Author Archives: missiaia

What about the periphery? Swedish wealth-income ratios in historical perspective

Wealth-Income Ratios in a Small, Developing Economy: Sweden, 1810–2014


Daniel Waldenström (Paris School of Economics and Research Institute of Industrial Economics

ABSTRACT: This study uses new data on Swedish national wealth over the last two hundred years to examine whether the patterns in wealth-income ratios found by Piketty and Zucman (2014) extend to small and less developed economies. The findings reveal both similarities and differences. During the industrialization era, Sweden’s domestic wealth was relatively low because of low saving rates and instead foreign capital imports became important. Twentieth century trends and levels are more similar, but in Sweden government wealth grew more important, not least through its relatively large public pension system. Overall, the findings suggest that initial conditions and economic and political institutions matter for the structure and evolution of national wealth.


Distributed by NEP-HIS on 2016-10-17

Review by Anna Missiaia

This paper looks at the evolution of wealth-income ratios in Sweden over the last two hundred years. Wealth-income ratios have gained increasing attention as an aftermath of the release of Capital in the 21st Century by Thomas Piketty as well as the more specific paper by Piketty and Zucman (2014). The trajectory of wealth-income ratios in core economies such as the US, the UK, Germany and France shows a U-shape pattern over the last two hundred years, with a level of 600-700% of wealth over income in the 18th and 19th centuries, a low point of 200-300% in the 1970s and a subsequent increase up to 400-600% today. The U-shape is, in the interpretation of Piketty and Zucman, the consequence of the two world wars and the creation of the welfare state while in the last decades we are seeing a reversal and a “return to historical norms”. The come back of capital is potentially interesting as wealth accumulation can have different effects on the economy and the society, depending on weather the additional wealth is in public or private hands. Also, the increase in wealth relative to income poses new questions on what the optimal taxation strategy should be. In terms of the scope of this line of research, at the end of their paper Piketty and Zucman call for a further effort to cover new and non-core countries in the analysis. Identifying the components of wealth driving the increase in the ratio is also a worthwhile next step.

The work by Walderström goes in this direction in two ways. First, it looks at a “small, developing economy” such as Sweden, which represents at least part of the periphery that is missing in previous research. Moreover, it discusses to some extent the determinants of Swedish wealth in comparison with other core countries, suggesting that the composition of wealth can dramatically change the interpretation of the ratio.

The inclusion of small economies in the analysis is important because theory predicts a different evolution of wealth-income ratios during industrialization depending on the size of the country.  In particular, large economies (like the ones studied by Piketty and Zucman) are expected to increase their wealth while small economies are expected to increase capital imports. Moreover, Sweden is an excellent case-study for looking at the effect of a social democratic welfare state and its political institutions on the accumulation of national wealth.

The empirical analysis in the paper is grounded on a new body of evidence that, as it often happens with Sweden, provides very detailed information compared to other countries. In this case, the Swedish National Wealth Database (SNWD)  provides information on the household sector, the public sector and national, private and public savings following the same structure of Piketty and Zucman (2014).


Swedish farmers before the creation of the universalistic welfare-state system

The results of the paper are the following: Sweden in the 19th century had a much lower ratio (about half) compared to core countries such as the UK, France and Germany but it had a very similar level compared to the US. The author then goes on and asks whether 19th century Sweden is really comparable to the US in terms of national wealth dynamics. The answer is no. Sweden had a low ratio because of its low level of savings due to low incomes. The US had a low ratio because of a high level of income growth that was dominating wealth growth. For this reason, Sweden had to rely much more heavily on capital imports to sustain its industrialization. The 20th century shows again a much lower ratio for Sweden compared to the core countries (this time both European countries and the US alike) but the explanation lays this time in the increasing role of the Swedish Government and the creation of the well-known universalistic welfare-state system which redirected resources from private wealth to provision of public goods. In this sense, the discussion on the emergence of the public pension system, which is neglected by the analysis of national wealth in core countries by Piketty and Zucman, is most interesting. In short, the argument is that creation of a public pension system with a large share of unfunded pensions financed by taxation led to a decrease in saving for retirement and thus wealth. The figure below shows the low ratio for Sweden over the last two hudred years.


Private welath-income ratios in comparison.

The main contribution of this work is showing that the patterns of core countries, that are often at the core of the research and speculation Piketty and coauthors, are far from being exhaustive in explaining national wealth at world level. Also, as the same wealth-income ratio can hide very different underlying structural differences, the use of a more detailed breakdown of public wealth that includes pensions is also much appreciated. On the other hand, it is clear that because of its very peculiar history (see the non-participation to the world wars and the early formation of such a strong welfare state) Sweden cannot be considered as fully representative of the entire periphery. More research on other countries is needed to capture the entire picture.



