Are Macroprudential Tools as Caring and Forethinking as They Claim to Be? Financial Stability and Monetary Policy in the Long Run

An Historical Perspective on the Quest for Financial Stability and the Monetary Policy Regime

By Michael D. Bordo (Rutgers University)

Abstract: This paper surveys the co-evolution of monetary policy and financial stability for a number of countries across four exchange rate regimes from 1880 to the present. I present historical evidence on the incidence, costs and determinants of financial crises, combined with narratives on some famous financial crises. I then focus on some empirical historical evidence on the relationship between credit booms, asset price booms and serious financial crises. My exploration suggests that financial crises have many causes, including credit driven asset price booms, which have become more prevalent in recent decades, but that in general financial crises are very heterogeneous and hard to categorize. Two key historical examples stand out in the record of serious financial crises which were linked to credit driven asset price booms and busts: the 1920s and 30s and the Global Financial Crisis of 2007-2008. The question that arises is whether these two ‘perfect storms’ should be grounds for permanent changes in the monetary and financial environment.

URL: https://EconPapers.repec.org/RePEc:nbr:nberwo:24154

Distributed by NEP-HIS on: 2018-01-15

Review by: Sergio Castellanos-Gamboa (Bangor University)

Summary 

In this paper Michael Bordo presents empirical historical evidence to analyze the incidence of credit-driven asset price booms and the extent to which they cause deep financial crises. The main argument of the paper is that we have to consider very carefully whether monetary policy should suffer a structural transformation whenever a rare “perfect storm” event occurs. Bordo supports this argument by looking at the correlation between and possible causality from credit-driven asset price booms to financial crises. The relation, he argues, is rather weak. Nonetheless, the consequences of implementing restrictive monetary policies when these events happen can be significantly bad in the long run.

The paper begins by reviewing the historical evolution of monetary and financial stability policy. In section 2 the author summarizes the appearance of central banks and the evolution of their functions and responsibilities, mainly as lender of last resort (LLR), across five diBordosq.jpgfferent periods: the “Classical Gold Standard”, the “Interwar and World War II”, the “Bretton Woods” period between 1944-1973, the “Managed Float Regime” between 1973-2006, and the “Global Financial Crisis”.

The next section of the paper deals with the measurement of financial crises in historical perspective. It starts by clarifying the definition of financial crises and looking at how this definition has changed from describing a banking panic to include “too important to fail” institutions, currency crises, sovereign debt crises, credit-driven asset price booms, sudden stops, and contagions. Of these crises, Bordo identifies five of them as global: 1890-1891, 1907-1908, 1913-1914, 1931-1932, and 2007-2008. He then turns to report the output losses of those global financial crises, using the cumulative percentage deviation of GDP per capita from the pre-crisis trend level of per capita GDP. He finds that in “the pre-1914 era the losses ranged from 3% to 6% of GDP. For the interwar period, driven by the Great Depression they are much larger – 40%. In the post Bretton Woods period losses are smaller than the interwar but larger than under the gold standard”. Finally, he finds that output losses in the period after 1997 are larger than in the pre-1914 period. The author ends this section by analysing the determinants of financial crises. Using a meta-study he concludes that financial crises are quite heterogeneous, and no particular factor stands out as a main determinant for their occurrence.

Section 4 of the paper reviews the historical narrative of a subset of 12 cases to evaluate the extent to which credit-driven asset price booms have been an important cause of financial crises. Bordo argues that although after the 2007-2008 crisis this factor has become more relevant, this was not the case before the collapse of Bretton Woods, with a few exceptions before World War II. Section 5 looks deeper into the relationship among credit booms, asset price booms, and financial crises using a business cycle methodology with a sample of 15 advanced countries from 1880 onwards. Once again, there is evidence that “suggests that the coincidence between credit boom peaks and serious financial crises is quite rare”. Moreover, credit booms do not seem to be highly correlated with asset price booms (except for the Great Depression and the Global Financial Crisis).

 The paper concludes by stating that there are four key principles to be followed to have a stable monetary policy regime that can be compatible with financial stability. These are: price stability, real macro stability, a credible rules-based LLR, and sound financial supervision and regulation and banking structure. These principles do not suggest that financial stability has to be elevated to the same level of importance as price stability or macroeconomic stability, and that implementing macroprudential tools to restrict monetary policy after a “perfect storm” can be more dangerous than beneficial in the long run.

Comments 

This paper brings important elements to the debate of whether implementing macroprudential tools is the right path to achieve financial stability. Moreover, Bordo raises a critical question that has not been properly addressed in the literature. To what extent can macroprudential tools be harmful for long-run economic growth? Additionally, the author invites us to question whether central banks should undertake activities that go beyond monetary policy (as bailing out failing institutions) to the point of putting at risk their credibility and even their independence, as it has already happened in the past.

