Category Archives: Analytic Narratives

Environmental Shocks and their Effects on Imperial Rome’s State Capacity

Droughts of Dismay: Rainfall and Assassinations in Ancient Rome

By Cornelius Christian (Brock University) and Liam Elbourne (St. Francis Xavier University)

Abstract: We find that lower rainfall in north-central Europe (Gaul/Germania) predicts more assassinations of Roman emperors from 27 BC to 476 AD. Due to agricultural pressures on Germanic tribes, low precipitation caused more barbarian raids. These raids, in turn, weakened the Empire’s overall political stability, and reduced the costs of assassinating an emperor. We buttress our empirical analysis with case study evidence.

URL: http://d.repec.org/n?u=RePEc:brk:wpaper:1703&r=his

Circulated by nep-his on 2017/10/08

Review by Fernando Arteaga (George Mason University)

 

Summary

Was Imperial Rome’s political stability disturbed by environmental shocks? If so, what were the transmission channels? These are the two fundamental questions the authors aim to answer. Their thesis is straightforward: As any pre-industrial society, rainfall levels predicted agricultural output in Roman times. A lack of rain affected food availability, especially in the underdeveloped regions where Northern Germanic Tribes resided, making these societies more prone to raid Roman towns across the border. The incursions then created political conflict among the Romans themselves.

colosseum

The text relies on econometric analyses and a couple of case studies to back up the argument. The main statistical test is simple: they regress Roman political stability on rainfall data. The main variable they use as a proxy of political unrest is the assassination of Roman emperors (as presented by Scarre 1995): the more emperors were killed, the less stability in the Empire. Alternatively, they also employ an index of inflation and new governmental infrastructure investment as a proxy for stability  (larger inflation and less imperial projects imply improved stability).  The rainfall variable comes from Buengten et al. (2011) own estimations on precipitation levels across France and Germany for all the period under study. Figure 1 displays the main data points used in the analysis. The authors find that negative rainfall shocks are both associated with more emperor’s being killed (Figure 2) and with having larger inflation rates and fewer investment projects. A decrease of one standard deviation in precipitation caused an 11.6% standard deviation increase in assassination probability. The regression is empirically valid because there is no possibility of reversal causality; precipitation is not a factor that may be influenced by Roman politics [1].

 

RomeFigure1

Figure 1: Roman Gaul/Germania (Yellow). Rainfall Datapoints (Green). Emperor Assassination Locations (Red)

 

 

RomeFigure2

Figure 2: The red line indicates the precipitation level, while the blue is the amount of Roman Emperors assassinated.

 

But how exactly does lack of rain destabilized Roman society? The paper’s hypothesis relies on the Germanic raid linkage: Germanic tribes attacked Rome when they had a poor harvest of their own, which then created unrest in Roman interior stability.  To test such assertion, they regress Germanic/Gaul incursions on the rainfall levels. The raid data they use comes from Venning (2010), who reviewed the many times the Roman Empire suffered raids through its history. The authors find a negative correlation: a decrease in one standard deviation in rainfall is associated with a 4% standard deviation increase in a number of raids. They corroborate the results by doing some robustness tests: 1) a placebo test, in which they regress non-Germanic raids on precipitation levels, which they find that had insignificant impact (which means that precipitation mattered only in Germanic zones, because they were the only ones that really suffered from a lack of rain); 2) an instrumental variable where the relationship between Roman instability and Germanic incursion is instrumented by rainfall. They find that “a standard deviation increase in the raid dummy [the presence of raiding] causes a 29.3% increase in the probability of assassination.”

To give more weight to their results, they present a brief recapitulation on the reigns of two assassinated Roman emperors: Severus Alexander (208-235) and Gallienus (218-268). The key insight is that both emperors faced important challenges on the Eastern and Northern borders, however only the latter had a relevant impact on Roman internal politics. On the East, the Roman Empire frequently collided with the Sassanid Empire (the other larger state in the area), but notwithstanding the severity of the clashes (at some point they even captured a Roman Emperor, the father of Gallienus) it never caused great civil unrest in Rome. However, on the North, Rome bordered the Germanic tribes (scattered non-organized societies) that did affect Rome’s stability.  The conclusion we get from the narrative is that the Germanic border was important/special precisely because it was very susceptible to environmental shocks, which then led to constant raiding; unlike the Sassanid border, in which the Romans faced a cohesive society that could successfully resist bad crops or confront military bravados on non-environmental factors.

 

Comment

I enjoyed reading the paper very much. It made me re-realize why I find Economic History fascinating: it deals with topics that are interesting in themselves (the politics of the Roman Empire! What is not to like about it?), that remain relevant for today’s problems (we still seek to understand the relationship between nature and political conflict very much), and it treats the issues under study with great care and humility (there is no grand universal theory, but a careful attempt to attain a reliable empirical finding- however small that is).