Piketty, T. (2014) Capital in the 21st century, Cambridge, MA: Belknap.

Piketty, T. and G. Zucman (2014) Capital is back: Wealth-income ratios in rich countries, 1700–2010, Quarterly Journal of Economics, 129(3): 1255–1310.

Waldenström, D. (2015), Wealth-income ratios in the small economy: Sweden over the past two centuries, Vox post,



Take the Money and Don’t Run?

Benefits of empire? Capital market integration north and south of the Alps, 1350-1800


David Chilosi (London School of Economics

Max-Stephan Schulze (London School of Economics

Oliver Volckart  (London School of Economics

ABSTRACT: This paper addresses two questions. First, when and to what extent did capital markets integrate north and south of the Alps? Second, how mobile was capital? Analysing a unique new dataset on pre-modern urban annuities, we find that northern markets were consistently better integrated than Italian markets. Long-term integration was driven by initially peripheral places in the Netherlands and Upper Germany integrating with the rest of the Holy Roman Empire where the distance and volume of inter-urban investments grew primarily in the sixteenth century. The institutions of the Empire contributed to stronger market integration north of the Alps.


Distributed by NEP-HIS on  2016‒02‒29

Review by Anna Missiaia

The work by Chilosi, Schulze and Volckart deals with a fundamental issue in European economic history, namely ascertaining the level of capital market integration in different parts of the continent at a specific moment in time. The areas of interest in this case are Italy and the territories of the Holy Roman Empire. The aim is to test whether the Italian cities, that are often considered the front runners of modern finance in the medieval times, where enjoying a greater level of financial market integration compared to the cities that were part of the Holy Roman Empire.

The paper uses an impressive collection of some 30,000 interest rate records from 103 cities located both north and south of the Alps. The time span is 1350-1800, providing a very long run picture of the starting levels and evolution of the capital markets in pre-industrial times. The authors use nominal interest rate spreads across cities to assess the level of market integration. This is a standard procedure often used with price series and goes back to the concept of the law of one price: if two markets are well integrated, price (interest rates) differentials will merely reflect transport and other trade costs such as tariffs between the two markets, leaving no space for arbitrage.


The main result of the paper is that although Italy and the Holy Roman Empire started from similar levels of interest rate spread at the beginning of the period, they had very different dynamics. Capital markets in the Holy Roman Empire experienced an accumulated reduction in spreads during the period considered while the ones in Italy experienced an increase (-6 vs. +2.55 when perpetuities are compared).

The authors make an interesting case that the divergence observed is led by long-distance integration within the Empire. They do so by separating all the possible pairs that originate the spreads into two groups: those under 200 km of distance and those above. They find that the integration in the second group increased twice as fast compared to the first. The authors place this convergence of long-distance  and short distance integration between 1500 and 1630.

The next step in the analysis is to study whether the integration was occurring between or within regions of the Empire. Using cluster analysis, the authors show that the Empire appeared as a “polycentic network” with several interconnected financial centers (such as Frankfurt, Leipzig, Nurmberg and Hamburg). These were developing in parallel in spite of the large distances between them. The evidence points to increased integration between rather than within clusters, opening the way to a fascinating discussion on the causes of this divergence between the Empire and Italy.



                                             The imperial eagle

So why did the regions north of the Alps were able to achieve greater capital market integration in spite of less favorable geographic conditions (scarce access to sea) and a lower level of financial technology? According to Chilosi, Schulze and Volckart, the key factor lays into the different institutions that the two regions developed. Local authorities in Italy restricted the participation of foreigners to the capital markets and foreign investment was more costly than local. Quite differently, within the Empire foreign investment was favoured by several means: legal systems were much more similar within the Empire and collective liability was widespread. Moreover, the local authorities competed for capital, pushing them to increase the protection of foreign investors.  The authors however are careful in stating that the Imperial institutions were the sole promoters of the integration. They are more inclined to grant them an indirect effect through the promotion of peace and the moderation of interstate rivalries. The lack of such institutions in Italy led on the other hand to much more fragmented capital markets.

This paper is very relevant for the current debate in many ways. It primarily addresses an issue that is fundamental to explain the very different economic development trajectories of two European regions that in medieval times had reversed positions, with the Italian city states forging ahead. The papers also uses a data set that is impressive both in its size and in its temporal extension, making the results very convincing from an empirical point of view. The discussion of the role of institutions in promoting exchange and therefore economic development is a classic one that goes back for instance to the work of Greif (2006) and Ogilvie (2011).