Once again economic history becomes relevant to understand and shed a new light to contemporary debates. In particular, this paper implements a transparent and simple methodology to analyze whether credit-driven asset price booms can cause financial crises and if monetary policy should be fundamentally transformed when financial markets are hit by a “perfect storm”. The author is quite skeptical of the implementation of restrictive monetary policies to deal with serious financial crises, although there is still considerable room for more research to clarify this debate. Even though Bordo avoids using econometrics to assess this issue, the methodology proposed in this paper can still be subject to the Lucas critique (Lucas 1976). Therefore, there is still the need for a robust methodology that can provide evidence to produce a sound and testable economic theory to thoroughly study and understand this phenomenon.

More important, we still have to ask whether we can differentiate real productivity booms from bubbles. If there is still a lack of knowledge in this area we will not be able to know if we have the appropriate tools to diagnose a bubble and defuse an asset price boom before it bursts. Therefore, we cannot state for sure whether central banks should follow the Greenspan doctrine (Bernanke and Getler 2001), or if they should be more proactive in the procurement of financial stability. Even more and following the main argument of the paper, it is very important to ask and understand if financial stability should be granted the same importance as price stability or the stability of the real macroeconomy. For now, the answer seems to be no, but there also seems to be sufficient evidence to argue that banking should be made boring again (Krugman 2009).

References

Bernanke, Ben and Mark Gertler (2001). “Should Central Banks Respond to Movements in Asset Prices?” American Economic Review91(2), 253-257.

Krugman, Paul (2009). “Making banking boring.” New York Times, April 10.

Lucas, Robert (1976). “Econometric Policy Evaluation: A Critique.” In Allan H. Meltzer and Karl Brunner. The Phillips Curve and Labor Markets. Carnegie-Rochester Conference Series on Public Policy. 1. New York: American Elsevier, 19–46.

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The Wealth of the Other Americas

The Industrialization of South America Revisited: Evidence from Argentina, Brazil, Chile and Colombia, 1890-2010

Gerardo della Paolera (Central European University), Xavier Durán (Universidad de los Andes), Aldo Musacchio (Brandeis University)

Abstract: We use new manufacturing GDP time series to examine the industrialization in Argentina, Brazil, Chile, and Colombia since the early twentieth century. We uncover variation across countries and over time that the literature on industrialization had overlooked. Rather than providing a single explanation of how specific shocks or policies shaped the industrialization of the region, our argument is that the timing of the industrial take off was linked to initial conditions, while external shocks and macroeconomic and trade policy explain the variation in the rates of industrialization after the 1930s and favorable terms of trade and liberalization explain deindustrialization after 1990.

URL: https://EconPapers.repec.org/RePEc:nbr:nberwo:24345

Circulated by NEP-HIS on: 2018‒03‒19

Review by: Thales Zamberlan Pereira (Universidade Franciscana)

The long road of protectionism in Latin America in the decades between 1930 and 1990 led not only to import substitution of goods, but also of ideas. During those decades each country thought its way of development distanced from its neighbors, despite relatively similar schools of thought under the care of the Economic Commission for Latin America and the Caribbean (ECLAC). The result was a myriad of studies focused on peculiarities – what made each country unique in its backwardness – largely ignoring the possibility of comparative perspectives. Of course, comparative studies existed, but the view of Latin America as an object of study until the 1980s was delegated to a secondary place, shared more by international agencies and foreign researchers who sought a more macro understanding of the region.

During the last three decades things changed, but we still feel the effects of these“lost decades”. “Intellectual isolation” was especially true in Brazil, which until today has very few university courses on the economic history of other Latin American countries. The paper of Gerardo Paolera, Xavier Durán, and Aldo Musacchio, therefore, is a much welcome attempt to understand the differences in long-term development in South America using comparative data for Argentina, Brazil, Chile, and Colombia. They present a history of industrialization in these countries putting together series of manufacturing value added, labor productivity in manufacturing, the size of the labor force, and trade series for the whole twentieth century (until 2010, actually). Despite arguing that they estimated new figures when the data was not available, the authors mostly use secondary sources for macroeconomic data (for example, Brazil’s data comes from IPEA, a government agency).

The paper’s main argument is that the long-term series of industrial GDP suggest that the patterns of industrialization in those countries were heterogenous, and initial conditions – such as level of urbanization, literacy and infrastructure development at the end of the 19th century – mattered more for the timing of industrial takeoff than policies or external shocks. Therefore, the authors reject traditional hypotheses that have tried to explain the industrialization of South America using “one single theory”. Among these traditional explanations are the “adverse shocks” hypothesis, industrialization as a product of export-led growth, and industrialization as the product of import substitution industrialization (ISI). The paper then proceeds to explain the differences between the four countries during the following periods: 1) before 1920, 2) the 1920s, 3) the Great Depression, 4) World War II, 5) the 1980s, 6) 1990s and beyond.

