with Business History, to analyse the industrial and trade connections between the area of Northeast Adriatic (with centre in Triest) and other Slovenian lands in the period 1900-1930, focusing on the impacts of the First World War on these connections.

The last but not least session examined the origins and consequences of Polish partitions. Mikolaj Malinowski (Utrecht University / Humboldt University) demonstrated that collapse of the central institutions in Poland in the 17th and 18th century brought about market disintegration and economic stagnation that set the stage for the disappearance of the country in 1795. Piotr Korys and Maciej Tyminski (both affiliated with University of Warsaw) presented a part of their ongoing project on the reconstruction of GDP of Polish lands during the partition period and documented the evolution and economy structure in the late 19th and early 20th century in different partition territories. The partition also played a role in the final paper of the workshop in which Pawel Bukowski (CEU) convincingly argued that the partition of Poland by the Russian, Prussian and Habsburg Empires, has had long lasting effects on the educational performance of Polish students, depending on the educational tradition and attitude towards the dominating empire.

The participants in all the sessions were very much inspired to comment and ask questions regarding the papers being presented. Furthermore, a fun thing to mention is that when Branko Milanović “tweeted” Pawel Bukowski’s aforementioned results, questions for the presenter were coming even from the "Twittersphere". Pawel gladly responded, so in a very modern way the workshop echoed far beyond Belgrade even before it was over.

For all the above stated, we can conclude that the Belgrade WEast Workshop was a great success. For this reason the WEast team is very optimistic about the forthcoming WEast Workshops.
You can find more information about the WEast initiative and its activities at http://weast-initiative.blogspot.de/ .

This blog post was written by: Stefan Nikolić, PhD student at University of York

New EHES Working paper

Breaking the Unbreakable Union: Nationalism, Trade Disintegration and the Soviet Economic Collapse 

Why did the Soviet economy collapse so quickly in the late 1980s and early 1990s? A new EHES Working Paper argues that the reason can partly be found in the reemergence of nationalism to the territorial fringes of the Union.

Leaders from Ukraine, Belarus and Russia sign the Belavezha Accords on 8. December 1991, declaring the dissolution of the Soviet Union and the creation of the Commonwealth of Independent States. Picture credit: RIA Novosti Archive.

For decades, planners had striven to construct the Soviet economy as a tightly integrated system, where supply chains spanned domestic boundaries. The Union’s constituent parts- called republics in Soviet parlance- exercised little influence over the allocation of production and trade flows. This changed when Gorbachev took power in 1985. His new political course, which emphasized liberalization over repression, opened up the possibility of republics seceding from the Union. This set in motion a chain of events that ultimately dealt a death blow to an already stumbling system.

A central feature of the planned economy had been the fact that monitoring and control of local elites by the center was incomplete, which left local bodies some degree of discretion. This discretion could be used to tweak the plan, for example by restricting the export of particularly valuable goods to other republics. In normal times this did not happen very frequently, as the prospect of continual interaction placed a limit on the degree to which local elites could exercise their discretion profitably. Once secession became an option, however, it became profitable for local elites to limit the flow of goods between republics. The result was that domestic Soviet trade plunged, supply chains were broken and production plummeted.

The story is supported by a game-theoretical model as well as by data on domestic Soviet trade from 1987 to 1991. Using an adapted version of an empirical gravity model, it is shown that the more likely a republic was to secede- measured by the timing of official declarations of autonomy- the more domestic trade fell. The economic disintegration of the Soviet Union thus predated its official demise in December 1991.

This quantitative effect is strengthened if an instrumental variable procedure is used to account for the possible endogeneity of secessions, for example because republics badly integrated into the Soviet trade system may be more willing to secede. The instrument used is the proportion of textbooks printed in the republican language as opposed to Russian. This reflects the extent of linguistic nationalism present in each locality. Republics who used Russian to a lesser degree were more nationalistic and more eager to secede. They consequently witnessed a stronger fall in trade.

Marvin Suesse is a PhD student at Humboldt-Universität zu Berlin

Finally, the fall in trade caused by a higher disposition to secede had a negative effect on output. On average, withheld trade can explain up to 30% of the variations in GDP growth between Soviet republics during the breakup period. In other words, nationalism in the Soviet and Post-Soviet world may have a strong role to play in explaining the mixed economic experiences of the region after the fall of Socialism.

The working paper can be downloaded here.

Gender in Economic History

Scandinavian Economic History Review launches a Gender in Economic History Virtual Special Issue

Gender’ is a central category in political and social debates on equal rights and opportunities as well as on inequality, and in broader cultural discussions. It seems widely underused and too narrowly used in economic history where the major focus is still on equal wages and participation of women in the labour market. Other aspects of ‘gender’, for example relating to entrepreneurial activity, to the business of sex, to ‘maleness’, to consumption or more generally to social life, which are heavily debated in cultural history and cultural studies, do not yet receive sufficient attention in economic and business history. The Scandinavian Economic History Review, is no exception.

