The Origin of the State: Extraction, Environmental Circumscription, and Proctection | BEHL WP2017-01 | David Schönholzer, March 2017. Abstract Theories of early state formation posit that the state enabled an emerging elite to extract resources in exchange for protection from outside groups. This paper formalizes and empirically evaluates these forces in a unified framework. The model shows that extraction is closely linked to the idea of environmental circumscription: outside options need to be sufficiently poor for potential extractees to accept extraction and for extractors to consider extraction capacity
a worthwhile investment. In a global dataset of archaeological sites on a grid with 184,523 cells, we then show that circumscription is strongly associated with the location of early states, using the intersection of large rivers through arid regions as an instrument. Our estimates suggest that extraction was more important in the Old World civilizations of Egypt and China and protection was more important in the New World.
Reformation and Reallocation: Religious and Secular Economic Activity in Early Modern Germany | BEHL WP2016-06 | Davide Cantoni, Jeremiah Dittmar and Noam Yuchtman, November 2016. Abstract The Protestant Reformation, beginning in 1517, was a first-order economic shock. We document its effects on the sectoral allocation of economic activity in Germany using highly disaggregated data. During the Reformation, particularly in Protestant regions, large numbers of monasteries were expropriated. University graduates shifted toward secular, rather than religious, occupations. Forward-looking university students shifted away from the study of religious sector-specific theology, toward secular fields. Construction activity in the religious sector declined, particularly in Protestant regions, while secular construction increased. These findings highlight the unintended consequences of the Reformation—a religious movement that contributed to Europe’s secularization.
You Reap What You Know: Observability of Soil Quality, and Political Fragmentation | BEHL WP2016-05 |Thilo Huning and Fabian Wahl, 30 August 2016. Abstract We provide a theoretical model linking limits to the observability of soil quality to state rulers’ ability to tax agricultural output, which leads to a higher political fragmentation. We introduce a spatial measure to quantify state planners’ observability in an agricultural society. The model is applied to spatial variation in the 1378 Holy Roman Empire, the area with the highest political fragmentation in European history. We find that differences in the observability of agricultural output explain the size and capacity of states as well as the emergence and longevity of city states. Grid cells with higher observability of agricultural output intersect with a significantly lower number of territories within them. Our results highlight the role of agriculture and geography, for size, political, and economic organization of states. This sheds light on early, though persistent, determinants of industrial development within Germany, and also within Central Europe.
Is Deflation Costly After All? Evidence from Noisy Historical Data | BEHL WP2016-04 | Daniel Kauffmann, 8 July 2016. Abstract Measuring the link between deflation and depression is hampered by the errors-in-variables problem in historical CPI data. I replicate methodological deficiencies of 19th century retrospective CPI estimates for the US CPI from 1956 to 2015. The replications show that the deficiencies spuriously increase the volatility of inflation as well as the number of deflationary episodes, and they lower inflation persistence. I then account for measurement error, first by estimating an improved measure of the persistent and transitory part of inflation based on a factor model. Three out of four periods with persistent deflation are associated with depression. Moreover, there is a significant association between lower real activity and short-lived deflations, and this association is not limited to the Great Depression. Second, the results are confirmed by an IV-regression approach that uses an independent noisy proxy to instrument the error-ridden retrospective CPI.
“Hunger Makes a Thief of Any Man:” Poverty and Crime in British Colonial Asia | BEHL WP2016-03 |Kostadis J. Papaioannou, May 2016. Abstract This study uses rainfall variation as an instrumental variable for padi-rice production to estimate the impact of poverty on different types of crime across British colonies in South and South East Asia (1910-1940). Using original primary sources retrieved from annual administrative and statistical reports, it provides some of the first evidence in a historical setting on the causal relationship between poverty and crime. Extreme rainfall, both droughts & floods, lead to a large increase in property crimes (such as robbery, petty theft and cattle raiding) but not to an increase in interpersonal violent crimes (such as murder, homicides and assault). In line with a growing body of literature on the climate-economy nexus, we offer evidence that loss of agricultural income is one of the main causal channels leading to property crime. Additional historical information on food shortages, poverty and crime is used to explore the connection in greater detail.