According to the paper, the long-term industrial series show that “none of these hypotheses explain all cases for the entire century.” Moreover, changes in external conditions and domestic policies explain part of the variation in the rates of industrialization only after the 1930s. In their review about the different periods of industrialization, the highlight is for the effects of ISI policies on industrialization. They present a “real distorted import price” index – which are import prices multiplied by the average tariff and the nominal exchange rate – to show the correlation between price distortion of imports and growth of manufacturing as a percentage of GDP. This correlation is widely known in the historical literature, but bringing together data for the South American countries helps us to understand the relative size of barriers to trade in each country.

Musacchio et al Fig1

Figure 1: Real Distorted Import Price Index for Argentina, Brazil, Chile and Colombia,
1900-2012 (1939=100)

Paolera, Duran, and Musacchio’s paper is an interesting contribution, however, it is not clear how much of it is a revisionist interpretation of South America’s industrialization. It would be interesting to have a better sense about how much the literature on Latin America industrialization in the twentieth century really argues that the process was homogeneous across countries and that domestic and initial conditions did not matter. Even in books that summarize the literature, such as Bértola and Ocampo (2012) there are clear differences between the countries and initial conditions (their Human Development Index for example).

As a side note, it also feels unnecessary to argue that the countries shared similar culture, religion, and colonial origin to “control” for cross-sectional variation. Is there really a relevant connection between these conditions and different periods and types of industrialization? Besides the fact that many Argentineans, Brazilians, and Chileans will try to “argue” that they have a very different culture (and, in the case of Brazil, colonial origin), it would be good to show if the traditional hypotheses make these connections.

Moreover, since initial conditions (human capital) mattered for industrialization, why is East Asia a proper counterfactual for Latin America? The authors argue that we “need to improve our knowledge” on this issue, but it feels there is room to present more recent research about the topic, not only Robert Wade’s (1990) book: in the style of Liu (2017) and Lane (2017). Also, as a suggestion, it would be interesting to see the index for “real distorted import prices” for East Asian countries, as it would teach us something about Latin America.

The 1980s and 1990s could also have a more extensive literature review. For example, the paper argues that the improvement in terms of trade after the 1990s was associated with “some form of Dutch Disease”. However, there is not sufficient evidence to make this statement. Their measure of de-industrialization, which is a declining share of manufacturing in total GDP, is a limited way to measure de-industrialization, especially when productivity of the other sectors (like agriculture) was increasing. The lower share of manufacturing after the 1980s could also be a form of correction after the excesses of the 1960s and 1970s. Indeed, we still do not have a clear answer about the opportunity cost of those policies. Nevertheless, the Brazilian’s government attempt (and failure) to resuscitate the policies of the military regime in the years after 2008 shows us that the cost-benefit of industrialization at any cost in previous decades needs to be re-evaluated (as they were in Musacchio and Lazzarini 2014). After three decades of declining knowledge barriers between South American countries, perhaps it is time to “demand” the next step in historical comparative studies: micro studies.

References

  • Bertolá, Luis and José Antonio Ocampo’s The Economic Development of Latin America since Independence. Oxford: Oxford University Press, 2012.
  • Lane, Nathan. “Manufacturing Revolutions. Industrial Policy and Networks in South Korea.” Job Market Paper, Institute for International Economic Studies (IEES), 2017.
  • Liu, Ernest. “Industrial Policies in Production Networks.” Working Paper, Princeton University, 2017.
  • Musacchio, Aldo, and Sergio Lazzarini. Reinventing State Capitalism. Leviathan in Business, Brazil and Beyond. Cambridge, MA: Cambridge University Press, 2014.
  • Wade, Robert. Governing the Market. Economic Theory and the Role of Government in East Asian Industrialization. Princeton, NJ: Princeton University Press, 1990.

Ancient Infrastructure and Economic Activity

 

Roman Roads to Prosperity: Persistence and Non-Persistence of Public Goods Provision

Carl-Johan Dalgaard (University of Copenhagen and CEPR), Nicolai Kaarsen (Danish Economic Council), Ola Olsson (University of Gothenburg) and Pablo Selaya (University of Copenhagen)

Abstract: How persistent is public goods provision in a comparative perspective? We explore the link between infrastructure investments made during antiquity and the presence of infrastructure today, as well as the link between early infrastructure and economic activity both in the past and in the present, across the entire area under dominion of the Roman Empire at the zenith of its geographical extension. We find a remarkable pattern of persistence showing that greater Roman road density goes along with (a) greater modern road density, (b) greater settlement formation in 500 CE, and (c) greater economic activity in 2010. Interestingly, however, the degree of persistence in road density and the link between early road density and contemporary economic development is weakened to the point of insignificance in areas where the use of wheeled vehicles was abandoned from the first millennium CE until the late modern period. Taken at face value, our results suggest that infrastructure may be one important channel through which persistence in comparative development comes about.