A step that would take the debate further would be to focus more on the Italian institutions, which in this paper seem to be somehow neglected compared to the imperial ones. In particular, it would be interesting to study whether all the Italian city states had institutions that were equally detrimental for capital market integration. If, for instance, northern Italian cities, having been part of the early Empire, had institutions that were more similar to the imperial ones, this could bring some insights into the different performance of the South in the 19th century and beyond. Such analysis could be useful in the debate on regional disparities in Italy and their determinants (for recent contributions see Daniele and Malanima, 2011 and Felice, 2015).


Daniele V. and P. Malanima (2011). Il divario Nord-Sud in Italia 1861-2011. Rubbettino (Soveria Mannelli).

Felice, E. (2015). Ascesa e declino. Storia economica d’Italia. Il Mulino (Bologna).

Greif, A. (2006). Institutions and the Path to the Modern Economy. Lessons from Medieval Trade. Cambridge University Press (Cambridge).

Ogilvie, S. (2011). Institutions and European Trade. Cambridge University Press (Cambridge).


A Farewell to Arms? The Consequences of Warfare in Sub-Sahara Africa

Is Africa Different? Historical Conflict and State Development


Mark Dincecco (University of Michigan

James Fenske (University of Oxford

Massimiliano Gaetano Onorato (IMT Institute for Advanced Studies Lucca

ABSTRACT: We show that the consequences of historical warfare for state development differ for Sub-Saharan Africa. We identify the locations of more than 1,500 conflicts in Africa, Asia, and Europe from 1400 to 1799. We find that historical warfare predicts common-interest states defined by high fiscal capacity and low civil conflict across much of the Old World. For Sub-Saharan Africa, historical warfare predicts special-interest states defined by high fiscal capacity and high civil conflict. Our results offer new evidence about where and when war makes states.


Distributed by NEP-HIS on 2015-09-05

Review by Anna Missiaia

The consequences of war on the development of nations have been gaining increasing attention in both Economics and Economic History alike. This paper by Dincecco, Frenske and Onorato, distributed on NEP-HIS on 2015-09-05 studies the consequences of wars on state development for Sub-Saharan Africa.

The paper refers to a rather large body of research developed within the field of Political Economics. The standard account, mostly focused on the European experience, predicts that the rise of warfare will lead, after the end of a conflict, to greater fiscal capacity and less civil conflict. The mechanism was first studied for Europe in the period 1500-1800 by Tilly (1993). Rulers generally had little political consequences from defeats, at least until the early 1800s, when Napoleon started replacing monarchs who had lost wars. Before then, wars were a quite regular phenomenon. Wars led to the expansion of the sources of taxations which was easily maintained in peace time. This enabled European states to enforce internal security more effectively, lowering civil conflict. The major implication of this perspective is that countries that experienced more wars in the past, today show greater fiscal capacity and less civil conflict (Fearon and Laiting, 2014; Besley and Persson, 2015).

As noted existing research focuses on Europe, so it is interesting to see that Dincecco, Frenske and Onorato (DFO) find different results when applying the same premises to Sub-Saharan Africa.  The paper by DFO begins by presenting two opposing views. On the one hand, there is evidence that the standard account of more wars in the past lead to greater fiscal capacity and less conflict today also applies to Sub-Sahara Africa. Specifically Michalopoulos and Papaioannou (2013) document evidence suggesting that more conflicts lead to more state centralization. Meanwhile that of Bates (2014) suggests that more centralized states are the most developed in the African continent. On the other hand, the opposing view focuses on a series of characteristics of the Sub-Saharan region (such as slave trade and colonization) that are responsible for the failure by the standard account to explain the trajectory of African states.


The Battle of Rocroi, by Augusto Ferrer-Dalmau.

The paper by DFO takes a comparative approach, testing the relationship between historical warfare and state development in several continents. The empirical strategy is rather intuitive, taking four measure of fiscal capacity of states today and regressing them on the number of conflicts that affected each region. They include a set of standard controls (latitude, population density, arable land and so on) and also continental fixed effects.  The same procedure is then repeated for three measure of civil conflict today.

The first result is that fiscal capacity today does increase in all continents for countries that experienced more wars in the past. Sub-Sahara Africa makes no exception here. The second result deals with civil conflict and this is different. Here, unlike the other continents, Sub-Sahara Africa shows a positive correlation between historical warfare and civil conflict today.