The Ties that Bind: Railroad Gauge Standards and Internal Trade in the 19th Century U.S. | BEHL WP2016-02 | Daniel P. Gross, March 2016. Abstract Technology standards are pervasive in the modern economy, and a target for public and private investments, yet evidence on their economic importance is scarce. I study the conversion of 13,000 miles of railroad track in the U.S. South to standard gauge between May 31 and June 1, 1886 as a large-scale natural experiment in technology standards adoption that instantly integrated the South into the national transportation network. Using route-level freight traffic data, I find a large redistribution of traffic from steamships to railroads serving the same route that declines with route distance, with no change in prices and no evidence of effects on aggregate shipments, likely due to collusion by Southern carriers. Counterfactuals using estimates from a joint model of supply and demand for North-South freight transport suggest that if the cartel were broken, railroads would have passed through nearly 70 percent of their cost savings from standardization, generating a 20 percent increase in trade on the sampled routes. The results demonstrate the economic value of technology standards and the potential benefits of compatibility in recent international treaties to establish transcontinental railway networks, while highlighting the mediating influence of product market competition on the public gains to standardization.
The Engine and the Reaper: Industrialization and Mortality in Early Modern Japan | BEHL WP2016-01 | John Tang, January 2016. Abstract Economic development leads to improved health over time due to increased access to medical treatment, sanitation, and income, but in the short run the relationship may be negative given disease exposure from market integration. Using a panel dataset of vital statistics for Meiji Japan, I find mortality rates increased during the country’s early industrialization, with railroad access accounting for over five percent of average mortality between 1886 and 1893. Estimates from a triple-differences framework indicate that communicable disease mortality accounts for 91 percent of the additional incidence, which suggests that improved transport may have operated as a vector for transmission.
Labor Market Institutions in the Gilded Age | BEHL WP2015-13 | Suresh Naidu and Noam Yuchtman, December 2015. Abstract We argue that although 19th century labor markets were unencumbered by regulatory legisla tion, there existed frictions and rents in the labor market; moreover, labor market institutions other than regulatory legislation played an active role in determining labor market outcomes and the distribution of income. We first provide evidence of frictions and firm-specific rents in 19th century urban American labor markets: when firms experienced positive output price shocks, their employees earned wage premia, relative to other employees with very similar skills in the same urban labor market. The existence of rents in the labor contract suggests a role for bargaining and conict between employees and employers. Workers in the late 19th century attempted to strike to increase their wages; we present data on the frequency of strikes in the 19th century as well as some evidence suggesting that strikes were correlated with workers’ wages. Employers were supported by institutions of their own: we describe the important role played by the U.S. government in limiting the eficacy of union strikes in the 19th century. The most dramatic strike-breaking acts included violent intervention by the police and military. In the late 19th and early 20th centuries, employers often relied on less drastic, but equally effective, judicial labor injunctions that restricted strike tactics and made particular strikes illegal. We present new evidence documenting the rise of judicial injunctions that ended strikes, pointing to the important role played by the judicial branch of the U.S. government in structuring (Northern) American labor market institutions prior to the rise of legislative regulation.
Identity as a Determinant of Institutional Persistence: Lessons from the Partitions of Poland | BEHL WP2015-10 | Pawel Bukowski, October 2015. Abstract How and why do past institutions affect current quality of education? This paper uses the 19th century Partitions of Poland, when Prussia, Russia and Austria divided Poland and imposed their institutions, to examine the effect of the past educational systems on current student performance. Despite the modern similarities of the three regions, I find a positive and large effect of the former Austrian Empire compared to the former Russian Empire, but no difference of the Prussian Empire compared to the Russian. The Austrians and Prussians had very similar institutions, as the former copied them from the latter, and to explain this puzzle I hypothesize that a crucial factor for the persistence of institutions is an interaction between institutional quality and identity. Different social norms toward school effort may have arisen because the Prussian state used the educational system mainly to Germanize Poles (e.g., through the German language of instruction), whereas the Austrian state used it to promote national identities (e.g., by Polish language and curricula). A social norm-based model of schooling effort, analysis of information on social values, and the 19th century data on the educational attainment support the hypothesis. Available evidence suggests that skill-biased migration and other features of the Partitions are unlikely to explain this effect.