URL: http://d.repec.org/n?u=RePEc:cpr:ceprdp:12745&r=his

Distributed by NEP-HIS on: 2018-03-26

Revised by: Martin Söderhäll (Uppsala University)

Summary

In the paper Roman Roads to Prosperity: Persistence and Non-Persistence of Public Goods Provision the question “How persistent is public goods provision in a comparative perspective?” is examined by estimating the impact of Roman road-density on various proxies for economic activity today (modern roads, night-lights and population density) and in 500 CE (roman settlements). This is done for areas of Europe, the Middle East and Northern Africa covered by Roman roads in 117 CE. The authors argue that the Roman roads “almost presents itself as a natural experiment” since the main purpose of the roads was to simplify military logistics during Roman times. This led to a road network with roads constructed as straight as possible between nodes, especially in newly conquered and undeveloped areas of the Roman Empire.

roman roads_paris

Figure 1: Roman Roads and Night Lights around Paris

The main findings in the paper are that Roman road density in 117 CE has a statistically significant positive effect on all of the above-mentioned dependent variables, suggesting that the spatial distribution of ancient infrastructure still affects the location of economic activity almost 2000 years later. However, the historical density of ancient infrastructure is not enough to explain the density of modern infrastructure as well as economic activity. The authors hypothesize that persistent use and maintenance of said infrastructure is a necessary condition for the link. To examine the hypotheses the authors’ exploit regional variation in the use of wheeled transport during the first millennia CE. This historical natural experiment is made possible since the Middle East and North Africa abandoned wheeled transport during this period, most probably due to the use of camels, which became a more efficient means of transportation in the region some time during the first millennia (Bulliet 1990).

roman_roads_night

Figure 2: Roman Roads Network in 117 CE

The developments in the Middle East and North Africa during the first millennia CE led to ancient Roman roads being used to much lesser extent than in Europe were wheeled vehicles (drawn by horses or oxen) continued to dominate among land-based means of transportation up until the nineteenth century. Thus, the authors’ claim, “one should expect influence of Roman roads today only where persistence in infrastructure is found.” In other words, the effect of Roman roads on economic activity today should be insignificant within the Middle East and in North Africa while it should have a positive effect within Europe. However, one should also expect that the density of Roman roads had a positive effect on economic activity in all studied regions before the abandonment of the wheel and the subsequent loss of interest in the use and maintenance of Roman roads in the Middle East and in North Africa.

roman_roads_modern

Figure 3: Relationship between Roman Road Density in 177 CE and Modern Road Density

Econometrically, the hypotheses set by the authors are examined by a cross-sectional specification where the parameter of interest is the influence of Roman road density on various measures of economic activity today and in 500 CE, controlling for (primarily) geographic traits of the grid cells where road density are measured as well as country and language fixed-effects. The empirical results are in line with those hypothesized by the authors. The density of Roman roads had a statistically significant positive effect on economic activity in all specifications except the ones where the modern day variables capturing the degree of economic activity “today” is regressed on Roman road density in the Middle East and North Africa, further strengthening the argument that persistence in infrastructure can explain comparative development over a period of 2000 years.

Comments

The interpretation and implication of the empirical result is quite straightforward. It is clearly a good idea to keep investing in infrastructure as long as the infrastructure has an economic value, something the authors show was the case in Europe but less so in the Middle East and North Africa where the value of Roman infrastructure dropped. At first sight, one potential remark is the large time gap between the cross sections. How would the interpretation of the results look like if the link between Roman roads and economic activity disappeared in large parts of Europe some time during the period 500-2010 CE? Results from previous research (Bosker et. al. 2013; Bosker & Buringj 2017) ease the worry of this question slightly, since they have shown a relationship between Roman road-hubs and city sizes during the period 800-1800. However, it would have been nice to see some specifications for the years between 500 CE and 2010 CE in this paper as well, possibly using city sizes from DeVries (2013) or Bairoch (1991) as a proxy for economic activity. Especially since the scope differs a bit from that in Bosker et. al. (2013) where the estimation (to my knowledge) is done in a panel setting and in Bosker & Buringj (2017) where only Europe is studied.

Aside from that, I have very little to remark on; I find the argumentation against potential threats to internal validity convincing, and find arguments against external validity quite irrelevant due to the exploratory nature of the paper. In a way, the paper can be summarized as both fun and fascinating.

References

Bairoch, P. (1991). Cities and Economic Development: From the Dawn of History to the Present. Chicago, IL: University of Chicago Press.

Bosker, M., Buringh, E., & van Zanden, J. L. (2013). “From Baghdad to London: Unraveling Urban Development in Europe, the Middle East, and North Africa, 800–1800.” Review of Economics and Statistics, 95 (4), 1418-1437.