My main concern with the paper is that the authors never clarify the relationship between Northern Rome’s lack of state capacity and the barbarian incursions. The main narrative maintains that the Germanic raids were the source of Roman political unrest (that is the way I summarized the argument in the preceding section). But at several instances across the paper, the authors hint that Roman political complications in Gaul were themselves a precursory factor that made the Germanic incursions more menacing.

The problem is present in both the econometric analysis and in the case studies. If I understood it correctly (by looking at figure 1), the regressions they asses rely on data that captures rainfall in both Roman Gaul/Germania and non-Roman Germania. The argument is that lack of rain affected Germanic independent tribes more because they were less prepared than the Roman borderline towns. Intuitively, this sounds right. However, the assertion does not imply that alternative transmission channels could not matter too. Yes, Roman towns were better prepared to endure bad harvests than their Germanic neighbors, but that doesn’t imply that bad agricultural output in Roman towns could not be the cause of political instability in them. There may be a relevant omitted variable bias problem in the empirical specification. [2]

The problem seems clearer when we consider the conclusions the authors get from their case studies: in them, they compare the level of relevance local border town problems in Germania/Gaul and in Syria had on larger Roman politics. The Germanics were a constant thorn on Rome, but the Syrians weren’t. Why? The authors explicitly stress that Roman Gaul/Germania had lower state capacity than Roman territories next to Syria, and so it was easier to subdue unrest in Syria than in Gaul. However, if that is so, then we are led to beg the question of what causes what? Is weak state capacity due to raiding, or is raiding due to weak state capacity? The paper’s narrative emphasizes the former linkage (all of the quantitative estimations rely on that sole mechanism too) while, at the same time, it recognizes that the latter mattered too. Unfortunately, it never sets to disentangle the underlying causality. [3]

References

Buengten, Ulf et al. (2011)  “2,500 years of European climate variability and human
susceptibility.” Science, 331(6017), pp. 578-582

Scarre, Chris (1995) Chronicle of the Roman Emperors: The Reign-by-Reign Record of the Rulers of Imperial Rome. Thames & Hudson: London.

Scheidel, Walter (2015) “Orbis: the Stanford geospatial network model of the Roman world.” http://orbis.stanford.edu/

Venning, Timothy. (2010) A Chronology of the Roman Empire, Bloomsbury Academic: New York.

Endnotes

[1] The authors confirm this by regressing rainfall at time t on lagged t -1 political stability.  It is interesting to note that this obvious observation may not be true for current events. Climate change is indeed affected by the domestic politics of some countries.

[2] I also remain confused about what data was used for some of the alternative estimations. For example, on the placebo test, they regress non-Germanic raids on precipitation levels. I assume they are using non-Germanic precipitation levels too. Otherwise, it would mean they would be testing how rain in Germania affects raids in non-Germania, which would make no sense.  However, they don’t clarify.

[3] My two cents on the Syrian/Gaul distinction is that geography and travel times may explain it. ORBIS (A project that reenacts the geospatial framework of the Roman Empire) allows us to estimate the times and cost of regular trips to different cities in the Roman Empire. A trip from Rome to Cologne would last 32 days on the fastest route and 63 days on the cheapest. A trip from Rome to Palmyra, on the other hand, would last 28 on the fastest route and 42 on the cheapest. This can provide a benchmark of the cost of mobilizing resources across regions: moving a Roman army could be 1/3 cheaper if it had to go to Syria rather than Germania. This significative figure implies that the costs of subduing unrest in Germania were larger and so more difficult.

Publication cultures in economic, business and financial history: Comparing apples and oranges?

1.)Quantifying the heterogeneity of publication cultures in economic, business and financial history

 

by Eline Poelmans and Sandra Rousseau, Faculty of Economics and Business, KU Leuven, campus Brussels

 

Abstract

Researchers working in the interdisciplinary field of ‘economic, business and financial history’ come from at least two different disciplinary backgrounds, namely history and economics. These two backgrounds may lead to differences in research practices, as there are potentially other demands for tenure and promotion requirements. We performed a survey to assess whether there is heterogeneity in the submission and publication culture (i.e. one multi-faceted culture, or simply multiple cultures) between respondents working in an economics versus a history department. Among other things, we found differences in their motivation for publishing, the type of publications they aim for, and their journal selection strategies. Our results show that the department the respondents work at—irrespective of their disciplinary focus and background—determines most of their research and publication decisions. Hence working successfully in an interdisciplinary field or working in a department different from the main field of research requires researchers to learn the (in)formal rules and practices of an unfamiliar field.