Financing the Great War: A Class Tax for the Wealthy, Liberty Bonds for All | BEHL WP2015-09 | Richard Sutch, September 2015. Abstract William Gibbs McAdoo, President Woodrow Wilson’s Secretary of the Treasury and ex officio Chairman of the Federal Reserve Board formulated the national plan to finance World War I. Against the advice of most economists of his time, he chose a mix of taxation (about one-third) and the sale of war bonds (two-thirds). He introduced a sharply progressive income tax schedule that taxed the wealthy class but left average Americans untaxed. To raise the balance needed McAdoo conceived of the Liberty Loan. This mechanism for borrowing from the public had three elements. (1) The public would be educated about bonds, the causes and objectives of the war, and led to appreciate the financial power of the country. (2) The government would appeal to patriotism and ask everyone – businessmen, workmen, farmers, bankers, millionaires, school-teachers, immigrants, housewives and children – to do their part by reducing consumption and purchasing bonds. (3) The entire effort would rely upon volunteer labor. The men and women who could not go into military service would constitute a “financial front … the economic equivalent of the military front.” I argue that the combination of the class tax and the Liberty Loan Campaign was a great success. It temporarily increased the national saving rate above the long-run level observed before and after the war and moderated the war-time price inflation.
Supply-Side Policies in the Depression: Evidence from France | BEHL WP2015-08 | Jérémie Cohen-Setton, Joshua K. Hausman, and Johannes F. Wieland, July 2015. Abstract The effects of supply-side policies in depressed economies are controversial. We shed light on this debate using evidence from France in the 1930s. In 1936, France departed from the gold standard and implemented large-scale mandatory wage increases and hours restrictions. This quickly ended deflation, but output stagnated. We present time-series and cross-sectional evidence that the supply-side policies, in particular the 40-hour law, contributed to French stagflation. These results are inconsistent both with the standard one-sector new Keynesian model and with a two-sector model calibrated to match our cross-sectional estimates. We propose an alternative, disequilibrium model consistent with expansionary effects of lower real interest rates and contractionary effects of higher real wages. This model and our empirical evidence suggest that without supply-side problems, France would have recovered rapidly after leaving the gold standard.
Linkages and Economic Development | BEHL WP2015-07 |Dominick Bartelme and Yuriy Gorodnichenko, June 2015. Abstract Specialization is a powerful source of productivity gains, but how production networks at the industry level are related to aggregate productivity in the data is an open question. We construct a database of input-output tables covering a broad spectrum of countries and times, develop a theoretical framework to derive an econometric specification, and document a strong and robust relationship between the strength of industry linkages and aggregate productivity. We then calibrate a multi- sector neoclassical model and use alternative identification assumptions to extract an industry-level measure of distortions in intermediate input choices. We compute the aggregate losses from these distortions for each country in our sample and find that they are quantitatively consistent with the relationship between industry linkages and aggregate productivity in the data. Our estimates imply that the TFP gains from eliminating these distortions are modest but significant, averaging roughly 10% for middle and low income countries.
Wall of Worries: Reflections on the Secular Stagnation Debate* | BEHL WP2015-06 | Barry Eichengreen, June 2015. * This article is reprinted, with permission, from IMES Discussion Paper Series 2015-E-5 © 2015 Bank of Japan. This paper is the text of the Mayekawa Lecture, delivered to the Bank of Japan-IMES annual conference in Tokyo on June 4-5, 2015.
Scale versus Scope in the Diffusion of New Technology | BEHL WP2015-05 | Daniel P. Gross, May 2015. This is a January 2016 revision of the original May 2015 paper. Abstract Using the farm tractor as a case study, I show that lags in technology diffusion arise along two distinct margins: scale and scope. Though tractors are now used in nearly every agricultural field operation and in the production of nearly all crops, they first developed with much more limited application, and early diffusion was accordingly limited in scope until tractor technology generalized. Other historically important innovations share similar histories. The results suggest that the key to understanding technology diffusion is not only in explaining the number of different users, but also in explaining the number of different uses.
Inflation Expectations and Recovery from the Depression in 1933: Evidence from the Narrative Record | BEHL WP2015-04 | Andrew Jalil and Gisela Rua, April 2015. Abstract This paper uses the historical narrative record to determine whether inflation expectations shifted during the second quarter of 1933, precisely as the recovery from the Great Depression took hold. First, by examining the historical news record and the forecasts of contemporary business analysts, we show that inflation expectations increased dramatically. Second, using an event-studies approach, we identify the impact on financial markets of the key events that shifted inflation expectations. Third, we gather new evidence—both quantitative and narrative—that indicates that the shift in inflation expectations played a causal role in stimulating the recovery.
New Evidence on the Impact of Financial Crises in Advanced Countries | BEHL WP2015-03 | Christina D. Romer and David H. Romer, March 2015. Abstract This paper examines the aftermath of financial crises in advanced countries in the four decades before the Great Recession. We construct a new series on financial distress in 24 OECD countries for the period 1967–2007. The series is based on assessments of the health of countries’ financial systems from a consistent, real-time narrative source; and it classifies financial distress on a relatively fine scale, rather than treating it as a 0-1 variable. We find that output declines following financial crises in modern advanced countries are highly variable, on average only moderate, and often temporary. One important driver of the variation in outcomes across crises appears to be the severity and persistence of the financial distress itself.
