Session 1: Policy and Identity
Black Politicians Matter
This study exploits the unique history of Reconstruction after the American Civil War to estimate the causal effect of politician race on public finance. I overcome the endogeneity between black political leadership and local political preferences, demographics, and political competition using the number of free blacks in the antebellum era (1860) as an instrumental variable (IV) for black political leaders during Reconstruction (1867–1877). While the instrument is well correlated with the number of black officials, I show that it is not related to electoral outcomes during Reconstruction, the tenure of black elected officials, nor political competition and voter education campaigns during the Reconstruction era. IV estimates show that a one standard deviation increase in the number of black officials in a Southern county increased per capita county tax revenue by 0.62 standard deviations, a sizable effect. I also show that the effect is concentrated in legislative officials, those holding executive or judicial appointments have no significant effects on revenues, consistent with rules of taxing authority by branch of government. Finally, I investigate whether the results are consistent with the narrative history of the effect of black political leadership during Reconstruction, where black officials favored higher taxes to establish public education and initiate land reform. Estimates show that exposure to black politicians during school age increased black literacy more than 6 percent and decreased the black-white literacy gap by more than 7 percent. I find no effects of black politicians on land redistribution.
TREVON D. LOGAN, Ohio State University
Does Civic Leadership Matter? Evidence from the Forty-Eighters in the United States
We investigate the effect of “civic leadership” on turning the tide of history against slavery in the United States. Specifically, we study how the arrival of political refugees from Germany’s failed 1848 revolutions in a U.S. county contributed to the rise of the Republican Party, culminating in Lincoln’s presidency in 1860, and to volunteering for the Union Army in the Civil War beginning in 1861. To explore mechanisms, we document that Forty-Eighters increased the number of social clubs and influenced the number and circulation of both English and German language local newspapers and led newspapers to change the political party they endorsed.
CHRISTIAN DIPPEL, UCLA, and STEPHAN HEBLICH, University of Bristol
Loose Cannons: War Veterans and the Erosion of Democracy in Weimar Germany
I study the effect of war participation on the rise of right-wing parties in inter-war Germany. After the democratization and surrender of Germany in 1918, 8m German soldiers of WWI were demobilized. I argue that defeat made veterans particularly skeptical about the new democratic state. Their return undermined support for democratic parties from the very beginning and facilitated the reversion to autocratic rule 15 years later. In order to quantify this effect, I construct the first disaggregated estimates of German WWI veterans since official army records were destroyed. I combine this data with a new panel of voting results from 1881 to 1933. Difference-in-difference estimates show that war participation had a strong positive effect on support for the rightwing at the expense of socialist parties. A one standard deviation increase in veteran inflow shifted vote shares to the right by more than 2 percentage points. An IV strategy based on draft exemption rules substantiates my findings. The effect of veterans on voting is highly persistent and strongest in working class areas. Gains for the rightwing, however, are only observed after a period of Communist insurgencies. I provide suggestive evidence that veterans must have picked up especially anti-Communist sentiments after defeat, injected these into the working class and in this way eroded the future of the young democracy.
CHRISTOPH KOENIG, University of Bristol
Session 2: Political and Technological Drivers of International Trade
Drivers of Fragmented Production Chains: Evidence from the Nineteenth Century
This paper studies how communication technology improvements affect the fragmentation of production across international borders. We examine bilateral imports from Britain to all countries in the world for different product categories along the value chain in the nineteenth century cotton textile industry. The ruggedness of the submarine sea-floor provides quasi-random variation in the year in which a country gets connected to the global telegraph network. We show that there were substantial differences in the codifiability of product specifications along the value chain; that is, the extent to which attributes of a product could be specified in words (and thus be sent by telegram) as opposed to inspecting a sample of the product. In particular, product categories more downstream were less codifiable. We find that communication time improvements led to larger increases of imports for more upstream products, thereby increasing domestic manufacturing and increasing fragmentation.
RÉKA JUHÁSZ, Columbia University, and CLAUDIA STEINWENDER, Harvard Business School
Gold and Trade: An Empirical Simulation Approach
The network externalities from international trade to the choice of exchange rate regimes have been invoked to explain the rise of the classical gold standard. In particular, gravity regressions have consistently shown large trade gains for countries on the same monetary regime (especially gold). However, causality probably runs in both directions, since more open economies would have a greater incentive to adopt stable exchange rate regimes, especially if they traded more with other countries already on gold. This raises an endogeneity issue for which conventional identification methods are not suitable. This paper uses empirical network analysis to model the co-evolution of trade and exchange rate regimes. Simulations of this evolution indicate the presence of a selection effect, monetary regimes influenced trade on the intensive thought not extensive margin, and a contagion effect, the monetary regimes of trade partners shaped countries’ decisions to change their regime, during the First Globalization and classical gold standard era.
RUI PEDRO ESTEVES, Oxford University, and FLORIAN PLOECKEL, University of Adelaide
Dynamic Comparative Advantage in International Shipbuilding: From Wood to Steel
Can temporary initial input cost advantages have a long-run impact on the spatial distribution of production and trade? I study this question in the context of the international shipbuilding industry during the transition from wood to metal ship production (1850–1912). Input price advantages gave Britain an early lead in metal shipbuilding, while the United States and Canada specialized in wood ship production. However, after 1890, Britain’s initial price advantages disappeared. By comparing production patterns on the Atlantic Coast of North America, which faced British competition, to the Great Lakes, which were isolated from competition, I show that competition from initially advantaged foreign firms substantially reduced the ability of North American producers to transition to metal ship production. Government protection and support moderated these effects for some Atlantic Coast producers, allowing them to survive the demise of wood shipbuilding. I also provide evidence that the mechanism driving the persistence of Britain’s lead was the development of large pools of skilled craft workers. These results shed light on the role of past conditions in influencing current production and trade patterns, with implications for modern debates over the use of industrial policy and tariff protection.