Therefore, Scandinavian Economic History Review, launches a virtual special issue about gender issues. The aim is to make a broader audience aware of present and past research published in the journal. The editors of the journal have selected articles published over the last two decades to show how the discussion has developed over time. The Scandinavian Economic History Review also encourages researchers to further advance the field in new directions and to submit manuscripts dealing with new approaches to ‘gender’ in economic history.

Read more from the journal here.

Jacob Weisdorf, Alfred Reckendrees (editors)

The Kent FRESH meeting

Dinner at Café du Soleil, Canterbury 

The Kent FRESH meeting took place on June 5, 2014 at the University of Kent in Canterbury, UK. The day started with a fascinating keynote lecture given by Patrick Wallis from the LSE on the subject of apprenticeship in early modern England. He was followed by nine excellent presentations, and as is usual at FRESH meetings there was plenty of valuable discussion for each paper. We enjoyed three great graduate student presentations including Pawel Bukowski at CEU Budapest. He demonstrated convincingly how the historical division of Poland into Prussian, Russian, and Austrian regions has had a long term impact on education in that country today. Meng Wu of the LSE outlined an ambitious research program looking at Chinese savings banks, and Oisin Gilmore of Groningen described an early draft of an investigation of the determinants of postwar growth patterns. The day finished with a delicious meal at ‘Café du Soleil’.

This blog post was written by Paul Sharp, associate professor at University of Southern Denmark.

New EHES Working paper:

Just Add Milk: A Productivity Analysis of the Revolutionary Changes in Nineteenth Century Danish Dairying

"Cows on Saltholm" (Theodor Philippsen, 1892), Danish National Gallery

What is it that makes agricultural producers more productive? In this paper, Markus Lampe and Paul Sharp examine the Danish agricultural revolution, a period when first large and then small farmers caught up quickly with and extended the productivity frontier in milk production – most of it being exported in the form of butter and, as a byproduct, bacon, to the growing industrial cities of Britain. Soon, Danish dairying led the world in terms of productivity. Uniquely in a world perspective, high quality micro-level data exist documenting this episode, from surveys of manor/estate farms conducted by leading dairy economists for the Danish periodical Tidsskrift for Landøkonomi (Danish Journal of Agricultural Economics) over a number of years from 1880.

These farm-level data allow the use of the tool of modern agricultural economists, stochastic frontier analysis, to estimate production functions for milk, using mainly cows and feed as inputs, and to estimate simultaneously the extension of the production possibility frontier (about 0.4 percent per year) and the increase in average efficiency, that is, how close the typical farm is to the frontier, or in other words, whether it uses its inputs to arrive at the maximum possible output. Both together allow for a bottom-up calculation of average total factor productivity (TFP) growth of about 1.5 percent per year between 1880 and 1900, with the possibility of distinguishing the contributions of technical progress (a shift in the frontier), such as the introduction of the new Danish Red breed, and more efficient uses of factors of production in modern dairying, as exemplified by concentrate feeding, year-round production through calving in autumn, and the modernity of the farm as proxied by the use of automatic cream separators. 

The working paper is EHES number 55 and can be found here. 

Markus Lampe is associate professor
at Carlos III University of Madrid

Paul Sharp is associate professor at
University
of Southern Denmark

The 9th SOUND Economic History Workshop

The 9th SOUND Economic History Workshop (21^st-22^nd May) is now over but has been an inspiring workshop with a wide range of interesting presentations. The workshop, which has been organized by Alfred Reckendrees and Jacob Weisdorf, took place in the modern facilities of Copenhagen Business School surrounded by the lovely parks and neighborhoods of central Copenhagen.

 

The organizers, Alfred Reckendrees and Jacob Weisdorf

Kevin O’Rourke (All Souls College, University of Oxford) has initiated the workshop with his Wednesday keynote lecture named ‘Coal, colonies and the industrial revolution’ which addresses two largely debated topics of economic history, the role of coal and foreign trade during the industrial revolution. Kevin’s presentation provided an extensive discussion of the current debate on the role of coal in industrial development followed by quantitative evidence which showed a significant impact of coal location on urbanization in Europe. In the second part of his lecture, Kevin then focused on the British continent and the role of foreign trade during the 19^th century industrialization. After the debate following Kevin’s speech, the participants could enjoy a nice lunch and walk in the nearby facilities of Copenhagen Business School.

Kevin O'Rourke

The afternoon session offered then a wide range of topics from economic history. Hana Nielsen (Lund University) built on Kevin’s lecture and presented a country-specific study on the role of coal during the Czech industrialization by drawing on spatial analysis of coal and steam data. Åsa Malmström Rognes (Uppsala University) presented one of articles from her upcoming PhD dissertation focusing on family business groups in South-East Asia. In her presentation, Åsa discussed in more detail the role of capital markets for family business groups and how the Asian crisis changed them. Ursula Hård (Stockholm University) also presented a chapter from her coming PhD thesis which analyses the formal and informal institutional possibilities and obstacles that women business owners and entrepreneurs in rural communities face when they through investment in businesses within locally produced foods.