Bosker, M., & Buringh, E. (2017). “City Seeds: Geography and the Origins of the European City System.” Journal of Urban Economics 98, 139-157.

Bulliet, R. W. (1990). The Camel and the Wheel.  New York, NY: Columbia University Press.

De Vries, J. (2013). European Urbanization, 1500-1800. London: Routledge.

The Elephant (-Shaped Curve) in the Room: Economic Development and Regional Inequality in South-West Europe

The Long-term Relationship Between Economic Development and Regional Inequality: South-West Europe, 1860-2010

by Alfonso Díez-Minguela (Universitat de València); Rafael González-Val (Universidad de Zaragoza, IEB); Julio Martinez-Galarraga (Universitat de València); María Teresa Sanchis (Universitat de València); and Daniel A. Tirado (Universitat de València).

Abstract: This paper analyses the long-term relationship between regional inequality and economic development. Our data set includes information on national and regional per-capita GDP for four countries: France, Italy, Portugal and Spain. Data are compiled on a decadal basis for the period 1860-2010, thus enabling the evolution of regional inequalities throughout the whole process of economic development to be examined. Using parametric and semiparametric regressions, our results confirm the rise and fall of regional inequalities over time, i.e. the existence of an inverted-U curve since the early stages of modern economic growth, as the Williamson hypothesis suggests. We also find evidence that, in recent decades, regional inequalities have been on the rise again. As a result, the long-term relationship between national economic development and spatial inequalities describes an elephant-shaped curve.

URL: https://EconPapers.repec.org/RePEc:hes:wpaper:0119

Distributed by NEP-HIS on 2018-02-26

Review by: Anna Missiaia

The relationship between economic development and inequality in a broad sense has been at the core of economic research for decades. In particular, the process of industrialization has been much investigated as a driver of inequality: Kuznets (1955) was the first to propose an inverted U-shaped pattern of income inequality driven by the initial forging ahead of the small high-wage industrial sector and a subsequent structural change, with more and more labour force moving out of agriculture into industry. The first to suggest that a similar pattern could take place in the spatial dimension was Williamson (1965), who showed that the process of industrialization could lead to an upswing of regional inequality because of the initial spatial concentration of the industrial sector, which eventually touches the less advanced regions. The paper by Díez-Minguela, González-Val, Martinez-Galarraga, Sanchis and Tirado circulated on NEP-HIS on 2018-02-26 deals with this latter inequality. The authors formally test what is the relationship between the coefficient of variation (in its Williamson formulation) of regional GDP per capita and a set of measures of economic development, most importantly the level of national GDP per capita. The authors use for the analysis four Southwestern European countries (France, Spain, Italy and Portugal).  The paper starts in 1860 and therefore takes a much appreciated multi-country and long-run perspective compared to the original work by Williamson, who was looking only at the 20th century United States.

The work by Díez-Minguela and co-authors also relies on the framework developed by Barrios and Strobl (2009), going from a merely descriptive interpretation of an inverted U-shape of regional inequality to a theoretically-founded one. In particular, Barrios and Strobl (2009) use a growth model that takes into account region-specific technological shocks and their later diffusion on the entire national territory; they also include measures of trade openness to test the hypothesis that more market integration leads to more regional inequality; they finally consider regional policies implemented by the State to even out regional disparities. The original paper by Barrios and Strobl (2009) was only considering a sample of countries from 1975 onwards, basically overlooking the whole post-WWII industrial boom in some more developed countries. In this respect, the contribution by Díez-Minguela and coauthors is fundamental, as it proposes a long-run regional analysis not only confined to one specific country as it is customary in the field, but on a group of countries. The paper also proposes a formal testing of the drivers of regional inequality, moving forward from a mere descriptive approach. In terms of methodology, the authors propose an approach that makes use of both parametric and semi-parametric estimations. This is to take into account that the relationship might be different for different levels of GDP.

Moving on to the results, the first thing to note is that three out of four countries in the sample present an inverted U-shaped pattern between GDP per capita and regional inequality (as can be seen in Figure 1).

fig426march2018

Figure 1: Regional Income Dispersion and Per-Capita GDP in France, Italy, Spain and Portugal (1860-2010). Source: Díez Minguela et al. (2017)

As for France, the authors suggest that the lack of a U-shaped pattern could be due to its early industrialization that pre-dates the first benchmark year available (1860). The analysis could thus be still capturing the downward part of the U-shape. In terms of the econometric analysis, the OLS regression confirms the predicted pattern through the significance of GDP per capita both in their quadratic and cubic forms.

One interesting discussion is on the controls used in the model: here both openness to trade and public expenditure are not significant, in spite of both being strong candidates for explaining regional inequality in the economic geography literature (see Rodríguez-Pose, 2012 on trade and Rodriguez-Pose and Ezcurra, 2010 on public spending). For the first variable (openness of trade), the explanation could be that the detrimental effect of trade on regional inequality could well have been offset by the increased integration of the financial and labour markets during the First Globalization.