W. WALKER HANLON, New York University
Session 3: Public Health and Policy
Health, Gender, and Mobility: Intergenerational Correlations in Longevity over Time
Changes in intergenerational mobility over time have been the focus of extensive research. However, existing studies have been limited to studying males and intergenerational correlations in outcome variables that often lack clear welfare implications. This paper introduces a new approach to estimating intergenerational mobility that relies on health measures rather than occupational measures to assess the strength of the relationship between the outcomes of parents and their children. Health measures provide a metric for intergenerational mobility that can be consistently interpreted over time and across genders. Using a new intergenerational dataset constructed by linking individuals’ death certificates to those of their parents, I find that a son’s life span is strongly correlated with his father’s and that this correlation has strengthened over time. Daughter’s life span shows a similarly strong relationship with mother’s life span that has remained relatively stable over the past century. Differences in life span are shown to correlate with occupational status and occupational transitions from one generation to the next.
JOHN M. PARMAN, College of William and Mary
Infant Mortality and the Repeal of Federal Prohibition
Exploiting county-level variation in prohibition status, this paper asks two related questions: what were the effects of the repeal of federal prohibition on infant mortality? And perhaps more importantly, were there any significant externalities from the individual policy choices of counties and states on their neighbors? We find that dry counties with at least one wet neighbor saw baseline infant mortality increase by roughly 3 percent. Treating this as a conservative estimate and cumulating across the six years from 1934 to 1939 would suggest that a substantial number of excess infant deaths could be attributed to the repeal of federal prohibition in 1933. We argue that such cross-border policy externalities should be a key consideration in the contemporary policy debate on the prohibition of illicit substances.
DAVID S. JACKS, KRISHNA PENDAKUR, and HITOSHI SHIGEOKA, Simon Fraser University
The Mortality Effects of Local Boards of Health in England, 1848–1870
The Public Health Act of 1848 was England’s first attempt at systematic sanitation improvement. Between 1848 and 1870, it oversaw the adoption of more than 600 local boards of health (comprising roughly one-quarter of the English population), each of which it endowed with the power to improve infrastructure, provide street cleaning services, regulate new construction, tax its inhabitants, and borrow from the Exchequer. Since the jurisdictions of local boards were not coterminous with most other administrative, statistical, or natural boundaries, the mortality effects of local boards have been largely unexplored. In this paper I introduce a new panel dataset that matches the jurisdictions of local boards of health to the jurisdictions of poor law unions. I then leverage variation in both the timing and extent of board adoption across unions in order to estimate the cumulative effect of local boards on mortality rates one, two, three, and four years after adoption. My estimates suggest that local boards reduced mortality by 14.2 percent after four years. Accounting for incomplete take-up, this amounts to a 3.7 percent reduction in mortality by 1870 in England as a whole. I calculate that local boards “saved” approximately 225,000 lives over 23 years, nearly ten times the number of British casualties during the Crimean War.
MAXWELL KINIRIA, Cornell University
Session 4: Macroeconomic Regime Change
Wage Inflation in the Recovery from the Great Depression
Wage inflation surged during the 1933–1937 recovery from the Great Depression, even though unemployment rates appear to have remained very high. In Phillips curves that relate wage inflation to measures of real activity, wage inflation appears anomalously high especially in 1933–1935 and again in 1937–1938. I test two possible explanations of these anomalies. One is news about changes in monetary policies, such as devaluation of the dollar, which raised the future level of wages and prices expected by the public. In new Keynesian models, such a change in expectations gives an immediate boost to current wage inflation. Another possible explanation is New Deal labor-market policies that created minimum wage rates and boosted workers’ bargaining power. In terms of new Keynesian models, these were “wage mark-up shocks.” I find that the exact timing of wage-inflation anomalies over 1933–1938 is much more consistent with effects of New Deal labor-market policies than with effects of changes in expected future wage and price levels. I find no evidence that changes in expected future inflation affected current wage inflation over 1933–1938.
CHRISTOPHER HANES, SUNY-Binghamton
Does Social Security Crowd Out Private Savings? The Case of Bismarck’s System of Social Insurance
Imperial chancellor Bismarck’s system of social insurance (with its three pillars—health, accident, and pension insurance) was an important role model for social security systems across Europe and in the United States. How the introduction of the German system changed economic expectations and decisions of the German workforce has not been researched though. This article closes this gap by analyzing the development of Prussian savings banks’ deposits in the late nineteenth century with the help of a difference-in-difference-like approach. We show that, in the Prussian case, social security crowded out private savings considerably. As counterfactual voluntary savings would have been far from sufficient, however, Bismarck’s social insurance system was still needed to fight the misery workers and their families potentially faced in old age or times of sickness.