DFO are well aware of the possible shortcomings of their strategy, which are shared with virtually all works trying to address outcomes today caused by institutional arrangements from the past (one above all, Acemoglu et al. 2005). Dincecco and coauthors provide a comprehensive list of robustness checks by adding further observable controls. They also acknowledge that in spite of these controls, unobservable characteristics related to both historical warfare and present state development might still bias their results. They apply a quite interesting methodology to give an idea of the potential bias: they provide a measure, used by authors like Nunn and Wantchekon (2011), that estimates how much greater the impact of unobservable variables should be, relative to the observable, to explain the variation in the data. The result is that unobservable variables would need to have a nearly 20 times stronger impact to explain the variation in the sample. This result of course does not rule out that some of these variables have a role, but it ensure us that a fair amount of the explanatory power lies in the observable variables. Another remarkable feature of the paper by DFO is that it addresses the issue of the time span between the dependent and the explanatory variables. This is in a way a structural issue of all this branch of research, but it is always reassuring to see authors taking it into account. They do so by running the model with intermediate outcomes (around the beginning of the 20th century) and showing that these two showed a similar pattern to today’s.


Somalia’s 1991 civil war

DFO also provide a tentative explanation to why states in Sub-Sahara Africa might behave differently than Europeans. DFO do so by including measures of democratization, ethnic fractionalization and social trust as controls in the regression. They add these one by one, looking at the effect of these controls on the magnitude of the coefficients of interest. The only control here that seems to have an effect on the coefficients is social trust. However, the authors interpret the result with caution because of the small sample size (here only Sub-Sahara Africa is included, lowering the number of observations to only 47).

Regarding the use of measure of social trust to explain the relationship between warfare and fiscal capacity/civil conflict today, I would also be worried about two other points: firstly, the measure of social trust is based on a survey from relatively recent times (1980s onward) while the relationship tested is between historical warfare and fiscal capacity/civil conflict today; secondly, this measure could be highly collinear with the variables considered (of course, the usual caveats on reverse causality that are typical in this line of research also apply here).

To conclude, the paper by DFO contributes to both the debate within Political Economics by quantitatively testing a well-established narrative on a region of the world that is very different from the standard one used in the past (meaning empirical studies based on Europe). By doing so, it does find that Sub-Sahara Africa experienced a different dynamic that led to a different outcome today. It also shows a very careful work on the data used and it addresses several sources of criticism. A possible next step could be to take further the analysis of the mechanism behind through which war impacts state development.


Acemoglu, D., , S. Johnson and J. Robinson (2001). “The Colonial Origins of Comparative Development: An Empirical Investigation.” American Economic Review, 91: 1369-1401.

Bates, R. (2014). “The Imperial Peace,” in E. Akyeampong, R. Bates, N. Nunn, and J. Robinson, eds., Africa’s Development in Historical Perspective, pp. 424-46, Cambridge: Cambridge University Press.

Besley, T. and T. Persson (2015). “State Capacity, Institutions, and Development.” The Political Economist Newsletter.

Fearon, J. and D. Laitin (2014). “Does Contemporary Armed Conflict Have Deep Historical Roots?” Working paper, Stanford University.

Michalopoulos, S. and E. Papaioannou (2011). “The Long-Run Effects of the Scramble for Africa.” NBER Working Paper 17620.

Nunn, N. and L. Wantchekon (2011). “The Slave Trade and the Origins of Mistrust in Africa.” American Economic Review, 101: 3221-52.

Tilly, C. (1992). Coercion, Capital, and European States, 990-1992. Cambridge: Blackwell


The postman always rings twice: measuring market access and endowment in the German Empire through postal data

It’s all in the Mail: The Economic Geography of the German Empire


Florian PLOECKL ( University of Adelaide


Information exchange is a necessary prerequisite for economic exchange over space. This relationship implies that information exchange data corresponds to the location of economic activity and therefore also of population. Building on this relationship we use postal data to analyse the spatial structure of the population distribution in the German Empire of 1871. In particular we utilize local volume data of a number of postal information transmission services and a New Economic Geography model to create two index measures, Information Intensity and Amenity. These variables respectively influence the two mechanisms behind the urban population distribution, namely agglomeration forces and location endowments. By testing the influence of actual location characteristics on these indices we identify which location factors mattered for the population distribution and show that a number of characteristics worked through both mechanisms. The model is then used to determine counterfactual population distributions, which demonstrate the relative importance of particular factors, most notably the railroad whose removal shows a 34% lower urban population. A data set of large locations for the years 1877 to 1895 shows that market access increases drove the magnitude of the increase in urban population, while endowment changes shaped their relative pattern.


Review by Anna Missiaia

This paper was distributed by NEP-HIS on 2015-04-11. The work by Florian Ploeckl lays in the expanding branch of historical economic geography, which looks at, broadly speaking, the role of geographical factors in regional development. In particular, the author looks at the effect of actual location characteristics on the information exchange and endowment (calculated through two indices) in the German Empire between 1877 and 1895. The empirical model used in the paper uses the indices that describe market access and endowments effects as dependent variables and test which geographic, institutional and cultural characteristics shaped them.


