Monday, 27 October 2014

Accounting for the Size of Nations: Empirical Determinants of Secessions and the Soviet Breakup

New EHES working paper

The year 2014 has marked the return of secessions as a challenge to existing European states. A referendum on Scottish independence was held in September, and the regional government of Catalonia may follow suit in November. Meanwhile, Ukraine faced secessionist referenda and uprisings in a number of its regions. But why do people demand the formation of new states? A new EHES Working Paper by Marvin Suesse at Humboldt University of Berlin evaluates economic theories of secession.

Participants at a pro-independence protest in Kyiv, Ukraine, in the summer of 1991, demand that “Ukraine leaves the USSR.” Picture credit: Unian.
In much of the economic literature, state size is thought of as the result of a trade-off between the benefits of size and its costs, an idea that goes back to the influential book on “The Size of Nations” by Alberto Alesina and Enrico Spolaore (2003). They propose that benefits of size stem from fixed costs in the provision of public goods, which makes living in a small state costly to each individual taxpayer. The costs of size are due to individual heterogeneity, which reduces the utility from the consumption of public goods to those individuals located far away from the government in terms of preferences or geography. If individuals are located far enough from the source of public goods, they may gain by seceding and providing public goods themselves, even if this provision is proportionally more costly. This basic trade-off can be moderated by a number of factors, such as trade prospects, the degree of democratization, as well as differential income levels between regions.

Although this theoretical framework offers some insights into state formation and dissolution, empirical evidence for it is scarce. This is partly because actual secessions are still relatively rare events. Even where we do observe them, they are difficult to compare across time and space. The new EHES paper by Marvin Suesse circumvents these constraints by looking at variation in the demand for secession expressed by millions of pro-independence protesters across 184 regions of the former Soviet Union. The paper concentrates on the late 1980s and early 1990s, because repression by Soviet authorities had become much more fragmented by that time.

The results indicate that regions that were most different from the center in Moscow in terms of language, ethnicity, religion, or historical experience, saw more secessionist protests on average. Most remarkably, larger regions saw a higher intensity of protests per capita. This supports the theory of the “Size of Nations”. The evidence is further strengthened by the fact that size seems to have acted as a “threshold” condition that determined whether there were any pro-independence protests in a region at all. Very small regions did not experience any secessionist pressure, notwithstanding their ethno-cultural differences with Moscow.

But how was this demand for secession translated into actual policy? The paper also shows that regional elites in the late Soviet Union were actively engaged in secessionist policies, such as issuing separatist declarations and laws. But their determinants seem to have been quite different. To a certain extent, regional elites may have been much more concerned about power considerations than preference heterogeneity with regard to the center. Only once we are able to understand the interplay between popular demand for secession, and the interests of local elites in shaping and transmitting those demands into actual policy, will we be able to fully understand the breakup of states.

The blog post was written by Marvin Suesse, a PhD student at Humboldt-Universität zu Berlin

The working paper can be found here.

Tuesday, 21 October 2014

How the Danes Discovered Britain: The International Integration of the Danish Dairy Industry Before 1880

New EHES working paper

On the 150th anniversary of the loss of the Danish Duchies of Schleswig and Holstein to Prussia, a new EHES working paper, by Markus Lampe at Universidad Carlos III Madrid and Paul Sharp at the Historical Economics and Development Group of the University of Southern Denmark, asks whether it really was the turning point in Danish economic history it is often supposed.

The Battle of Dybbøl, 1864, by Jørgen Valentin Sonne (1801-1890) 

A commemorative medal produced for a large exhibition of industry and art in Copenhagen in 1872 bore the words of the poet H.P. Holst: ‘Hvad udad tabes, skal indad vindes’, or ‘What outside is lost, must inside be won’. With the loss of the Duchies of Schleswig and Holstein to Prussia in the Second Schleswig War of 1864, this soon became a sort of national motto for Denmark and remains a potent national symbol of strength at a time of adversity even to today. Indeed, the rapidness with which Denmark subsequently developed, based largely on the success of her agricultural exports, is well known.

Thus the then Danish Prime Minister, marking the centenary of the Federation of Danish Cooperatives in 1999, stated that the cooperative movement (a key factor in the success of Danish agriculture) was ‘part of the history of the country of Denmark, which won inwardly what we lost outwardly after the catastrophe in 1864, when we lost two-thirds of our precious country’. Then, marking the anniversary this year in front of the queen and other dignitaries, the present prime minister stated that ‘Out of the defeat in 1864 grew the modern Denmark. With democracy. With a well-educated population. With equality between the sexes. Freedom for the individual. And the whole of our welfare society based on solidarity.’

The success of Danish agricultural exports at the end of the nineteenth century is often attributed to the establishment of a direct trade with Britain. Previously, exports went mostly via Hamburg, but this changed with the loss of Schleswig and Holstein to Prussia in the war of 1864, after which the German hub was politically unacceptable. From this point quantity and price data imply narrowing price gaps and thus imply gains for Danish producers. Given this, this new working paper asks a rather neglected but perhaps obvious question: with so much to gain, why then did Denmark not discover the British market earlier?