SIBYLLE LEHMANN-HASEMEYER, University of Hohenheim, and JOCHEN STREB, University of Mannheim
The Volatility of Money: The Call Money Market and Monetary Policy Regime Change
This paper presents and analyzes a new database of daily call loan rates in New York from 1900 to 1933, covering the financial crises of 1901, 1907, 1914, 1920–1921, and 1929 as well as the rapid changes in the financial markets from WWI to the Great Depression. Bai-Perron structural break tests indicate that rates dropped and became less volatile around 15 January 1908. The money market shows high volatility for most of the period 1900 through 1907 and significantly lower volatility thereafter. Interest rates spiked frequently prior to 1908, but never surpassed 20 percent thereafter. Interest rates show no structural break in level or volatility around the opening of the Federal Reserve System in November 1914, but rates fell and became nearly constant after 1933—likely due to federal securities market regulation. I augment these data with NYSE transaction volume and with the weekly volume of call loans starting in 1917.
CAROLINE FOHLIN, Emory University
Session 5: Monetary Policy in the U.S.A.
The Impact of Extended Liability on Bank Runs: Evidence from the Panic of 1893
From 1863 to 1935, regulators imposed extended liability on bank shareholders to encourage conservative banking and enhance depositor protection. In a quasi-experimental setting, we study how extended liability affected deposit withdrawals during the panic of 1893. We compare the capital and portfolio management of national banks that were subject to double liability (limited liability) to that of state banks that were subject to unlimited liability. We find that banks with stricter shareholder liability targeted a low level of default risk. State banks held more secured loans and used less leverage than national banks. In addition, we find that banks with stricter shareholder liability experienced smaller liquidity shocks: state banks experienced less deposit withdrawals than national banks during the panic. Our findings show that extended liability contributed to financial stability by discouraging risky activities and mitigating runs.
HAELIM ANDERSON, U.S. Treasury
Risk Shifting Between Two Lenders of Last Resort
During financial crises, the Lender of Last Resort (LOLR) uses lending facilities to inject critical funding into the banking sector. An important obstacle for policymakers is designing the facility so that banks are not reluctant to approach due to stigma, and attracting banks with liquidity concerns rather than those prone to risk-taking and moral hazard incentives. We use an unexpected disclosure that introduced stigma at one of two similar LOLRs during the Great Depression to evaluate whether or not banks used LOLR assistance to improve their liquidity needs using a novel trivariate model with recursive endogeneity. We find evidence that banks that approached the facility with stigma were less liquid and reduced their position of safe assets in comparison with banks that approached the facility with no stigma. Thus, stigma forced the pool of LOLR borrowers to separate into different groups of banks that ex-post revealed their liquidity preferences to policymakers. This finding informs policymakers’ ex-ante decision of designing a facility that only attracts banks with liquidity concerns.
SRIYA ANBIL, Federal Reserve Board of Governors, and ANGELA VOSSMEYER, Claremont McKenna College
Implementing Monetary Policy using Administered Rates and Balance Sheet Composition: Evidence from the U.S. Experience in the 1920s
To implement monetary policy in the 1920s, the Federal Reserve utilized administered interest rates and conducted open market operations in both government securities and private money market securities, sometimes in fairly considerable amounts. We show how the Federal Reserve was able to effectively use these tools to influence conditions in money markets, even those in which it was not an active participant. We also provide evidence that the changes in money market conditions resulting from changes in monetary policy affected the issuance of money market securities. These results point to a channel through which monetary policy was transmitted to the rest of the economy. The tools used in the 1920s by the Federal Reserve resemble the extraordinary monetary policy tools used by central banks recently and provide further evidence on their effectiveness even in ordinary times.
MARK CARLSON and BURCU DUYGAN-BUMP, Federal Reserve Board of Governors
Session 6: Income Inequality and Mobility
Social Mobility and Inequality at the Creation of the American Republic
This paper follows Gregory Clark’s methodology in examining social mobility and inequality in the decades following the American Revolution. By treating surnames as distinct economic groups, Clark used surnames to study mobility across generations by measuring levels of wealth over the long run of history. While Clark inspected American mobility in the twentieth century, this paper uses a comprehensive survey of state property tax records from the early republic. I have sampled the taxable wealth of 72,682 taxpayers at ten year intervals, and the sample includes data for 2,956 individuals whose names can be matched definitively between tax years, along with 7,431 non-unique surnames with which Clark’s method can be employed to study social mobility. Examining wealth by surname in the early republic allows us to consider the rates of social mobility among various ethnic groups and to identify wealth holding patterns among British, German, Irish, and other migrant populations.
FRANK WARREN GARMON, JR., University of Virginia
Women’s Suffrage and Intergenerational Mobility
Does the extension of political opportunity increase economic opportunity? I study the effects on intergenerational mobility of the expansion of the franchise to women in the United States at the state and federal level from 1869 to the ratification of the nineteenth amendment in 1920. Observing individuals in the 1940 complete count census, I compare people growing up in states and cohorts with more or less exposure to women’s suffrage exploiting state and time variation in voting rules. I measure mobility using economic outcomes—labor earnings, occupation, and education—in 1940, comparing individuals to their parents’ outcomes with a linked sample to previous censuses, as well as a proxy for socio-economic background based on first names. After states granted women the vote state governments spent more, particularly on public health and education. I test whether increased spending is a mechanism through which the extension of the franchise might change intergenerational mobility.