Otto Von Bismarck (1815-1898), First Chancellor of Germany

The paper relies on detailed data on the postal system to measure the diffusion of information across 41 districts in the Empire. The creation, after the German unification, of a common and homogeneous postal system with the same rates across locations allows the author to use postal flows as proxy for “information intensity”.   This measure tells us the level of information exchange for each location considered. The author meticulously identifies business related correspondence for each location by selecting specific types of mail for the analysis and relating it to the general mail. The empirical exercise appears very well engineered and executed.


 Kaiserliches Postamt sign, about 1900

The next step is to relate this indirect measure of economic activity to the access to markets for any given location. Following a well-established practice in the discipline, Ploeckl relies on the concept of market potential. Market potential is a measure of the centrality of a given location and can be constructed in two main ways. The first option, when trade volumes among locations are available, is a gravity model. This is the method used nowadays by economic geographers but also economic historians lucky enough to have access to internal trade flows (see Redding and Venables, 2004 for the former and Wolf, 2007 for the latter). This method basically looks at actual levels of trade and derives from these the potential for a location. The second option, used when trade flows are unknown, relies on the methodology proposed by Harris (1954) which uses GDP of the locations weighted by the inverse of distance to calculate the potential levels of trade across the locations given the size of their economies. Examples of this estimation procedure are Crafts (2005), Schulze (2007) and more recently Crafts and Klein (2012). This paper approaches the issue in a very innovative way, escaping the dichotomy that normally characterizes the calculation of market potential. As we understand, neither trade volumes nor regional GDP are available for Germany in this period. Therefore the author relies on the assumptions that “market potential translates in commercial transactions” and that “each transaction causes the same amount of mail” to claim that the measure from step 1 is able to capture the access to markets of the locations. The first assumption is shared with the broader group of scholars that use gravity models for market access and is perfectly reasonable when dealing with trade volumes. The use of quantitative evidence on correspondence to proxy for economic activity is not new in the literature: Crafts (1983) provided GDP estimates based, among the others, on letters per capita. The method proved to be quite misleading applied for instance to the Italian case (Esposto, 1997). Because of the indirect measure used in the paper, the relationship between information flows, market potential and actual exchange is of course much more questionable. However, it must be pointed out that the empirical effort in this paper makes its use of postal data more convincing compared to other more dated attempts.

The paper is also very interesting in that it finds a way to split market access into firm market access and consumer market access. This is a crucial point in the analysis of market forces as the two measures could well be following very different trajectories.

The last step is to calculate an endowment index based on real wages and the trade cost matrix across locations (the details on the methodology are explained in Ploeckl, 2012).

The bottom line results of the paper are that important factors like railroads and coal were important in the location of population (and therefore economic activity) both through the market channel and the endowment channel. The impact of these channels is quantified through counterfactual analysis, leading for instance to a 30% impact of the removal of the railroads on the population level.

Summing up, this paper contributes to a very hot debate on the determinants of the location of economic activity. It does so by finding an innovative empirical method to overcome the chronic lack of data in historical research. The limitations of these indirect methods should not, as usual, be neglected. However, the exercise appears more than reasonable and some features of these papers could find fruitful applications in a variety of other lines of research in historical economic geography.


Crafts, N., 1983, Gross National Product in Europe 1970-1910: Some New Estimates, Explorations in Economic History, Vol. 20, No. 4, 387-401.

Crafts, N., 2005, Market Potential in British regions, 1871-1931, Regional Studies, Vol. 39, pp. 1159-1166.

Esposto, A., 1997, Estimate Regional Per Capita Income: Italy, 1861-1914, Journal of European Economic History, Vol. 26, No. 3, p.585-604.

Ploeckl, F., 2012, Endowments and Market Access; the Size of Towns in Historical Perspective: Saxony 1550-1834, Vol. 42, p. 607-618.

Redding, S. and A. Venables, 2004, Economic Geography and International Inequality, Journal of International Economics, Vol. 62, No. 1, pp. 53-82.

Schulze, M. S., 2007, Regional Income Dispersion and Market Potential in the Late Nineteenth Century Hapsburg Empire, LSE Working Papers no. 106/07.

Wolf, N., 2007, Endowments vs. Market Potential: What Explains the Relocation of Industry after the Polish Reunification in 1918?, Explorations in Economic History, Vol. 44, (2007), 22-42.