 
Published on: Essays in Economic & Business History (2016) Volume XXXIV pp. 95-135.

URL: http://www.ebhsoc.org/journal/index.php/journal/issue/current

and

2.)Factors determining authors’ willingness to wait for editorial decisions from economic history journals

 

by Eline Poelmans and Sandra Rousseau, Faculty of Economics and Business, KU Leuven, campus Brussels

 

Abstract

In this contribution, we measure how long researchers are willing to wait (WTW) for an editorial decision on the acceptance or rejection of a submitted manuscript. This measure serves as a proxy for the expected value of a publication to a researcher in the field of economic, business and financial history. We analyze how this WTW measure varies with the characteristics of the submitting authors themselves. We distinguish the impact of personal characteristics (including age, gender and geographic location) as well as work-related characteristics (including research discipline, affiliation and academic position). To identify the factors determining economic history authors’ WTW for editorial decisions, we use a valuation technique known as stated choice experiments. Our results show that respondents found the standing of the journal to be at least as important as its ISI impact factor. Moreover, we find differences in publication culture between economic and history departments. Overall, researchers’ willingness to wait is influenced to a greater extent by the research discipline in which the respondents are active (history vs. economics), than by their personal characteristics (e.g. the education or the type of Ph.D. they obtained).

Published on: Scientometrics (2015) 102: pp. 1347–1374

DOI 10.1007/s11192-014-1469-2

URL https://www.researchgate.net/publication/276234589_Factors_determining_authors

Summarised by Eline Poelmans and Sandra Rousseau

Overview

When authors choose a journal to submit a manuscript, the submission process is influenced by several author and journal characteristics. Also time pressure is an influencing factor, since academic job offers, promotions and tenure decisions tend to be based on researchers’ publication and citation records. Hence, both journal editors and prospective authors want to reduce the time between the initial submission and the final editorial decision.

Moreover, within interdisciplinary fields – such as the field of ‘economic, business and financial history’, a field at the intersection of two major social sciences – there can be large differences in both research attitudes, skills, focus and practices depending on the different backgrounds of researchers (such as having a PhD in history or in economics) as well as varying requirements for tenure, promotion or funding in the different departments the researchers are working (such as the department of history versus that of economics) that can also influence an author’s submission and publication decisions.

 

In the first paper, the authors conducted a survey to investigate whether working in the interdisciplinary field ‘economic history’ implies an additional challenge to the researcher in this field compared to those working in a more homogeneous field. The authors used data in order to quantify this heterogeneity (or ‘duality’) of the publication culture in economic history by investigating the impact of the disciplinary focus of researchers’ doctoral dissertation and current affiliation (history, economics or other) on respondents’ submission and publication behavior: their preferred publication outlets, their reasons for publishing, and their journal selection strategies.

16527752-abstract-word-cloud-for-economic-history-with-related-tags-and-terms-stock-photo

In the second paper, the authors assessed the impact of time constraints on the submitting author’s willingness to wait (WTW) for a publication in a journal with specific characteristics in the field of economic history and they analyzed whether and how this WTW measure varied with journal and personal characteristics. They studied the main effects of the different journal characteristics on the willingness-to-wait for a publication, as well as the interaction effects with the respondents’ characteristics to estimate the different values researchers attach to publications with particular characteristics in this field.

 

The first paper shows that the department the respondents work at determines most of their research and publication decisions. Hence, working in an interdisciplinary field such as economic history clearly comes at a cost: researchers with a PhD in one discipline who work in a department of another discipline may have to change their research and publication behavior significantly in order to obtain tenure or get promoted. These insights imply that it is inappropriate to use a strategy based on the conventions of a single discipline to evaluate researchers in a multidisciplinary field since it is unlikely that ‘one size fits all.’

 

The second paper found that respondents’ decisions on manuscript submission were dependent on specific journal characteristics, such as ISI impact factor and standing. Moreover, the respondents’ institution type with which they were affiliated (history versus economics) influenced the respondent’s willingness to wait to a greater extent than their personal characteristics (such as the type of Ph.D. they obtained).

 

Hence, as requirements with regard to tenure and promotion often differ between departments and disciplines, it is important to develop measurement methods to hire and evaluate researchers working in an interdisciplinary field that have obtained a PhD in one field (such as (economic) history) and end up in an economics department, and vice versa. In this respect it is important to develop and use multidisciplinary assessment strategies to evaluate the quality of researchers in a multidisciplinary field. For instance, it may be advisable to include researchers from both disciplinary backgrounds in selection committees.

Possibilities for future research

Obtaining a larger data set with more respondents can improve the paper. Moreover, checking whether (and making sure that) the dataset is representative for the discipline would be useful (e.g. the division male/female, the share of American, European, Asian, … researchers in this specific field, the share of people with a PhD in economics versus a PhD in history that work in the field of economic history, the division of permanent versus temporary contracts, etc…).