JAMES J. FEIGENBAUM, Boston University
The Not-so-Hot Melting Pot: The Persistence of Outcomes for Descendants of the Age of Mass Migration
How many generations does it take for skill gaps across immigrant sources to converge? Using data that links immigrant grandfathers in 1880 to grandsons in 1940, we show that ethnic group averages converge at a slower rate than a standard multigenerational model predicts. Third-generation outcomes are correlated with the average skill level of the first generation, above and beyond the effect of the grandfather. Ethnic skill gaps converge more quickly for descendants of grandfathers from the same 1880 neighborhood, suggesting that the clustering of the first generation into enclaves partially drives persistence of ethnic skill gaps for multiple generations.
ZACHARY WARD, Australian National University
Session 7: Sectarian Strife and Culture
Holy Wars? Temple Desecrations in Medieval India
We study the relationship between authoritarian rule and religious authority during regime transitions in medieval India. Using a unique geocoded dataset, we show that a Muslim State’s battle victory against a Hindu State increased the likely desecration of a Hindu temple by over 30 percent. We address the potential endogeneity of the battle outcome variable using a novel instrument of Muslim rulers’ assassination. We argue that the political uncertainty following a ruler’s assassination would have hampered the Muslim State’s battle performance against a rival Hindu State. These assassinations were motivated by intra-dynasty succession tussle among the Muslim States, and were arguably unrelated to factors that determined a temple desecration. To explain the causal effect we suggest the victorious Muslim regime would have dismantled existing Hindu religious institutions to delegitimize the previous regime, and pre-empt the use of incumbent religious order as a rallying point for future rebellion.
SRIYA IYER, University of Cambridge, ANAND SHRIVASTAVA, Azim Premji University, and ROHIT TICKU, The Graduate Institute of Geneva
Sectarian Competition and the Market Provision of Human Capital
In the latter half of the nineteenth century, America experienced a significant expansion in its collegiate infrastructure. By 1890, more institutions of higher learning existed in the United States than all of Europe. In this paper we study the role of denominational competition in the market provision of higher education. Specifically, we document nearly all colleges established in this time period had denominational roots or origins. The empirical analysis reveals a robust positive relationship between an area’s religious fragmentation and the number of colleges established locally. We argue that denominational affiliation facilitated enthusiasm to build colleges through gains to differentiation from standard Hotelling channels. We formulate a model of school choice, entry, and denominational affiliation. We find evidence that differentiation softened the extent of tuition competition and mediated an “excess” entry of colleges; thus, religious diversity induced educational investment.
HEYU XIONG and YILING ZHAO, Northwestern University
Linguistic Distance and Market Integration in India
We collect data on grain and salt prices, as well as language, for more than 200 South Asian markets in the nineteenth and early twentieth centuries. Conditional on a rich set of controls and fixed effects, we find that linguistically distant markets are less integrated as measured by the degree of price correlation. While linguistically distant markets exhibit greater genetic distance, greater differences in literacy, and fewer railway connections, these factors are not sufficient statistics for the negative correlation between linguistic distance and market integration. Our results indicate that a one standard deviation increase in linguistic distance predicts a reduction in the price correlation between two markets of 0.121 standard deviations for wheat, 0.167 standard deviations for salt, and 0.088 standard deviations for rice. These differences are substantial relative to other factors such as physical distance that hinder market integration.
JAMES FENSKE, University of Warwick, and NAMRATA KALA, Harvard University
Session 8: Labor and Capital in the Great Depression
The Impact of the Foreclosure Overhang on Mortgage Lending in the Late 1930s
In both the Great Depression of the 1930s and the Great Recession of 2008 and 2009 mortgage foreclosures led to significant strains on the economy. There has been extensive discussion about the impact of these foreclosures on mortgage lending because the foreclosures caused lenders to hold relatively illiquid assets that often sold at a large discount. Our goal is to examine the impact of such foreclosure overhangs on mortgage lending during the 1930s in the United States. This is new territory in American economic history because, until recently, real estate markets during the 1930s have received very little attention. Most of the attention on financial matters has focused on commercial banks, but the banks were not very active lenders in urban real estate markets. The most prominent real estate lenders were building and loans, which typically did not begin to fail until after 1935. Because these occurred after the Great Contraction from 1929 to 1933, the real estate markets have received relatively little attention as key contributors to the Great Depression.
PRICE FISHBACK and SEBASTIAN FLEITAS, University of Arizona, JONATHAN ROSE, Federal Reserve Board of Governors, and KEN SNOWDEN, University of North Carolina, Greensboro
Bad Luck or Bad Workers? A View of the Long-term Unemployed in the Great Depression through Matched Census Records
We use the 100 percent samples of the 1940, 1930, and 1920 Censuses to see how the unemployed in 1940 compared to other workers before the Depression, particularly the long-term unemployed. We also examined how emergency workers on programs like the Works Progress Administration (WPA) fared as former members of the unemployed. We match workers across census waves and distinguish them along several dimensions, including age, race, skill, region, occupation, industry, migration status, and local economic conditions. These matched records will allow us to see how much unemployment outcomes were determined by worker productivity versus having the bad luck in not having work during the Depression.