Who Will Get the Bill? Lessons from #EconHis on Scottish Independence #indyref

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


Nathan FOLEY-FISHER (  Federal Reserve Board

Eoin MCLAUGHLIN  ( University of St Andrews


We study Ireland´s inheritance of debt following its secession from the United Kingdom at the beginning of the twentieth century. Exploiting structural differences in bonds guaranteed by the UK and Irish governments, we can identify perceived uncertainty about fiscal responsibility in the aftermath of the sovereign breakup. We document that Ireland´s default on intergovernmental payments was an important event. Although payments from the Irish government ceased, the UK government instructed its Treasury to continue making interest and principal repayments. As a result, the risk premium on the bonds the UK government had guaranteed fell to about zero. Our findings are consistent with persistent ambiguity about fiscal responsibility far-beyond sovereign breakup. We discuss the political and economic forces behind the Irish and UK governments´ decisions, and suggest lessons for modern-day states that are eyeing dissolution. “Further, in view of all the historical circumstances, it is not equitable that the Irish people should be obliged to pay away these moneys” – Eamon De Valera, 12 October 1932 —


Review by Anna Missiaia

The current public debate on the possible secession of Scotland has largely focused on the economic effects for Scotland (as opposed to the rest of the UK). Paul Krugman’s eloquent post “Scots, What the Heck?” warns on the monetary issues that would arise after a victory of the “yes” to Scottish independence on September 18th, while Martin Wolf’s article “What happens after a Yes vote will shock the Scots” explains how Scotland would face years of negotiations and uncertainty before settling down. All of which would come at a cost.  But do all economic consequences of independence really fall exclusively on those who leave?  Economic history can bring some insights on the matter.


The paper by Nathan Foley-Fisher Eoin McLaughlin was circulated by NEP-HIS on 2014-09-05. This research explores how the Irish independence of 1921 was dealt with in terms of public debt inheritance by Ireland.  

After independence and as a result of the negotiations on sovereign debt, the Irish committed to repay land bonds that were previously used to implement a land reform in that country. In 1932 the Irish Government decided to stop interest and principal repayments of these bonds. Ireland effectively defaulted on public debt that it had inherited from the UK. However, the Irish default had no consequences on bondholders because the British Government decided to asume those liabilities and continue with the payments.


Foley-Fisher and McLaughlin looked at the evolution of the spread between Irish land bonds and the “regular” British bonds to assess the reaction of investors. Their methodology was very intuitive and straightforward: it encompassed the identification of structural breaks in the spread series to assess which events affected the risk premium.  The two main breaks correspond to the Anglo-Irish War, during which there was an elevated risk of default by farmers and the second one in 1932, when the possibility of Ireland defaulting on the land bonds started to emerge.  


The estimates of Foley-Fisher and McLaughlin suggest that that the increased spread (originated by both breaks) remained “high” long after independence and in spite of the formal commitments by both the Irish (to repay) and British (to guarantee payments). Following the Irish default, the spread return to zero once the UK Government started to repay bondholder.

The authors identify several reasons why the British Government decided to back the Irish rather than pass the burden of the default on to the bondholders. These reasons included the relatively contained cost for the UK Treasure, the fact that most bondholders were based in the UK and the fear by the UK to be accused of a lack of commitment. Therefore, the cost of the default was greater for the British. Foley-Fisher and McLaughlin also point out that the willingness by the British to take up such a burden depended on the particular situation between Ireland and the UK. In other cases, such as the default of Newfoundland in 1932, the British government was happy to let its former colony default as the consequences of this default was low or negligible for British bondholders.


In summary, the paper by Foley-Fisher and McLaughlin goes straight on to the point, is well organised and engaging. With a fairly simple empirical strategy they show insights that are easily read by economic historians but also those who are now commenting the Scottish referendum. The “take home” message from this history is the following: after independence, a risk premium on inherited public debt has to be paid and this risk premium can be requested by investors for many years after secession. The Treasury of the former union might (or not) decide to guarantee all the former debt in case the new independent state decides to default. However, the choice of doing so depends on many factors, and these factors are not all foreseen. In the words of Martin Wolf: “however amicably a divorce begins, that is rarely how it ends” and the wealthy abandoned spouse might decide to guarantee for the debts of its other half. Or not.