If Not Malthusian, Then Why? | BEHL WP2015-01 | Lemin Wu, February 2015. Abstract This paper shows that merely the Malthusian mechanism cannot explain the pre-industrial stagnation of living standards. Technological improvement in luxury production, if faster than improvement in subsistence production, would have kept living standards growing. The Malthusian trap is essentially a puzzle of balanced growth between the luxury sector and the subsistence sector. The author argues that the balanced growth is caused by group selection in the form of biased migration. It is proved that a tiny bit of bias in migration can suppress a strong tendency of growth. The theory reexplains the Malthusian trap and the prosperity of ancient market economies such as Rome and Song. It also suggests a new set of triggering factors of modern economic growth.
The Liquidity Trap, the Great Depression, and Unconventional Policy: Reading Keynes at the Zero Lower Bound | BEHL WP 2014-05 | Richard Sutch, October 2014. Abstract The developed economies of Japan, the United States, and the Eurozone are currently experiencing very low short-term rates, so low that they are considered to be at the “zero lower bound” of possibility. This effectively paralyzes conventional monetary policy. As a consequence, monetary authorities have turned to unconventional and controversial policies such as “Quantitative Easing,” “Maturity Extension,” and “Low for Long Forward Guidance.” John Maynard Keynes in The General Theory offered a rich analysis of the problems that appear at the zero lower bound and advocated the very same unconventional policies that are now being pursued. Keynes’s comments on these issues are rarely mentioned in the current discussions because the subsequent simplifications and the bowdlerization of his model obliterated this detail. It was only later that his characterization of a lower bound to interest rates would be dubbed a “Liquidity Trap.” This essay employs Keynes’s analysis to retell the economic history of the Great Depression in the United States. Keynes’s rationale for unconventional policies and his expectations of their effect remain surprisingly relevant today. I suggest that in both the Depression and the Great Recession the primary impact on interest rates was produced by lowering expectations about the future path of rates rather than by changing the risk premiums that attach to yields of different maturities. The long sustained period when short term rates were at the lower bound convinced investors that rates were likely to remain near zero for several more years. In both cases the treatment proved to be very slow to produce a significant response, requiring a sustained zero-rate policy for four years or longer.
The Rule of Karlowitz: Fiscal Change and Institutional Persistence | BEHL WP 2014-04 | Elira Karaja, February 2014. Abstract Could the empires that ruled Eastern Europe for centuries and the formal institutions that they implemented have left an imprint on current formal and informal institutions of modern states? This paper sheds light on the legacy of the Ottoman Empire’s administrative system in contemporary states in the region. I investigate a causal mechanism that led to divergent paths of state building and rule of law, interpreted as attitudes toward corruption. The boundary between the Ottoman Empire and the Austro-Hungarian Empire was set in the Treaty of Karlowitz in 1699, contemporaneous with a fiscal shock and a crucial change in the Ottoman fiscal system. This is identified as the historical treatment effect. The analytical narrative focus on effects of tax system change, which encouraged uncontrolled predatory behavior, spread of abuse and rent extraction in the Ottoman Empire. Using Geographic Information System methods and regression discontinuity analysis with household survey data, I investigate the persistence of different attitudes about bribery on both sides of of the former border. Findings evidence higher willingness to bribe on the Ottoman hereditary lands. These findings are robust to controls. Last, the persistent effect of weak institutions on growth is estimated using household consumption and light intensity data as proxies for development.
War and Progressive Income Taxation in the 20th Century | BEHL WP 2014-03 | Juliana Londono Velez, September 2014. Abstract I argue that progressive income taxation in the twentieth century is a product of the exigency of war and not of democracy. I obtain long-run series of the top marginal personal income tax rate for a large sample of OECD countries, and use data on wars of mass mobilization and democracy from the Correlates of War data set and Scheve & Stasavage (2012) to test this hypothesis. My results suggest that wars of mass mobilization (i.e. wars in which more than 2% of the population served in the military) cause substantial increases in tax progressivity. These effects are persistent and do not vanish upon the conclusion of war.