Regarding the second control variable, public intervention (measured as public spending as a share of GDP): the authors admit that having a large public sector does not necessarily imply implementing effective cohesion policies. The example of Fascist Italy on this point is very illustrative: the 1920s and 1930s witnessed rising inequality in Italy, in spite of a growing intervention by the State in the economy and an alleged intent to favor the most backward parts of the country. In general, the impression is that more than one mechanism that is well present in empirical studies after WWII, might not be so in earlier periods. Finally, the authors test for the role of structural change in shaping regional inequality, which was the original explanation by Williamson (1965). This is measured as the non-agricultural value added and it is positive and significant in explaining the coefficient of variation of overall GDP per capita.

Although the paper represents an important step forward for explaining historical regional divergence, several aspects could be addressed in the future by either the authors or by other scholars in the same field. For instance, the use of only four countries from a specific part of Europe does not yet allow drawing general conclusions on the relationship between economic growth and inequality in the long run. As mentioned in the paper, several case studies from other parts of Europe do not entirely fit in the same path: this is the case of Belgium (Buyst, 2011) or Sweden (Enflo and Missiaia, 2018). It is possible that including more advanced economies such as Britain or even some peripheral but Northern ones in the sample might lead to re-consider the increase of regional inequality during modern industrial growth as a golden rule.

References

Barrios, S., Strobl, E., 2009. “The Dynamics of Regional Inequalities.” Regional Science and Urban Economics 39 (5), 575-591

Buyst, E., 2011. “Continuity and Change in Regional Disparities in Belgium during the Twentieth Century.” Journal of Historical Geography 37 (3), 329-337

Díez Minguela, A., González-Val, R., Martínez-Galarraga, J., Sanchis, M. T., and Tirado, D. 2017. “The Long-term Relationship Between Economic Development and Regional Inequality: South-West Europe, 1860-2010.” EHES Working Papers in Economic History 119

Enflo, K. and Missiaia, A. 2017. “Between Malthus and the Industrial Take-off: Regional Inequality in Sweden, 1571-1850.” Lund Papers in Economic History

Kuznets, S., 1955. “Economic Growth and Income Inequality.” American Economic Review 45 (1), 1-28

Rodríguez-Pose, A., 2012. “Trade and Regional Inequality.” Economic Geography 88 (2), 109-136

Rodríguez-Pose, A., Ezcurra, R., 2010. “Does Decentralization Matter for Regional Disparities? A Cross-Country Analysis.” Journal of Economic Geography 10 (5), 619-644.

Williamson, J.G., 1965. “Regional Inequality and the Process of National Development: a Description of the Patterns.” Economic Development and Cultural Change 13 (4), 1-8

 

from VOX – The return of regional inequality: Europe from 1900 to today

by Joan Rosés (LES) and Nikolaus Wolf (Humboldt University)

 

 

via EHS The Long Run

Original post Here

A Conceptual Framework for New Entrepreneurial History

Reinventing Entrepreneurial History

By R. Daniel Wadhwani (University of the Pacific, USA) and Christina Lubinski (Copenhagen Business School, Denmark)

Abstract: Research on entrepreneurship remains fragmented in business history. A lack of conceptual clarity inhibits comparisons between studies and dialogue among scholars. To address these issues, we propose to reinvent entrepreneurial history as a research field. We define “new entrepreneurial history” as the study of the creative processes that propel economic change. Rather than putting actors, hierarchies, or institutions at the center of the analysis, we focus explicitly on three distinct entrepreneurial processes as primary objects of study: envisioning and valuing opportunities, allocating and reconfiguring resources, and legitimizing novelty. The article elaborates on the historiography, premises, and potential contributions of new entrepreneurial history.

Keywords: entrepreneurship, entrepreneurial processes, history, theory, temporality, uncertainty, agency, opportunity, resources, legitimation

URL: https://doi.org/10.1017/S0007680517001374

Business History Review, 2017, 91 (4): 767-799 – doi:10.1017/S0007680517001374

Review by Nicholas D Wong (Newcastle Business School, Northumbria University)

This article by Wadhwani and Lubinski proposes the reinvention of ‘entrepreneurial history as a research field’ with the aim of promoting greater ‘conceptual clarity’ between comparative studies and dialogue amongst scholars in the field. This engaging and well-written paper provides a new way of considering entrepreneurial activities over time with the emphasis placed on the processes that drive entrepreneurship rather than the individuals or institutions. Following a call to arms for history to join other social sciences (“management, economics, sociology, finance and anthropology”) in developing a distinct sub-field for the study of entrepreneurship the authors provide a neat structure to the paper which begins by providing an historiographical assessment of the strengths and weaknesses of what they term the “old entrepreneurial history”. This is followed by an insight into the parameters of the concept of “new entrepreneurial history”; one which considers the development temporally and defined succinctly as “the study of the creative processes that propel economic change”. This conceptualization foregrounds entrepreneurial processes rather than focusing on particular actors, institutions, or technologies.” The third section develops a set of core processes that frame the object of study in entrepreneurial history, “(i) envisioning and valuing opportunities, (ii) allocating and reconfiguring resources, and (iii) legitimizing novelty”. The paper concludes by highlighting the important contributions new entrepreneurial history can make to the field of business history.