PAUL GAGGL, University of North Carolina, Charlotte, and GABRIEL MATHY, American University
The Short- and Long-Run Effects of the 1930s HOLC “Redlining” Maps
In the wake of the Great Depression, the federal government created new institutions such as the Home Owners’ Loan Corporation (HOLC) to stabilize housing markets. As part of that effort, the HOLC created residential security maps for over 200 cities to grade the riskiness of lending to neighborhoods. We trace out the effects of these maps over the course of the twentieth and into the early twenty-first century by linking geocoded HOLC maps to both census and modern credit bureau data. Our analysis looks at the difference in outcomes between residents living on a lower graded side versus a higher graded side of an HOLC boundary within highly close proximity to one another. We compare these differences to “counterfactual” boundaries using propensity score and other weighting procedures. In addition, we exploit borders that are least likely to have been endogenously drawn. We find that areas that were the lower graded side of HOLC boundaries in the 1930s experienced a marked increase in racial segregation in subsequent decades that peaked around 1970 before beginning to decline. We also find evidence of a long-run decline in home ownership, house values, and credit scores along the lower graded side of HOLC borders that persists today. We document similar long-run patterns among both “redlined” and “non-redlined” neighborhoods and, in some important outcomes, show larger and more lasting effects among the latter. Our results provide strongly suggestive evidence that the HOLC maps had a causal and persistent effect on the development of neighborhoods through credit access.
DANIEL AARONSON, DANIEL HARTLEY, and BHASHKAR MAZUMDER, Federal Reserve Bank of Chicago
Session 9: Commodity Money and Economic Shocks
Is Devaluation Risk Contractionary? Evidence from U.S. Silver Coinage Agitation, 1878–1900
I identify the real effects of devaluation risk on interest rates and output by studying changes in silver coinage policy in the United States between 1878 and 1900. “Silver agitation” heightened fears that the United States would abandon the gold standard and depreciate the dollar relative to gold. Since silver policy was set by Congress rather than a central bank, the exact timing of silver policy news is more likely to be uncorrelated with other economic news. I show that silver news altered corporate credit spreads by 30 basis points per event day, focusing on credit spreads because bonds with greater credit risk were more exposed to the effects of silver coinage. I exploit these daily credit spread changes from silver news as shocks to estimate impulse response functions for the dollar-gold interest differential and industrial production. Increased silver risk significantly raised the dollar-gold spread and lowered production.
COLIN WEISS, Federal Reserve Board of Governors
Pegxit Pressure
We develop a simple model that highlights the costs and benefits of fixed exchange rates as they relate to trade, and show that negative export-price shocks reduce fiscal revenue and increase the likelihood of an expected currency devaluation. Using a new high-frequency data set on commodity-price movements from the classical gold standard era, we then show that the model’s main prediction holds even for the canonical example of hard pegs. We identify a negative causal relationship between export-price shocks and currency-risk premia in emerging market economies, indicating that negative export-price shocks increased the probability that countries abandoned their pegs.
KRIS JAMES MITCHENER and GONÇALO PINA, Santa Clara University
The Existence and Persistence of Liquidity Effects: Evidence from a Large-Scale Historical Natural Experiment
The discovery of mines of precious metals in Central and South America led to a massive exogenous monetary injection to Europe’s money supply. I argue this episode can be helpful to identifying the causal effects of money in a macroeconomic setting. Using a panel of six European countries for the period 1531–1790, I find strong evidence in favor of non-neutrality of money for changes in real economic activity. The magnitudes are substantial and persist for a long time: an exogenous 10 percent increase in production of precious metals in America leads to a hump-shaped positive response of real GDP, peaking at an average increase of 1.3 percent four years later. The evidence suggests this is because prices responded to monetary injections only with considerable lags. Several exogeneity tests and robustness checks confirm the results.
NUNO PALMA, University of Manchester
Session 10: Property Rights and Corporate Governance
Cooperative Property Rights and Agricultural Development: Evidence from Land Reform in El Salvador
Land redistribution has been one of the most important and controversial policies in Latin American history. One of the many objectives of these reforms was to improve the livelihoods of the rural poor. However, most of these reforms only granted usufruct rights over the redistributed land, severely restricting how occupants could employ these plots. We estimate the effects of acquiring usufruct rights over land, by looking at the impacts of the 1942 land redistribution program of Puerto Rico. From 1942–1960 this policy allocated over 60,000 plots of land to landless workers through public lotteries. We collect individual-level data from land lottery winners and match them to census and death records to examine how acquiring land with incomplete property rights affected survival and migration decisions over time.
EDUARDO MONTERO, Harvard University
Use It or Lose It: Adverse Possession and Economic Development
The legal doctrine of adverse possession limits the security of land rights by transferring formal land titles from absentee landowners who leave their land idle to adverse possessors that use the land. This paper exploits historical changes in adverse possession legislation within U.S. states and territories between 1840–1930 in order to estimate the causal effect of land rights security on agricultural production. I find that a weakening of landowners’ property rights increased agricultural output. The main channel of effect is higher land utilization. A reduction in the security of land right is also associated with an increase in investment in farms and with changes to the land ownership structure. These findings suggest that the effect of property rights on economic development is not monotonic, and that property rights may be over secure.
ITZCHAK TZACHI RAZ, Harvard University
The Births, Lives, and Deaths of Corporations in Late Imperial Russia
Understanding the birth, growth, and death of firms in the early stages of industrial development is a relatively unexplored area of economic history, yet these processes are at the heart of transitions to modern economic growth. Our paper investigates the competitiveness and financial development of the Imperial Russian economy by examining patterns of entry and exit into the corporate sector. This analysis relies on a newly developed panel database of detailed annual balance sheet information from every active corporation in the Russian Empire between 1899 and 1914. In our data, firms entered the corporate sector as new firms or partnerships newly transformed into corporations and exited when they shut down. We examine the industrial distribution of firm entry, document how new and newly transformed corporations evolved over their life cycles, and construct a proportional hazard model that includes balance sheet and governance characteristics to predict firm exits.