With regard to future research attaining more PhD students would be useful to see whether their research decisions are already formed during their PhD by the publication culture of the department they work at. It is also interesting to analyze whether there is a difference if the PhD student is conducting his PhD on an independent (governmental) scholarship.

A more in-depth analysis about how the researchers perceive the advantages and disadvantages of working in an interdisciplinary environment as well as measuring attitudes and opinions through multidimensional scales can improve insight into the challenges and rewards of performing interdisciplinary research. By identifying drivers and barriers to interdisciplinary research in the field of economic history – for instance by using the framework developed by Siedlok and Hibbert (2014) – advice for research institutions, funding agencies and policy makers could be formulated.

moneytime

Moreover, the results of these papers only apply to researchers active in the field of economic history. Thus, it would be interesting for future research to investigate whether these findings could be generalized to other (interdisciplinary) fields, such as law and economics or environmental economics.

Stated choice experiments could, for instance, be used to investigate the relative importance of factors influencing the decision to collaborate with a particular type of researcher (gender, rank, national or international) or research institution. They could also help in identifying classes of researchers that show similar collaborative behavior. Moreover, choice experiments could help in analyzing decisions to fund particular projects or to hire particular researchers. Further, they could also be useful in comparing authors’ citation behavior: such as studying the relative importance of different articles’ characteristics (such as familiarity with the authors, standing of the journal, time of publication, content fit, innovativeness, etc.) in the decision to cite a particular source in a text. Finally, choice experiments can be used to analyze the editors’ decision in matching referees with submitted manuscripts, depending on characteristics, such as specialization, maturity and past experience with a particular referee.

Finally, the crisis of 2007 showed that the knowledge of historical facts could maybe not have prevented the crisis, but at least have made the banks more cautious in their decision making process. However, so far, interdisciplinary research – such as economic, financial and business history – is unfortunately still considered by the academic world as a ‘side business’, most often not really belonging to a department, but as a research field floating somewhere in between economics and history. As long as the demands for tenure and the promotion requirements in different departments differ, researchers will be guided in their motivation to work on certain topics by these external evaluation criteria, instead of by the interest of historical facts that need to be researched in order to learn lessons for the future.

Given the value of interdisciplinary research in tackling complex real-life problems, it is important to understand the dynamics of such interdisciplinary research fields. Thus it is interesting to study the formal and informal sets of rules that guide the selection of research topics, collaborations, funding decisions and publication behavior. Such empirical – and repeated – studies allow us to identify positive and negative trends and provide the opportunity to react in a timely manner so that interdisciplinary research is – and continues to be – rewarding for researchers.

 

Additional References

Siedlok, F. and Hibbert, P., 2014. The organization of interdisciplinary research: modes, drivers and barriers. International Journal of Management Reviews16(2), pp.194-210.

Where is the growth?

Mismeasuring Long Run Growth: The Bias from Spliced National Accounts

by Leandro Prados de la Escosura (Carlos III)

Abstract: Comparisons of economic performance over space and time largely depend on how statistical evidence from national accounts and historical estimates are spliced. To allow for changes in relative prices, GDP benchmark years in national accounts are periodically replaced with new and more recent ones. Thus, a homogeneous long-run GDP series requires linking different temporal segments of national accounts. The choice of the splicing procedure may result in substantial differences in GDP levels and growth, particularly as an economy undergoes deep structural transformation. An inadequate splicing may result in a serious bias in the measurement of GDP levels and growth rates.

Alternative splicing solutions are discussed in this paper for the particular case of Spain, a fast growing country in the second half of the twentieth century. It is concluded that the usual linking procedure, retropolation, has serious flows as it tends to bias GDP levels upwards and, consequently, to underestimate growth rates, especially for developing countries experiencing structural change. An alternative interpolation procedure is proposed.

Source: http://econpapers.repec.org/paper/cgewacage/202.htm

Distributed in NEP-HIS on 2015 – 01 – 09

Reviewed by Cristián Ducoing

Dealing with National Accounts (hereafter NA) is a hard; dealing with NA in the long run is even harder…..

Broadly speaking, a quick and ready comparison of economic performance for a period of sixty years or more, would typically source its data from the Maddison project. However and as with any other human endevour, this data is not free from error. Potential and actual errors in measuring economic growth is highly relevant economic history research, particularly if we want to improve its public policy impact. See for instance the (brief) discussion in Xavier Marquez’s blog around how the choice of measure can significantly under or overstate importance of Lee Kuan Yew as ruler of Singapore.