Breaking the Unbreakable Union:Nationalism, Trade Disintegration and the Soviet Economic Collapse | BEHL WP 2014-02 | Marvin Suesse, May 2014. Abstract The breakup of the Soviet Union provides evidence for the detrimental effects of secessionist conflict on domestic integration and economic growth. This paper shows that the increased likelihood of secessions by the Union’s member republics in the late 1980s strongly reduced internal Union trade. Economic disintegration thus proceeded along internal borders and preceded the Soviet Union’s official dissolution. This helps to explain the severity of the output fall in the late Soviet period. Methodologically, these results stem from an empirical gravity framework, which is derived from first principles by a game-theoretic modeling of Soviet internal trade. Exogenous variation in nationalist agendas, namely the desire to preserve national languages, is used to preclude endogeneity running from trade patterns to secession.
Antisemitism Affects Households’ Investments | BEHL WP2014-01 | Francesco D’Acunto, Marcel Prokopczuk, and Michael Weber, December 2013. Abstract We propose historical anti-Jewish sentiment as a proxy for distrust in financial markets. Households in German counties where Jews were persecuted the most as far back as in the Middle Ages are less likely to invest in stocks today. A one-standard-deviation increase in historical anti-Jewish violence leads to a 7.5% to 12% drop in the average stock market participation. For identification, we exploit the forced migrations of Ashkenazi Jews out of the Rhine Valley after the 11th century. The distance of a county from the Rhine Valley instruments for the existence of a Jewish community during the Black Death (1349) and hence the early emergence of anti-Jewish sentiment. Results are similar when we use the votes for the Nazi party as a proxy for anti-Jewish sentiment. The magnitude of the effect does not change from 1984 until 2011 nor across cohorts. Anti-Jewish sentiment does not capture generalized trust: its effect on stockholdings is similar across counties and households with dfferent levels of education.
Capital Is Back: Wealth-Income Ratios in Rich Countries 1700-2010 | BEHL WP2013-10 | Thomas Piketty and Gabriel Zucman, 26 July 2013 | Abstract How do aggregate wealth-to income ratios evolve in the long run and why? We address this question using 1970-2010 national balance sheets recently compiled in the top eight developed economies. For the U.S., U.K., Germany, and France, we are able to extend our analysis as far back as 1700. We find in every country a gradual rise of wealth-income ratios in recent decades, from about 200-300% in 1970 to 400-600% in 2010. In effect, today’s ratios appear to be returning to the high values observed in Europe in the eighteenth and nineteenth centuries(600-700%). This can be explained by a long run asset price recovery (itself driven by changes in capital policies since the world wars) and by the slowdown of productivity and population growth, in line with the ß = s/g Harrod-Domar-Solow formula. That is, for a given net saving rate s = 10%, the long run wealth-income ratio ß is about 300% if g = 3%, and 600% if g = 1.5%. Our results have important implications for capital taxation and regulation and shed new light on the changing nature of wealth, the shape of the production function, and the rise of capital shares.
Railroad Expansion and Entrepreneurship: Evidence from Meiji Japan | BEHL WP2013-09 | John Tang, September 2013 | Abstract Railroads in Meiji Japan are credited with
facilitating factor mobility as well as access to human and financial capital, but the direct impact on firms is unclear. Using prefecture‐level industry data and a difference-in- differences model that exploits the temporal and spatial variation of railroad expansion, I
assess the relationship between railways and firm activity across Japan. Results indicate that while rail access corresponds to lower firm numbers, total and average firm capitalization increase after controlling for market size and geography. These latter findings apply particularly to the manufacturing and service sectors, respectively, and coupled with decreased firms activity in areas with longer coastlines and larger populations, are consistent with industrial agglomeration and slower industrial growth in newly integrated markets.
The Mother of All Sudden Stops: Capital Flows and Reversals in Europe, 1919-1932 | BEHL WP2013-07 | Olivier Accominotti and Barry Eichengreen, July 2013 | Abstract We present new data documenting European capital issues in major financial centers from 1919 to 1932. Push factors (conditions in international capital markets) perform better than pull factors (conditions in the borrowing countries) in explaining the surge and reversal in capital flows. In particular, the sharp increase in stock market volatility in the major financial centers at the end of the 1920s figured importantly in the decline in foreign lending. We draw parallels with Europe today.