AMANDA GREGG, Middlebury College, and STEVEN NAFZIGER, Williams College
Session 11: Migration, Mobility, and Factor Endowments
Importing Crime? The Effect of Immigration on Crime in the United States, 1880–1930
A novel dataset on arrest rates by type of crime and police inputs is presented for 30 U.S. cities covering the period 1880 to 1930, drawn from annual police reports. We build an exogenous proxy for the foreign-born share in those cities which uses the initial distribution of immigrants from different countries of origin and updates that share using national inflows of immigrants. This allows us to estimate the effect of immigrants on various types of property and violent crimes, separating the effects by origin groups and controlling for police inputs and demographic factors. We find that, in this period of open borders and substantial inflows, there seems to be no overall detrimental effect of immigrants increasing crime, but that there are richer stories when unpacking the analyses by origin group. We find some evidence of convergence over time whereby certain immigrant groups were initially very overrepresented in arrests in 1880 but became much less so in later decades.
ROWENA GRAY, University of California, Merced
The People, Not the Place. The Decline of the North of England 1918–2017: A Surname Investigation
The north of England in recent years has been poorer, less healthy, less educated, and slower growing than the south. For example, the chance of an 18 year-old matriculating in Oxford or Cambridge was only about half that for the north as in the south in 2013. Using surnames that had a different regional distribution in England in 1840 we show that the decline of the north is mainly explained by selective outmigration of the educated and talented. Surnames associated with the north in 1840 show no disadvantage relative to those associated with the south in terms of educational attainment, and political status in 2016 in England as a whole. For wealth there is a very modestly lower level for northern surnames. This implies that policies designed to aid the population in the north in the form of regional investments, or encouragement of migration south, are likely to be ineffective in boosting outcomes for the remaining northern population.
GREGORY CLARK, University of California, Davis, and NEIL CUMMINS, London School of Economics
Mass Migration, Cheap Labor, and Innovation
Migration is often depicted as a major problem for struggling developing countries, as they may lose valuable workers and human capital. Yet, its effects on sending regions are ambiguous and depend crucially on local market responses and migrant selection. This paper studies the effects of migration on technological innovation in sending communities during one of the largest migration episodes in human history: the Age of Mass Migration (1850–1913). Using novel historical data on Sweden, where about a quarter of its population migrated, we find that migration caused an increase in technological patents in sending municipalities. To establish causality, we use an instrumental variable design that exploits severe local growing season frost shocks together with within-country travel costs to reach an emigration port. Exploring possible mechanisms, we suggest that increased labor costs, due to low-skilled emigration, induced technological innovation.
DAVID ANDERSSON and MOUNIR KARADJA, Uppsala University, and ERIK PRAWITZ, Stockholm University
Session 12: Capital Requirements, and Banking, and Financial Stability
Bank Capital Redux: Solvency, Liquidity, and Crisis
Higher capital ratios are unlikely to prevent the next financial crisis. This is empirically true both for the pre-WWII and the post-WWII periods, and holds both within and between countries. We reach this startling conclusion using newly collected data on the liability side of banks’ balance sheets. Data coverage extends to 17 advanced economies from 1870 to 2013. A solvency indicator, the capital ratio has no value as a crisis predictor; but we find that liquidity indicators such as the loan-to-deposit ratio and the share of non-deposit funding do signal financial fragility, although they add little predictive power relative to that of credit growth on the asset side of the balance sheet. However, higher capital buffers have social benefits in terms of macrostability: recoveries from financial crisis recessions are much quicker with higher bank capital.
ÒSCAR JORDÀ, University of California, Davis, BJÖRN RICHTER, University of Bonn, MORITZ SCHULARICK, University of Bonn, and ALAN M. TAYLOR, University of California, Davis
Did Capital Requirements Promote Bank Stability in the Early Twentieth Century United States?
The early twentieth century United States provides an opportunity to determine whether imposing capital requirements on commercial banks promotes banking stability in the long run. The structure of the national banking system facilitates inference using a regression discontinuity design. The discontinuity arose because federal law raised capital requirements on banks operating in towns whose populations exceeded certain thresholds. These thresholds enable me to estimate the impact of capital requirements on the choices and outcomes of similar banks operating in similar towns under different regulatory regimes. I find that banks subject to higher capital requirements did hold more capital, but also increased their lending proportionately, so that their leverage and risk of failure remained roughly unchanged. Ultimately, capital requirements did not result in lower suspension rates or enhance financial stability.
MICHAEL GOU, University of California, Irvine
Costs of Rating-Contingent Regulation: Evidence from the Establishment of “Investment Grade”
I assess unintended consequences for non-financial firms of rating-contingent regulation, without confounding factors prevalent in modern markets, by examining the 1936 unexpected inception of federal bank investment restrictions for bonds rated below investment grade. Using a difference-in-difference design, I find a persistent rise in speculative bond yields, even comparing bonds within the same firm, and declines in equity value and idiosyncratic volatility for firms reliant on external speculative debt financing. The increase in yields is lower for bonds near investment grade suggesting firms reduce volatility and deviate from otherwise optimal behavior to avoid higher funding costs from the regulation.