The paper by Leandro Prados de la Escosura, therefore, contributes to a growing debate around establishing which is the “best” GDP measure to ascertain economic performance in the long run (i.e. 60 or more years). For some time now Prados de la Escosura has been searching for new ways to measure economic development in the long run. This body of work is now made out of over 60 articles in peer reviewed journals, book chapters and academic books. In this paper, the latest addition to assessing welfare levels in the long run, Prados de la Escosura discusses the problems in using alternative benchmarks and issues of spliced NA in a country with a notorious structural change, Spain. The main hypothesis developed in this article is to ascertain differences that could appear in the long run NA according to the method used to splice NA benchmarks. So, the BIG question is retropolation or interpolation?

Leandro Prados de la Escosura. Source: www.aehe.net

Leandro Prados de la Escosura. Source: http://www.aehe.net

Retropolation: As Prados de la Escosura says, involves a method that is …, widely used by national accountants (and implicitly accepted in international comparisons). [T]he backward projection, or retropolation, approach, accepts the reference level provided by the most recent benchmark estimate…. In other words, the researcher accepts the current benchmark and splits it with the past series (using the variation rates of the past estimations). What is the issue here? Selecting the most recent benchmark results in a higher GDP estimate because, by its nature, this benchmark encompasses a greater number of economic activities. For instance, the ranking of relative income for the UK and France changes significantly when including estimates of prostitution and narcotrafic. This “weird” example shows how with a higher current level and using past variation rates, long-run estimates of GDP will be artificially improved in value. This approach thus can lead us to find historical anomalies such as a richer Spain overtaking France in the XIXth century (See Prados de la Escosura figure 3 below).

An alternative to the backward projection linkage is the interpolation procedure. This method accepts the levels computed directly for each benchmark year as the best possible estimates, on the grounds that they have been obtained with ”complete” information on quantities and prices in the earlier period. This procedure keeps the initial level unaltered, probably being lower than the level estimated by the retropolation approach.

There are two more recent methods to splice NA series derived from the methods described above: the “mixed splicing” proposed by Angel de la Fuente (2014), which uses a parameter to capture the severity of the initial error in the original benchmark. The problem with this solution is the arbitrary value assigned (parameter). Let’s see it graphically and using data for the Maddison project. As it is well known, these figures were recently updated by Jutta Bolt and Jan Luiten van Zanden while the database built thanks to the contributions of several scholars around the world and using a same currency (i.e. the international Geary-Kheamy dollar) to measure NA. Now, in figure 1 shows a plot of GDP per capita of France, UK, USA and Spain using data from the Madison project.

GDP per capita $G-K 1990. France, UK, USA and Spain. 1850 – 2012

The graph suggests that Spain was always poorer than France. But this could change if the chosen method to split NA is the retropolation approach. Probably we need a graph just with France to appreciate the differences. Please see figure 2:

GDP pc Ratio between Spain and France. Bolt&vanZanden (2014) with data from Prados de la Escosura (2003)

GDP pc Ratio between Spain and France. Bolt&vanZanden (2014) with data from Prados de la Escosura (2003)

Figure 2 now suggests an apparent convergence of Spain with France in the period 1957 to 2006. The average growth rate for Spain in this period was almost 3,5% p.a. and in the case of France average growth shrinks to 2,2% p.a. Anecdotal observation as well as documented evidence around Spainish levels of inequality and poverty make this result hard to believe. Prados de la Escosura goes on to help us ascertain this differences in measurement graphically by brining together estimates of retropolation and interpolation approaches in a single graph (see figure 3 below):

Figure 3. Spain’s Comparative Real Per Capita GDP with Alternative Linear Splicing (2011 EKS $) (logs).

Figure 3. Spain’s Comparative Real Per Capita GDP with Alternative Linear Splicing (2011 EKS $) (logs).

In summary, this paper by Prados de la Escosura is a great contribution to the debate on long run economic performance. It poises interesting challenges scholars researching long-term growth and dealing with NA and international comparisons. The benchmarks and split between different sources is always a source of problems to international comparative studies but also to long-term study of the same country. Moving beyond the technical implications discussed by Prados de la Escosura in this paper, economic history research could benefit from a debate to look for alternative measures or proxies for long-run growth, because GDP as the main source of international comparisons is becoming “dated” and ineffective to deal with new research in inequality, genuine savings Genuine Savings, energy consumption, complexity and gaps between development and developed countries to name but a few.

References

Bolt, J. and J. L. van Zanden (2014). The Maddison Project: collaborative research on historical national accounts. The Economic History Review, 67 (3): 627–651.

Prados de la Escosura, Leandro  (2003) El progreso económico de España (1850-2000). Madrid, Fundación BBVA, , 762 pp.