Fiscal Policy and Economic Recovery: The Case of the 1936 Veterans’ Bonus | BEHL WP2013-06 | Joshua K. Hausman, June 2013 | Abstract Conventional wisdom has it that in the 1930s fiscal policy did not work because it was not tried. This paper shows that fiscal policy, though inadvertent, was tried in 1936, and a variety of evidence suggests that it worked. A deficit-financed veterans’ bonus provided 3.2 million World War I veterans with cash and bond payments totaling 2 percent of GDP; the typical veteran received a payment equal to annual per capita personal income. This paper uses time-series and cross-sectional data to identify the effects of the bonus. I exploit four sources of quantitative evidence: a detailed household consumption survey, cross-state and cross-city regressions, aggregate time-series, and a previously unused American Legion survey of veterans. The evidence paints a consistent picture in which veterans quickly spent the majority of their bonus. Spending was concentrated on cars and housing in particular. Narrative accounts support these quantitative results. A simple calculation suggests that the bonus added 2.5 to 3 percentage points to 1936 GDP growth.
The Political Economy of Educational Content and Development: | BEHL WP2013-05 | Davide Cantoni and Noam Yuchtman, 21 March 2013 | Abstract Beyond years of schooling, educational content can play an important role in the process of economic development. Individuals’ choices of educational content are often shaped by the political economy of government policies that determine the incentives to acquire various skills. We first present a model in which differences in human capital investments emerge as an equilibrium outcome of private decisions and government policy choices. We then illustrate these dynamics in two historical circumstances. In medieval Europe, states and the Church found individuals trained in Roman law valuable, and eventually supported productive investments in this new form of human capital. In late 19th-century China, elites were threatened by the introduction of Western science and engineering and continued to select civil servants—who enjoyed substantial rents—based on their knowledge of the Confucian classics; as a result, investments in productive, modern human capital were not made.
The Rise of Services and the Lengthening of Economic Recovery| BEHL WP2013-04 | Martha L. Olney and Aaron Pacitti, May 2015| This is a revision of the December 2013 paper titled “Goods, Services, and the Pace of Economic Recovery.” Abstract We argue that the shift to a service-producing economy in the United States has had macroeconomic repercussions not previously considered, lengthening recovery from recessions. The effect operates through anticipations and export channels. Using a model that distinguishes between goods and services, and testing it with U.S. state-level employment data for post-1960 recessions, we find that increased production of services relative to goods lengthens trough-to-peak recoveries. We also find limited evidence that increased services lengthens and deepens peak-to-trough downturns. The rise in service production in the United States over the last half-century lengthens the recovery from recessions by about 75 percent. Read the INET blog comments about this paper.
The Grammatical Origins of Gender Roles | BEHL WP2013-03 | Victor Gay, Estefania Santacreu-Vasut and Amir Shoham, 22 April 2013 | Abstract We investigate the relation between gender marking in grammar and female participation in the labor market, the credit market, land ownership, and politics. Cross-country and individual-level analyses reveal that women speaking languages that more pervasively mark gender distinctions are less likely to participate in economic and political life and more likely to encounter barriers in their access to land and credit. These findings are robust to a large set of controls and robustness checks. We also found that the impact of a language’s gender structure remains after controlling for culture, for historical agricultural use of the plough.
Financing a Planned Economy: Institutions and Credit Allocation in the French Golden Age of Growth (1954-1974) | BEHL WP2013-02 | Eric Monnet, September 2012 | Abstract The role of banking and finance in the Golden Age of European growth (1950-1973) is very little known and widely underestimated. This paper studies the French system of economic planning and investment-based strategy that enhanced medium and long-term financing (called “investment credit” at that time). First, I describe the new institutions that were built after WWII to organize credit allocation. I especially highlight the role of the central bank through the National Credit Council. I then use a newly constructed database that matches the amount of credit (that had to be registered at the Banque of France) in 49 sectors to corporate tax sectoral statistics. It shows a significant positive relationship between investment credit and the marginal product of capital. The allocation of medium/long-term credit managed to favor the allocation of productive capital across sectors and thus to ensure the catch-up process. Using GMM estimations in order to avoid the endogeneity bias, I find that the effect of “investment credit” on growth is significant and positive, contrary to short-term credit which did not play any role for investment. Understanding the institutional framework that shaped the mechanisms and success of credit policy in the French mixed economy during the 50s and 60s also helps to understand its failures during the mid-70s.
State Capacity and Long-Run Performance | BEHL WP2013-01 | Mark Dincecco & Gabriel Katz, October 2012 | Abstract We present new evidence about the long-term links between state capacity and economic performance. Our database is novel and spans 11 countries and 4 centuries in Europe, the birthplace of modern economic growth. Using standard panel data methods, we find that the performance impacts of states with modern extractive and productive capabilities are significant, large, and robust to a wide variety of specifications, controls, and modeling techniques.