Åsa Malmström Rognes

After a coffee break, Jacob Weisdorf (South Danish University, Odense) presented results of his co-authored working paper (Jane Humphries, University of Oxford) with long-run series of wages of women in England (1260-1850) with a particular focus on the consequences of the Black Death on women’s wages and its implications for the formation of the European Marriage Pattern regime. Last presentation of the first day went then to Eric Bengtsson (University of Gothenburg) in which Eric has provided some comparative analysis of the distribution of income between capital and labor in Denmark and Norway stretching back to 1830 up until now. Following this inspirational day, the participants have then gathered together for an official conference dinner which took place in a close vicinity of Copenhagen Business School.

The second and last day of the SOUND workshop was again initiated by an interesting lecture of keynote speaker, this time Marc Flandreau from the University of Geneva. Marc then gave an inspirational lecture on the rise of rating agencies in the US and provided also with a comparative perspective on the differences between the US and UK in particular. Thor Berger, another speaker from the Lund University, presented results of his joint working paper (with Kerstin Enflo, Lund University) on another classical topic of economic history – the impact of railroads on the regional growth. In the paper, the authors analyze and provide quantitative evidence on the short- and long-run impacts of railroad on city-growth in Sweden for the past 150 years. 

Karol Jan Borowiecki

Karol Jan Borowiecki (South Danish University, Odense) presented his paper on the well-being and creativity of three famous composers and provided quantitative evidence on the existence of a causal impact of negative emotions on the composers’ creativity.

Again, after a refreshing lunch at Copenhagen Business School, the participants gathered for the last session of the SOUND workshop which started with a presentation by Alfred Reckendrees (Copenhagen Business School). In his presentation, Alfred addressed the proposals of industrialist from the district of Aachen to introduce mandatory pension system and minimum wages in a search to prevent future labor conflicts.  

Hana Nielsen

Kerstin Enflo (Lund University) presented a paper on business cycles in the Nordic countries (1834-1945), a joint work together with Mathias Morys (University of York) where the authors utilize new data sets in the frameworks of the Dynamic Factor Model to construct indices for four Scandinavian countries. Last speaker from Uppsala University, Henric Häggvist, closed up the session with an extraction from his PhD research which analyses development in trade tariffs in Sweden. In his presentation, Henric offered a comparative analysis of trade tariffs in the period of 1780-1830 for Sweden and Denmark.

At the very end of the workshop, Alfred Reckendrees discussed some issues concerning the journal publishing, in particularly focusing on the ‘do’s and don’t’ of academic writing, which was very helpful for many of the workshop participants. The workshop was then officially concluded. 

This blog post was written by Hana Nielsen, PhD student at Lund University

The content and pre-requisites for the ideal economic history course

A homage to my teachers in the distant past

James Foreman-Peck is Professor of
Economics at Cardiff University .
He was the president of EHES 1999-2001

The most exciting course I have ever followed was Peter Lindert and Keith Trace’s final year undergraduate ‘Topics in Economic History’ (I am not certain now that this was the title). It still seems to me to have set out an agenda for many of the themes that are most worthwhile in economic history. Motivated by inspirational teaching, we began by getting our teeth into whether there was a fourteenth century Malthusian crisis and romped through time from there, touching on Hicks’ Theory of Economic History.  We savoured the origins of sixteenth century inflation and surged onwards towards the then present day, with the triggers for the West German post war miracle and Japanese super growth in the nineteen sixties. You could not get more contemporary than this last because the course was taught at the end of the sixties! Apart from the Japanese, and the US (surely the Great Depression as seen by Friedman and Schwartz?) case studies, most of the subject matter was European.

How could such a course be developed if there were suitable customers available today? With almost another half century of economic history behind us since this epochal pedagogic event there must be a wide range of candidate case studies. European de-colonisation is perhaps one. The Russian and/or East European transition is certainly ripe for the mature reflections of members of the European Historical Economics Society and therefore for lively undergraduate study.

Globalisation and shifting centres of economic power have changed Europe’s position in the world. Europe in the last half century is much more likely to be an ‘effect’ than a ‘cause’ – as with OPEC and the oil crises of the 1970s or through the competitive effects of the economic rise of post Mao China.  But the origins and consequences of the European common currency will surely provide many insights for the whole world.
A drawback of such a course on the supply side is that it is unlikely to appeal to the specialised academic country expert. It is much more suitable for an ‘ ideas’ teacher, who in adjacent disciplines with the appropriate technique perhaps might be sought among economists. But would they be found? At the time I was being delighted by the Trace and Lindert course I suspected most of these economics practitioners of being analogous to the glass bead game players of Thomas Mann’s eponymous novel. Either that or they were simply fascinated with ‘intellectual rigour’, which smelled of Freud’s Theory of Money. From these economists’ point of view to teach such a course they would need to find out about history, but this was professionally unnecessary because they could deduce it (and the present) from first principles.

If this is still the case (assuming it was ever) then there may be a gap on the supply side for such a course, always supposing that there is a demand. For the economic history entrepreneur the task is to create such a demand, as well.

Blog post written by: James Foreman-Peck, Professor of Economics at Cardiff University where he does not teach economic history.