ASAF BERNSTEIN, University of Colorado, Boulder
Session 13: Education and Innovation
Scientific Education and Innovation: From Technical Diplomas to University STEM Degrees
This paper uses a change in enrollment requirements in Italian STEM majors to study the effects of university STEM education on the probability of becoming an inventor. Administrative data on education, occupations, and innovation activities of students who received a STEM degree thanks to the change in enrollment policy suggest that the propensity to innovate decreased among students with high pre-collegiate achievement, but increased among lower-achieving students. We show how these findings relate to heterogeneous sorting into more and less innovative occupations. In addition to affecting occupational choices, a university STEM education changed the type of innovation produced.
NICOLA BIANCHI, Northwestern University, and MICHELA GIORCELLI, UCA
Here Has All the Education Gone: The Free-Fall of Skill-Premiums in Sub-Saharan Africa and South Asia, c. 1860–2010
Previous studies were unable to find a positive effect of educational capital accumulation on labor productivity growth in the developing world, leading Pritchett (2001, 2013) to wonder where all the education had gone. We explore the economic implications of the twentieth century schooling revolution from a different angle, by looking at the long-term development of the relative price structure of labor skills in sub-Saharan Africa and Southern Asia. Exploiting historical and contemporary sources on wages and salaries of various occupational categories, we document a dramatic “free fall” of income premiums for artisans, and white-collar workers that was much more rapid than among the early industrializers. Despite the fact that this is not a sufficient condition for labor productivity growth in itself, this revolutionary transformation of the cost structure of skills sheds a more optimistic light on the potential for catch-up growth in the twenty-first century.
EWOUT FRANKEMA, Wageningen University, and MARLOUS VAN WAIJENBURG, Northwestern University
The Impact of Institutions on Innovation
This paper studies the impact of inclusive institutions on innovation. We use the timing and geography of the French occupation of different regions of Germany after the 1789 French Revolution as an exogenous shock to the institutions of those regions. Using a novel county-level data set for Imperial Germany, we show that a significantly higher number of patents per capita were generated in counties whose institutions had become more inclusive as a result of the French occupation. In counties with longest occupation and therefore deeper institutional reforms, the number of patents per capita more than doubled compared to unoccupied counties. Consistent with the view that institutions do not operate in isolation, we find that favorable social norms and local financial development are complementary to institutions as inputs in the production of innovation. Our results are not driven by differences in local economic development, market integration, and human capital. Our findings point to innovation as a key mechanism through which institutions may generate economic growth.
ALEXANDER DONGES, University of Mannheim, JEAN-MARIE A. MEIER, and RUI C. SILVA, London Business School
Session 14: Trade, Finance, and Growth
Banks, Insider Connections, and Industrialization in New England: Evidence from the Panic of 1873
Using newly collected data from Massachusetts in the 1870s, this paper investigates whether bank-affiliated companies fared better during the economic downturn that followed the Panic of 1873. The results indicate that the growth rates of firms with bank affiliations fell by less than the growth rates of firms without bank affiliations following the panic. Companies with a bank director also grew at higher rates than companies without a bank director who were managed by the same president. Falsification tests based on ties to insurance corporations, which did not engage in lending on a large scale, show no effect on firm growth. These findings suggest that ties to banks helped address problems of asymmetric information, which become particularly acute during a crisis.
ERIC HILT, Wellesley College
Financial Frictions in Trade: Evidence from the Banking Crisis of 1866
This paper provides evidence that banking intermediaries transmit credit supply shocks from the core financial market to the periphery and depress international trade activity. The 1866 London banking crisis provides the setting for a natural experiment in which the unexpected failure of a reputed money market intermediary led to a bank run and the subsequent suspension of many banking institutions headquartered in London. Crucially, many of these were mercantile banks that had been established to promote British trade abroad and primarily operated in foreign markets. This institutional structure provides the setting for assessing the effect of the London credit supply contraction on markets abroad. I build a unique dataset from the Bank of England’s archives to map the geography of trade credits and measure the degree to which British financing contracted in almost 200 cities abroad. This paper identifies the impact of these contractions on international trade at 357 ports using a differences-in-differences estimation that instruments for the city-level credit contraction using their pre-crisis dependence on banks. The timing of the impact of the crisis abroad, in which credit should only contract and depress trade after the time lag in communicating the news has passed, helps to strengthen the identification against simultaneity bias. The main results are that ports financed by cities that experienced a one standard deviation loss in British banking failures contracted their shipments by 2–3 percent after news of the crisis reached them.
CHENZI XU, Harvard University
The Dawes Bonds: Selective Default and International Trade
Trade sanctions are often presented as a powerful mechanism to force sovereigns to reimburse their debts but their effectiveness is hard to establish empirically. This paper relies on a unique historical example, Germany’s external default of 1933, in order to analyze the relationship between sovereign defaults and international trade. After defaulting on its external loans, the German government negotiated separate settlements with various creditor countries. Using daily prices of the sterling, Dawes bonds traded in Amsterdam, London, Paris, and Zurich between 1930 and 1938, we assess how market participants valued these deals. We show that investors started expecting a differential treatment of foreign creditors as of 1934 and that these expectations were closely related to creditor countries’ trade relationships with Germany. However, we argue that trade sanctions did not act as an effective punishment mechanism for creditor countries. Rather, the German government used trade negotiations in order to play out its creditors against each other and minimize its debt burden. This strategy was crucially facilitated by a general trend towards international bilateralism that stifled attempts to maintain a united creditor front.