Soltaire courtesy of Chilanga Cement

On the many failures of (southern) Italy to catch up

Regional income inequality in Italy in the long run (1871–2001). Patterns and determinants


Emanuele FELICE ( Departament d’Economia i d’Història Econòmica, Universitat Autònoma de Barcelona


The chapter presents up-to-date estimates of Italy’s regional GDP, with the present borders, in ten-year benchmarks from 1871 to 2001, and proposes a new interpretative hypothesis based on long-lasting socio-institutional differences. The inverted U-shape of income inequality is confirmed: rising divergence until the midtwentieth century, then convergence. However, the latter was limited to the centrenorth: Italy was divided into three parts by the time regional inequality peaked, in 1951, and appears to have been split into two halves by 2001. As a consequence of the falling back of the south, from 1871 to 2001 we record s-divergence across Italy’s regions, i.e. an increase in dispersion, and sluggish ß-convergence. Geographical factors and the market size played a minor role: against them are both the evidence that most of the differences in GDP are due to employment rather than to productivity and the observed GDP patterns of many regions. The gradual converging of regional GDPs towards two equilibria instead follows social and institutional differences – in the political and economic institutions and in the levels of human and social capital – which originated in pre-unification states and did not die (but in part even increased) in postunification Italy.


Review by Anna Missiaia

This paper was distributed by NEP-HIS on 2013-12-29. The author, Emanuele Felice, engages  with the mother of all research questions in the economic history of post-Unification Italy, which is “why did the south fall behind?”. The large and widening economic gap between the north and south of Italy remains one of the “big topics” in Italian economic history and one upon which consensus is far from being reached. The paper by Felice aims at providing both new quantitative data to assess this gap and a discussion on what caused and, equally important, what did not cause the formation and persistence of the north/south divide. 

Emanuele Felice

Emanuele Felice

Let us start with the quantitative assessment. Felice provides new estimates of regional GDP at present borders. Given the long-run perspective adopted, it is necessary to make sure that we are comparing the same regions through time. This is not straightforward for Italy as it experienced several changes in its borders between 1871 and 2001. Felice collected detailed data from foreign (mostly Austrian) sources on territories that eventually become part of northern Italy. This data enables him to produce regional GDP per capita estimates for 10 year benchmarks from 1871 to 2001.

Felice then measures convergence and divergence across regions. The bottom line is that Italian regions diverged during most of the period under study. This divergence exacerbated the most between World War I (WWI) and the late 1950s. Then during the so called “Economic Miracle” of the 1960s, Italian regions experienced a degree of convergence. This convergence took place during a period of very high economic growth in the north and Felice attributed this convergence to the heavy subsidising of the southern economy. Felice also observes that while the south failed to catch up with the rich north, the northeast and centre succeeded in the task, reaching similar GDP per capita levels to those of the original Industrial Triangle towards the end of the 20th century. 

After the number crunching, Felice moves on to tackle the determinants of the income inequality. Following the path of a debate almost as old as Italy, he focuses on some well known hypothesis. The first one is that the south had a geographical disadvantage either in terms of factor endowment or market access. Felice discards the first hypothesis noting that differences between the north and south were not as marked and that the macro-areas were more different within than between them. Are a result the endowment argument is not a good candidate to explain the north-south divide. On market access, Felice notes that the south had a fairly high access to markets in the period before WWI compared to the north and the situation reversed gradually. Also, after WWI regions with a quite low access to markets (Trentino Alto-Adige and Valle d’Aosta) managed to reach high levels of GDP and regions in the south with a good access to markets performed poorly in GDP growth. 

Trentino Alto-Adig

After excluding geographical factors, Felice discusses the human element to explain divergence. He looks at human capital, social capital and institutions. At the time of unification, the south was lagging behind in both human and social capital (for a more detailed discussion and some numbers see Felice (2012)). Felice’s thesis is that economic development in the south was highly affected by its low human capital until WWII. In spite of the catch up in literacy rates after WWII, measures of social capital show that the south has never reached the level of the north. The persistence of the gap has therefore to be attributed to persistence of low levels of social capital that allowed the consolidation of poor institutional settings as well as the flourishing of organized crime.  

Reading Felice’s paper, one’s impression is that the author managed to convey several years of quantitative research into a nice narrative on how the south fell behind. He uses a mix of hard data and qualitative reasoning to guide the reader through. In particular, he takes timing of turning points (i.e in market access, state intervention or catch up in literacy rates) to explain how different elements could or could not explain the divide. He also uses the case of the northeastern regions to explain how path dependence can be overcome (the northeast had very low levels of human capital at the time of unification but managed to catch up with the rest of the north).  

For the Italian readers, Emanuele Felice, 2014, "Perche' il Sud e' rimasto indietro", Il Mulino, Bologna.

For the Italian readers, Emanuele Felice, 2014, “Perche’ il Sud e’ rimasto indietro”, Il Mulino, Bologna.

To conclude, it is often the case that this narrative argues that the south was not disadvantaged in all the factors and that different periods were driving economic growth in the country. However, it seems like it was advantaged in a given factor of growth only when that factor was not important. For example, it had a good market access before WWII, when human capital was more important; it had cough up in terms of human capital after WWII but at that time social capital started being more important. The picture that emerges from this work is that the south suffered from a mix of poor starting conditions, bad timing and unfortunate development strategies that trapped it into the gap that we still observe today.