PS:

1) This paper by Prados de la Escosura has already been published in Cliometrica and with the same title

2) Prados de la Escosura’s A new historical database on economic freedom in OECD countries | VOX, CEPR’s Policy Portal.

#Productivity, #Employment and #Structural Change in #Developing Countries

Patterns of Structural Change in Developing Countries

by Marcel Timmer (University of Groningen), Gaaitzen de Vries (University of Groningen), Klaas de Vries (The Conference Board, Brussels)

Abstract This paper introduces the updated and extended Groningen Growth and Development Centre (GGDC) 10-Sector database. The database includes annual time series of value added and persons employed for ten broad sectors of the economy from 1950 onwards. It now includes eleven countries in Asia (China has been added compared to the previous release), nine in Latin America and eleven in Sub-Saharan Africa. We use the GGDC 10- Sector database to document patterns of structural change in developing countries. We find that the expansion of manufacturing activities during the early post World War II period was related to a growth-enhancing reallocation of resources in most countries in Asia, Africa and Latin America. This process of structural change stalled in many African and Latin American countries during the mid-1970s and 1980s. When growth rebounded in the 1990s, workers mainly relocated to market services industries, such as retail trade and distribution. Though such services have higher productivity than much of agriculture, they are not technologically dynamic and have been falling behind the world frontier.

URL: http://econpapers.repec.org/paper/dgrrugggd/gd-149.htm

Review by Sebastian Fleitas

As economies evolve and develop tremendous changes in the composition of goods and services take place. For instance, by start of World War II, one in three workers in the United States were employed in manufacturing and agriculture. A steady shift towards the service sectors since then, means that today manufacturing and agriculture only employ approximately one in eight workers. These structural changes imply the reallocation of resources and particularly labor across sectors with different productivity levels. The rate and intensity of these process has important impact on economic growth. Structural changes, therefore, have important implications for economies mainly because of three factors:

a) technological changes occur at different paces for different goods,

b) there are different patterns of demand for different goods, and

c) relative prices in the world economy do not fully reflect relative marginal productivities and marginal utilities among goods.

Industrialised nations have, generally speaking, closely followed the United States in increasing the weight of the service sector since the 1980s (if not before). It is also widely known that during the same period, recently industrialised nations such as Brazil, Mexico China, Korea or other Asian Tigers expanded employment in their domestic manufacturing sector at the same time as their GDP was increasing. But what happened with the rest of the world? The short answer is that it is remarkable how little we know about the process in the rest of the world.

Structural Change in the US Economy (taken from The Atlantic http://goo.gl/WvRIHu)

Structural Change in the US Economy (taken from The Atlantic http://goo.gl/WvRIHu)

In the paper distributed by NEP-HIS 2014-09-25, Timmer, Vries and Vries describe similarities and differences in the patterns of structural change across developing countries in Asia, Africa, and Latin America since the 1950s. In order to do that, Timmer and colleagues created, updated and (more than once) expanded the Groningen Growth and Development Centre (GGDC) Sector database. This database includes data from 1950 onwards on value added and persons employed for ten broad sectors of the economy for a group of countries. In its current version, the database includes eleven Asian countries (with the good news that China is now included!), nine Latin American countries, and eleven from Sub-Saharan Africa.

There are some important stylized facts that can be learned from the paper. First, since the 1950s workers relocated from agriculture into the manufacturing and to a lesser extent the (formal and informal) services sectors. Second, employment in manufacturing grew in the 1960s and early 1970s in the three continents. These changes responded to policies through which individual countries pursued to promote industry development. Along the same lines, an result from the study by Timmer and colleagues is that there has been a clear decline of the manufacturing employment share in Africa and Latin America since the mid 1970s while production and employment increasingly originate from services activities. In 2010, only 7 percent of the African and 12 percent of the Latin American workforce was employed in manufacturing. These figures contrast with what happened in Asia, where the share of manufacturing in value-added was on average 20 percent of GDP for the same year.

According to the productivity measures by Trimmer et al., the gaps for developing countries are still huge and increasing for most countries. On one hand, the authors find that labor productivity in agriculture is much lower compared to services and even lower in relation to manufacturing. In 2010, for example, the agricultural value added share in Africa was 22 percent, while the employment share was 51 percent. This suggests agricultural labor productivity is about half of that of the average in the economy. In contrast, the services value added share was 50 percent while the employment share was 37 percent, and the shares for manufacturing are 10% and 7% respectively. On the other hand, productivity levels in manufacturing and market services have been falling behind the technology frontier (US in this paper) in Latin America and Africa, and they have been increasing (at a lower rate than I would expect, though) in Asia.