OLIVIER ACCOMINOTTI, London School of Economics, PHILIPP KESSLER, University of Mannheim, and KIM OOSTERLINCK, Université Libre de Bruxelles
Session 15: Labor Market Institutions
Unions and the Great Compression of American Inequality, 1940–1960
This paper investigates the role of unions in the Great Compression of U.S. wage inequality after 1939. Specifically, it tests whether places with higher exposure to unionization during the 1940s, due to their pre-existing industrial composition, tended to have larger declines in inequality, conditional on local economic and demographic observables, and regional trends. We find a strong negative correlation between exposure to unionization and changes in local inequality from 1940–1950 and 1940–1960. This does not appear to be underpinned by skill-specific sorting of workers or by firms leaving places with high exposure to unionization. We also find that the correlation between exposure to unionization in the 1940s and the change in inequality after 1940 persists in long difference regressions to the end of the twentieth century.
WILLIAM J. COLLINS, Vanderbilt University, and GREGORY T. NIEMESH, Miami University
The Effect of Serfdom on Labor Markets
This research contributes to the debate on whether restrictions on labor mobility, such as serfdom and other types of labor coercion, matter for labor market outcomes. To do so, we estimate the impact of a large shock to labor mobility in the form of the reintroduction of serfdom in Denmark in 1733 which was targeted at limiting the mobility of farmhands. While many economists, historians, and others have argued that serfdom mattered, revisionist historians have countered that workers found ways to circumvent the restrictions imposed by serfdom. Using a unique data source based on eighteenth century estates, we test whether serfdom affected the wages of farmhands more strongly than other groups in the labor market using a differences-in-differences approach, and find evidence consistent with a strong negative effect on serfdom following its introduction. We also investigate whether one mechanism was that boys with rural backgrounds were prevented from taking up apprenticeships in towns, and find suggestive evidence that this was indeed the case. Thus, our results suggest that serfdom did matter.
PETER SANDHOLT JENSEN, CRISTINA VICTORIA RADU, and PAUL RICHARD SHARP, University of Southern Denmark, Odense
The Legacy of the Missing Men. WWI and Female Labor Participation in France throughout the Twentieth Century
I explore the long-run impact of WWI military fatalities on female labor participation at the individual level. Combining all the French census microdata and annual labor surveys, I find that women whose lineage was exposed to higher military death rates were more likely to be in the labor force up until today. This lineage-based aspect accounts for about half of the overall impact of the war, suggesting an important role of individuals relative to local institutional structures in generating persistence of historical shocks. I then trace the diffusion pathways of this historical shock and uncover three mechanisms of historical persistence: horizontal transmission through the marriage market—from husbands to wives, vertical intergenerational transmission—from parents to daughters, and oblique intergenerational transmission—from migrants to non-migrants. Among all the mechanisms examined, the intergenerational transmission from mothers to daughters’ working behavior and cultural beliefs appears the strongest.
VICTOR GAY, University of Chicago
Session 16: Credit, Policy, and Growth in Asia
The Samurai Bond: Credit Supply and Economic Growth in Pre-War Japan
The recent financial crisis has spurred a debate on the negative effects of credit supply growth. In this paper we use payments to samurai in Meiji, Japan as a natural experiment to analyze the effect of credit supply on short and long run economic activity. We exploit within-country variation in samurai share to show that in the first two decades regions with a larger share of samurai had higher levels of investment capital per capita. We also find that this larger credit supply translated into more firms per capita, especially in the secondary sector. Nonetheless, credit supply did not have a uniform effect on GDP per capita across regions. Rather, a larger share of samurai is correlated with higher prefectural per capita output in both the short and the long-run only in regions with early railway access. Our interpretation is that an increase in credit supply may have a positive long-run impact if the region has productivity-enhancing investment opportunities.
SERGI BASCO, Carlos III University of Madrid, and JOHN TANG, Australian National University
Manufacturing Revolutions - Industrial Policy and Networks in South Korea
This paper uses a historic big push intervention and newly digitized data from South Korea to study the effects of industrial policy on (short- and long-run) industrial development. In 1973, South Korea transitioned to a military dictatorship and drastically changed their development strategy. I find industries targeted by the regime’s big push grew significantly more than non-targeted industries along several key dimensions of industrial development. These developmental effects persisted after industrial policies were retrenched, following the 1979 assassination of the president. Furthermore, I estimate the spillovers of the industrial policies using exogenous variation in the exposure to the policy across the input-output network. I find evidence of persistent pecuniary externalities like those posited by big push development theorists, such as Albert Hirschman. In other words, I find that South Korea’s controversial industrial policy was successful in producing industrial development, the benefits of which persisted through time and in industries not directly targeted by the policies.
NATHANIEL LANE, Stockholm University
The Contraction of Indian Rural Credit Markets 1951–1971: A Cautionary Tale of Financial Formalization
Burgess and Pande (2005), Cole (2009), and Kochar (2011) all exploit the 1977 to 1990 expansion of Indian rural banks to study financial formalization. Their results span finding a reduction in poverty to finding no effect to finding an increase in inequality. A potential cause of these disparate results was the government simultaneously expanded banks and credit subsidies. But from 1955 to 1968 the State Bank of India spearheaded an expansion of banked locations which in percentage terms dwarfed the later expansion, and had no confounding policies. In this study I show that the post 1955 expansions caused rural credit contractions, and may have led to a decrease in poor cultivators total financial holdings. Bank availability disrupted traditional patterns of saving-by-lending by facilitating saving in formal institutions. Importantly, this shows the extent of latent demand for convenient savings vehicles even in the presence of what appear to have been much higher returns to informal saving techniques.
SUSAN WOLCOTT, SUNY-Binghamton