‘So that’s my presentation. When do I get the half million dollars?’

In assessing the historical foundations of entrepreneurship, the authors follow the well-trawled path through the German Historical School of Schmoller and Weber and ultimately on to Schumpeter which, over time, helped promote the concept of “historical change focussed on entrepreneurial processes”. It was perhaps Schumpeter more than any other who ardently proclaimed the centrality of history in enabling the understanding the role of the entrepreneur as the driving force of capitalism and “central to the operation of markets and the dynamics of economies”. However, despite the strength of scholarship that developed during the immediate post-war period, the authors highlight how the field of entrepreneurial history dissipated in later decades being replaced by formulaic, normative and structured research that was “increasingly focussed on how norms, laws and other institutions shaped entrepreneurial roles and functions”. The authors highlight how this approach ultimately led to the demise of the field in the late 1960s as Chandlerian theory on organisational form and managerial hierarchies dominated business history. The 1970s and 80s saw entrepreneurship studies receive increasing attention from business-people and policy makers alike as a way of understanding how economies and markets operate (and what drives them). However, it was still largely ignored by business historians.

To demonstrate the difficulty for historically-orientated scholarship in defining and framing the concept of entrepreneurship, the authors provide some quantitative analysis of the number of articles published in Business History Review during the period 1954-2015 which mention entrepreneurship in the full text, including references. The figures are startling, with only 44 of 1044 featuring the term ‘entrepreneurship’ and when excluding the phrase appearing in citations this figure reduces to only twenty-six articles. This provides clear evidence of the lack of engagement with entrepreneurship by business history scholars. Moreover, of those articles that directly use the term, ‘entrepreneurship’, there is a general lack of clear definitions (most rely on Schumpterian definition, whilst more recently, Mark Casson’s definition has been widely-used). The authors use this evidence to demonstrate the lack of engagement in entrepreneurial studies (beyond the individual entrepreneur at least!) in business history. This is interesting research method although it could possibly have been improved by extending the analysis into other prominent business history journals such as Business History or Enterprise and Society – this would have strengthened the conclusions drawn from this section of the study. This section finishes by highlighting how historians have tackled entrepreneurship in recent years, with Popp, Raff, Amatori, Friedman, Jones and others using a variety of approaches including biography, microlevel process (such as agency over time) and macrolevel approaches which consider the consequences of entrepreneurship for structural change (such as the industrial revolution or globalisation).

“You told him he should start his own business.”

Following the illuminating section on the historiography of entrepreneurship, the next section tackles the concept of entrepreneurship as it relates to field of history. Here the authors provide a succinct and applicable definition of entrepreneurial history: “the study of the creative processes that propel economic change”. Here they are keen to point out that, “the definition focuses on the study of entrepreneurial processes and their relationship to change”. They provide three key premises that link entrepreneurial history to historical change over time: the temporal foundations of agency; multiplicity in the forms of value; and the collective and cumulative character of entrepreneurship. With reference to the first premise, the authors cite the work of Popp et al., and Beckert, by suggesting that understanding entrepreneurial agency “hinges on examining the processes by which they envision and pursue futures beyond the constraints of the present context”. Here they are making clear linkages to the concept of forward projection, that being the idea that the study of entrepreneurial history requires the researcher to understand the necessity of entrepreneurs to think-forward and plan for an “unpredictable future”. This is a novel approach, although it is reliant on a particular set of sources that work as evidence for qualitative research that can enable the historian to penetrate the mindset of the entrepreneur. The two papers cited by Popp and Holt both rely on extensive sets of letters between entrepreneurs and their familial, social and business networks which help construct a picture of the entrepreneur and the strategic forward planning for key developments such as succession, diversification, or international expansion. The second premise, multiplicity in the forms of value, suggests that entrepreneurs can find value beyond baseline profitability. Here the authors infer that entrepreneurs can seek future forms of (non-economic) value such as civic, environmental, academic, and industrial. This again is linked to the idea that the pursuit (or accumulation) of intangibles such as reputational and social capital can provide competitive advantage in the market place and, perhaps, can be considered as entrepreneurial as innovation, expansion and diversification. The final premise, the collective and cumulative character of entrepreneurship, refers to the domino effect of entrepreneurial opportunities that provide the foundation for, and provoke, further streams of entrepreneurship. This is linked to the notion that entrepreneurs have a sense of collective identity and the idea that “they belong to a generation, group or epoch”. The importance of this premise is that it moves away from what the authors refer to as the “heroic individual”. Here, new entrepreneurial history calls for further analysis of “cumulative entrepreneurial processes across multiple actors over time that propel historical change”.