Word Cloud of the introduction of the paper (made using Wordle.com)

Word Cloud of the introduction of the paper (made using Wordle.com)

Finally, Timmer et al. follow Fabricant (1942) in decomposing the change of productivity in three factors namely:

a) the change in productivity of the sector holding the share of employment fixed (within-effect),

b) the change of employment in sectors with different productivity holding the productivity fixed (static-effect), and

c) the effects of the interaction between the changes in sector productivity and employment share per sector (dynamic effect).

Their results suggest that the within-effect as well as the static reallocation effect are both positive. However, the authors find that the dynamic effect is substantially negative in Africa and Latin America suggesting the reallocation of employment to sectors (services) where the productivity increase is lower. In other words, this fact suggests that the marginal productivity of additional workers in these expanding sectors was below the productivity of existing activities.

this_is_file_name_1700The paper has two main contributions. First, it is hard to stress enough how valuable the contribution of these authors is of constructing this new database. This task is not always valued at its worth. Creating a new database from different sources takes a large amount of work in order to achieve the consistency of concepts and definitions used in various primary data sources. Thanks to the authors, these data and documentation are now freely and publicly available online and it encourages us to continue the study of these issues. Second, the authors focus on the comparison of the productivity among these developing countries with the productivity of the technological leaders. This is the main point in this literature given that we still observe dynamic losses of relative productivity in many countries. The main challenge in order to make productivity comparisons is how to convert real value added into common currency units. To do this, the authors use this database and combine it with previous work or their own (mainly Inklaar and Timmer, 2013) to construct sector specific purchase power parity (PPP) prices. In their comparisons, they use United States as the frontier country and measure labor productivity relative to the frontier using the sector-specific PPPs.

 

1171bwcThe bottom line of the paper is that most of these developing countries have failed to generate dynamic increases in relative productivity since they reallocated workers into the sectors where productivity grows at a lower rate. Thus, the main challenges are to reallocate excess agricultural workers if they exist, and to increase the productivity in the manufacturing and services sectors. With the agricultural and (sometimes) manufacturing sectors shrinking in their employment share, the relative dynamic productivity performance of the sectors where these workers are going to locate is the crucial part of the process of convergence. The decomposition of the economies in ten sectors provides a necessary step to understand the process of structural change and its effects on productivity. However, the change in the composition of what a country produces is a result of changes at the firm level in particular markets. This stresses the need for more studies at the firm level on the determinants of the productivity relative to the frontier by sector. This is even more important in the services sector where the evidence seems to suggest the existence of a duality, where some services have a high productivity level and others are informal activities with very low productivity that just hide unemployment.

In sum, this paper adds to other excellent previous work from the same authors and gives us the big picture of structural change over the last 60 years for a larger set of developing countries. In addition, the authors have made available a new database that, combined with other data sources, can help to answer important development questions. As usual, we have made progress but still more work is needed to understand the key topic of structural change. This knowledge is necessary to implement policies that boost the productivity of firms in developing countries and, therefore, to improve the standard of living of their populations.

The institutional co-evolution of proto-multinationals

The Formative Years of the Modern Corporation: The Dutch East India Company VOC, 1602-1623

By Oscar Gelderblom (University of Utrecht), Abe de Jong (Erasmus University Rotterdam) & Joost Jonker (Universities of Amsterdam and Utrecht)

URL: http://ideas.repec.org/p/ems/eureri/32952.html

Abstract

With their legal personhood, permanent capital with transferable shares, separation of ownership and management, and limited liability for both shareholders and managers, the Dutch East India Company (VOC) and subsequently the English East India Company (EIC) are generally considered a major institutional breakthrough. Our analysis of the business operations and notably the financial policy of the VOC during the company’s first two decades in existence shows that its corporate form owed less to foresight than to constant piecemeal engineering to remedy original design flaws brought to light by prolonged exposure to the strains of the Asian trade. Moreover, the crucial feature of limited liability for managers was not, as previously thought, part and parcel of that design, but emerged only after a long period of experimenting with various, sometimes very ingenious, solutions to the company’s financial bottlenecks.

Reviewed by Stephanie Decker

The Dutch East India company may be among the best researched businesses of all time, but it is testament to its importance as a proto-multinational and the quality of its archive that research on this firm continues to inform contemporary research debates. The working paper by Gelderblom, De Jong & Jonker (NEP-HIS 2014-01-17), which has since been published in the Journal of Economic History, is interesting as it deals with the early years of the VOC (Vereenigde Oostindische Compagnie), and presents both a historical narrative as well as some distinctive challenges to previous assumptions. Their paper has to be seen as both an interesting contribution to other researches on the VOC, as well as some more general debates.