Emanuele Felice, 2012. Regional convergence in Italy, 1891–2001: testing human and social capital, Cliometrica, Journal of Historical Economics and Econometric History, Association Française de Cliométrie (AFC), vol. 6(3), pages 267-306, October.

Industrial Location and Path Dependency during the British Industrial Revolution

The Location of the UK Cotton Textiles Industry in 1838: a Quantitative Analysis


Nicholas CRAFTS (  University of Warwick

Nikolaus WOLF ( Humboldt University


We examine the geography of cotton textiles in Britain in 1838 to test claims about why the industry came to be so heavily concentrated in Lancashire. Our analysis considers both first and second nature aspects of geography including the availability of water power, humidity, coal prices, market access and sunk costs. We show that some of these characteristics have substantial explanatory power. Moreover, we exploit the change from water to steam power to show that the persistent effect of first nature characteristics on industry location can be explained by a combination of sunk costs and agglomeration effects.


Review by Anna Missiaia

This paper was distributed by NEP-HIS on 2013-09-13. Nick Crafts and Nikolaus Wolf, who have both provided significant contributions to the literature on industrial location, engage here in the analysis of the UK cotton textile industry. In particular cotton production during the Industrial Revolution was heavily concentrated in Lancashire, the region just north of Manchester. Moreover, this concentration persisted over the 19th century. The two authors are therefore interested in explaining both the original concentration and its persistence throughout time.

The paper presents a solid statistical work. The dataset comprises 1823 cotton mills and covers 148 locations in all of the UK. To explain the employment in textiles across these locations, the authors use information on coal prices, geography, climate and access to markets. All these measures are specific to each location and region fixed effects are included to avoid the omitted variable bias. Firms are assumed to be profit maximizers in their location decisions. The factors that influence the location decisions are considered into two broad groups: the “first nature” characteristics, which are considered exogenous to earlier location choices (i.e. climate) and the “second nature” characteristics which are endogenous (i.e. access to markets). Crafts and Wolf separate these two elements because they are interested in identifying the case of location choices that eventually modify the characteristic of the location itself (in particular market access).

They reckon that access to market can be so important that the cotton industry remained in a location in spite of higher variable costs because these were outweighed by better access to markets. Another way in which past choices can affect current choices is through sunk costs: once an investment in energy production was made in one location, it could hardly be moved to another location. However, it could often be adapted to new technology. The example provided is the switch from water to steam power, during which waterwheels were adapted to steam. This allowed some location that at that point did not have a fist nature advantage, to maintain their industries through path dependence.


Hibert, Platt & Son’s cotton machines.  Illustrated London News, 23 August 1851. 

On the empirical side, the paper uses a Poisson model to estimate the expected number of cotton mills and employed persons for each location as a function of the characteristics of the locations. The main findings are that water power production and number of patents registered increase the likelihood of location; coal prices had a surprisingly weak effect; agglomeration forces had a positive effect on the number of persons employed but a negative effect of the average size of the mills, suggesting that cotton industry was organized in a network of small specialized mills. This is confirmed by anecdotal evidence on Lancashire’s cotton industry. The authors also provide several robustness checks on their data to support their claims.

The paper then moves on to discussing why Lancashire achieved such a high concentration of cotton industries. The two authors explain that the high concentration was the result of a combination of first and second nature geography. To prove this statistically, Crafts and Wolf perform a counterfactual analysis in which they replace each characteristic with the average value of the UK and then impose a 10% change in the variables to compare their effect individually. Doing so, they come up with a “conversion table” that tells us what variation of the x variable is needed to offset a 10% variation of the y variable. The main results are that the location choices were driven both by first nature characteristics such as water power and second nature characteristics such as market access. The persistence of the location is liked to sunk costs and agglomeration economies, which allow some regions to maintain their industries in spite of the original advantage being vanished.


An image of the Lewis Textile Museum in Blackburn, Lancashire.

To conclude, the contributions of this paper are several. First, it makes for the first time use of statistical techniques to explain the location of cotton industries, which were crucial during the British Industrial revolution. Doing so, it contributes to the wider debate about the determinants of the location of industries in general, proposing a methodology based on counterfactuals which allows to compare the relative strenghts of the different factors. Finally, the paper adresses the always ‘hot issue’ of path dependency in location choices, which is faced by any researcher in this particular field. The next step in the research, to which we look forward,  will be to estimate the model as a panel in order to cast more light on the persistence of location through time.