The third section of the article points to processes that act as primary objects of study in entrepreneurial history. The first of these, envisioning and valuing opportunities, is linked to the classical characteristics of entrepreneurship such as forecasting market changes, seeking new opportunities, accessing and creating new technologies, exploiting new markets/territories and developing new practices. However, the authors highlight how new entrepreneurial history deviates from the old forms by explaining how the new opportunities are enacted rather than discovered. This is because actors define value and worth in different ways and this changes over time. The second process is allocating and reconfiguring resources; here they suggest that entrepreneurial history can “explore the processes and mechanisms by which actors allocated and reconfigured resources towards uncertain, future ends”. This section highlights the value of history in analysing the process and motivation for entrepreneurs to influence macro-level developments in terms of institutional or societal change and how this influences their allocation of resources. The final process identified by the authors, legitimizing novelty, builds on the previous processes as, in their view, legitimacy can pose ‘a problem in the entrepreneurial process because the new forms of value and new combinations of resources entrepreneurs introduce often fail to conform to widely shared expectations regarding rules, norms, beliefs, and definitions. Legitimation processes thus form another important focus of research in entrepreneurial history”. The key contribution of the historian in this area is understand the process of legitimation and to analyse how and why societal or institutional change occurs over time.

Congratulations on starting your own firm.

In terms of the potential contributions that new entrepreneurial history can make the authors have compiled a helpful table that compares it to Chandlerian business history, new institutional business history, and new economic histories of business. This table, in part, helps reinforces the central tenets of new entrepreneurial history (such as the emphasis on the process of entrepreneurship, the cumulative and collective approaches, the impact on development of society and institutions, the methods of assigning value over and above profit etc.) and how it diverges or challenges traditional schools of business history. The eclectic approach to entrepreneurship as designed by the authors provides a framework for future research to follow in order to consider the development of entrepreneurship over time but also in understanding how entrepreneurship influences, and is influenced, by, individual, institutional and societal micro and macro-level factors. Perhaps the greatest contribution, as highlighted in the conclusion, is the implications or influence that new entrepreneurial history can have on entrepreneurs today. Here the authors demonstrate the strength of the historian in enabling entrepreneurs to understand the world and “acting in it”. By following the framework developed in this paper, business historians have opportunity to develop a richer and deeper insight into the core factors that influence and drive the process of entrepreneurship.

A couple of minor observations: the definition provided by the authors, in my opinion, could be broadened out slightly. In the case the authors raise the point that new entrepreneurial history focuses on the study of the creative processes that propel economic change, [my emphasis], however, this framework could be used to study processes far beyond the purely economic (including, for example, environmental, technological, cultural, management, social, political). Indeed, the section on ‘multiplicity in the forms of value’ highlights how value can be assigned to non-economic factors, such as the accumulation of social and cultural capital, environmental, civic, academic, esthetic, industrial etc. The definition in this instance seems too narrow in enabling the researcher to understand change and the authors themselves provide insight into factors beyond market forces. In terms of broadening out the concept, I feel this particular theme has potential to inform research beyond business history and could have relevance to research in other branches of management and organisational studies, and perhaps even other disciplines in social sciences. My second observation concerns the blurring or overlap between premises two and three concerning the recruiting and allocation of resources on one hand and gaining of legitimacy on the other hand. Both sections cover similar areas with regards to the winning institutional support or driving institutional change in order to gain support or enhance legitimacy. I feel there is scope to draw greater distinctions between these two processes.

To conclude, this article presents a well-considered and well-structured contribution to the field of entrepreneurial history. The authors establish a real need for their approach and then provide a strong, clear and adaptable framework that can open the field to future researchers. As a business historian myself, I am always sympathetic to papers championing a historical or temporal approach and found this paper extremely useful to my ongoing research projects. I am sure it will make a strong contribution to the field and provoke much discussion and research in the years to come!

Acknowledgements

I am extremely grateful to Andrew Popp and Niall Mackenzie for their feedback on an earlier draft of this review.

Are businessmen from Mars and businesswomen from Venus?

by Jennifer Aston (Oxford University) and Paulo di Martino (University of Birmingham) The full paper was published on the Economic History Review, accessible here Do women and men trade in different ways? If so, why? And are men more or less successful than women? These are very important questions not just, or not only, for the academic […]

via Are businessmen from Mars and businesswomen from Venus? An analysis of female business success and failure in Victorian and Edwardian England — The Long Run