The continued interest in this very old company is due to a variety of reasons. Even a short sweep of recent work that relates to the VOC shows a remarkable breadth of themes. Wim van Lent has compared management policies of the VOC with its competitor, the English East India company, to understand some problems of its organizational evolution (Sgourev & Van Lent, 2011). This comparison is so intriguing not just because of the Dutch-English colonial competition during this time period, but also because the two East India companies were organized very differently, and almost provide a naturally occurring counterfactual for each other in a laboratory that tests organizational effectiveness at long distance.

As both firms date back to the seventeenth century, and were among the first well-documented examples of how organizations dealt with the challenges of managing across vast distances, their corporate histories are of great importance in and of themselves. Both provide organizational solutions to some of the perennial problems of multinationals, which struggled with poor communication and oversight of operations, especially the difficulties of enforcing control and monitoring the trustworthiness of its agents.

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Gelderblom et al. discuss the attitudes and conflicts within the Dutch Republic over the control of the VOC, the world’s first modern corporation

But despite all of these similarities to the multinationals of later stages, the East India companies were also fundamental different, and creations of their own time. The companies, especially the VOC, often took on roles that made them quasi-governmental bodies. As a result, they were involved in some of the day-to-day issues of governance of empire, which made these archives particularly rich. Thus they have been researched beyond the narrow confines of business history, and the particular insights that can be gained from those files have been discussed in great detail by Ann Laura Stoler (2009), a well-known postcolonial historian of gender and empire. The conduct of business often involved the company in political and personal issues well beyond what one would usually expect to see in a business archive, which offers rich contextual insights into the time period and its attitudes.

It is in this regard that the paper by Gelderblom et al. is interesting, as it discusses the attitudes and conflicts within the Netherlands over the control and financing of the VOC, and the exact rights and obligations of its directors. The paper takes core historical values such as contextualization and contingency (O’Sullivan & Graham, 2010) seriously, and paints a rich picture of the time period and some of the characters that influenced the decision-making within and beyond the VOC. The importance of these issues lies in more conceptual debates about the evolution of limited liability in the West (as opposed to other commercially vibrant areas such as the Middle East). Gelderblom et al.’s analytically structured narrative (Rowlinson, Hassard & Decker, 2014) highlights that although the VOC possessed some important legal features that we commonly associate with modern corporations, others developed only during its first years of operations in response to external pressures.
Consequently, having acquired two key features of the modern corporation (the split between ownership and management and transferable shares) from the outset, the VOC obtained three more (a permanent capital, limited liability for directors and by extension legal personhood) step-by-step over a period of some twenty years. Thus the five features did not come as a package, as a coherent logical set.

Their narrative shows how most of these pressures reflected financial constraints, as the large-scale trading activities in conjunction with military expeditions were a far larger undertaking than anything that had hitherto been financed on the Amsterdam money markets. This is an important contribution, and their short discussion in the conclusion quite sensitively highlights that some assumptions about the superiority of the Western institutional frameworks, such as argued for by Kuran (2010), are perhaps too ethnocentric to fully understand not just the different evolution of institutions in other cultures, but can also blind researchers to the historically contingent development of the legal frameworks that we now take for granted.

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Gelderblom et al. hide much of their contribution in their paper’s appendix

In light of the above, it is noticeable that the actual narrative takes up the largest part of the paper, and that it is only at particularly important junctures that the historiographical literature is challenged, while the framing in the introduction and conclusion is more heavily conceptual. These insights that can only be developed from a careful, in-depth historical investigation perhaps deserve better highlighting. This extends to the title, which does not quite do justice to the large themes that inform the historical narrative. Finally, it is only in the appendix that it becomes clear for readers not familiar with the nature of the VOC archive that this early period that the paper deals with is indeed not as well-researched as the later period, especially in terms of its financial performance. All of this adds up to another interesting angle of research on the VOC, which as a company and an organizational archive is clearly a case of great importance for the history of business and its institutional developments.

References:

  • Kuran, T. 2010. The Long Divergence: How Islamic Law Held Back the Middle East. Princeton: Princeton University Press.
  • O’Sullivan, M., & Graham, M. B. W. 2010. Guest Editors’ introduction: Moving Forward by Looking Backward: Business History and Management Studies. Journal of Management Studies, forthcoming.
  • Rowlinson, M., Hassard, J., & Decker, S. 2014. Research Strategies for Organizational History: A Dialogue between Historical Theory and Organization Theory. Academy of Management Review, 39(3).
  • Sgourev, S. V., & van Lent, W. 2011. The Right Amount of Wrong? Private Trade and Public Interest at the VOC European Group of Organization Studies. Gothenburg, Sweden.
  • Stoler, A. L. 2009. Along the Archival Grain: Epistemic Anxieties and Colonial Common Sense. Princeton: Princeton University Press.