In fact, it turns out that butter markets in the UK and Denmark were integrated in the eighteenth century, but through the Hamburg hub. It is then demonstrated that there were sound economic reasons for this well into the nineteenth century. However, movements to establish a direct trade were afoot from the 1850s, as these factors became less important even before 1864. First, the costs of establishing a direct connection with England fell with the price of steam shipping and the telegraph, and with the liberalization of British trade policy. Second, the benefits of the Hamburg hub were decreasing with the abolition of the Sound Toll (which was payable by any ships entering the Sound between Helsingør in Denmark and Helsingborg in Sweden) in 1857, which made Copenhagen a more attractive port than it had been. And finally, the commercial and credit crisis in Hamburg in late 1857 also contributed to its relative loss of centrality in trade between Britain and Southern Scandinavia over the following decade or so.

Thus, it is argued, although the war certainly gave an extra boost to the process, the shock from the loss of the Duchies was not necessary for the future Danish success.

This blog post was written by Paul Sharp, professor in Economics at University of Southern Denmark.

The working paper can be downloaded here

Monday, 13 October 2014

New crops, local soils and urbanization: Clover, potatoes and the growth of Danish market towns, 1672-1901

How did local soil conditions affect local development historically? Evidence on this question is provided in a new EHES working paper by Torben Dall Schmidt, Peter Sandholt Jensen and Amber Naz from the University of Southern Denmark. 

They investigate how the introduction of clover and potatoes affected market town development. Their strategy is to apply a differences-in-differences type estimation which exploits local variation in suitability for growing these new crops. The authors exploit unique data on adoption of clover whose introduction arguably worked to increase nitrogen supply which is known to govern the yields of crops that have enough water. 

Clover adoption in Denmark in 1775 
Clover adoption in Denmark in 1805 
Note: The measure of spatial distribution of clover adoption was collected on the basis of all 18th manor archives and a number of other sources as detailed by Kjærgaard (1991).

Since clover adoption is most likely endogenous, the authors employ soil suitability for growing alfalfa as an instrumental variable. The reason for this choice is that alfalfa and clover tends to grow well on the same soils, but alfalfa did not have its breakthrough in the period studied mainly due to reasons of climate. To evaluate the impact of the potato, they follow the well-known strategy of Nunn and Qian (Quarterly Journal of Economics, 2011) and use soil suitability for growing potatoes.

The authors find that both clover and potatoes contributed to market town growth with clover contributing roughly 8 percent out of the total growth from 1672 to 1901, whereas potatoes contributed a little in excess of 6 percent.  

The working paper can be downloaded here.  

This blog post was written by Peter Sandholt Jensen, professor in Economics at the University of Southern Denmark.

Sunday, 5 October 2014

Lifespan from the Dark Ages to the Industrial Revolution

New EHES working paper

The family trees of European nobility provide a rich resource for the understanding of our
Neil Cummins is Assistant Professor of
Economic History,
London School of Economics
demographic past. Over the past year, I have consolidated about 1.3 million aristocratic records that have been deposited online by the church of Jesus Christ of the Latter Day Saints. The LDS church believes in a doctrine called Baptism for the dead and they have amassed billions of genealogical records which they make freely available.

My study, Longevity and the Rise of the West, uses those records which have estimates of birth and death dates, for those that die over 20, to construct a history of adult noble lifespan over the millennium between 800 and 1800. In doing this, there were many surprising patterns that emerged from the data concerning the path of violence, plague lethality and the characteristics of noble longevity across time and space.

European nobility specialized in the execution of violence. Their genealogies connected them to the Barbarian conquerors of Europe following the decline of the Roman Empire. A large proportion of noble men died in battle. To investigate precisely how many nobles died from violence, I employed a general version of the famous birthday problem. First year statistics students are often introduced to probability via the surprisingly low number of people it takes to have a high probability of a shared birthday. If we take the number of exact-date deaths per year, n, and the number of deaths on a given day, m, we can calculate the probability that a given n-m combination occurs randomly or is likely the result of a battle. I use this ‘clumping’ technique to estimate the proportion of nobles dying from violence. My estimates are presented in figure 1 below. Violence suddenly declines within this warrior caste in the 16th century.

Figure 1: The Time Trend of Male Violent Deaths

The empirical challenge I faced was to extract from the imperfect, noisy data the major time and spatial trends in noble lifespan, while controlling for the changing selectivity and composition of the sample. Every possible covariate that could confound my characterization of the time-trends that could be included was included. Figure 2 below is my estimate for the time-path of noble median lifespan, 800-1800.

Figure 2: Expected Median Lifespan 800-1800, with 95% CI

The results demonstrate that the nobility were forerunners of Europe’s mortality decline with significant and large increases in noble longevity beginning for the birth cohort of 1640-59 at least one century before that of the general population. However, a major surprise is the Europe wide rise in noble lifespan around 1400. From 600 years of mean of about 50, adult noble longevity rises sharply to a median of 55. This has never been documented previously. This pattern has remained hidden as only long and deep time series of at least a millennia in length could uncover this.
By coding each observation for longitude and latitude I was able to characterize the spatial aspects of noble mortality. Figure 3 reports median lifespan by integer values of longitude and latitude. There is a striking European Mortality Pattern. Nobles live significantly shorter lives in the South and East relative to the North and West. My analysis indicates that this Mortality pattern has existed since 1000AD.

Figure 3: Heat Map of Median Noble Lifespan

These results have implications for theories of the rise of Europe. The European Mortality Pattern revealed above correlates with those regions which later experience the Industrial Revolution first. Recent research has suggested that “The Great Divergence” of East and West is preceded by a little divergence of East and West, within Europe, around the time of the Black Death (1347). This research shows that North-West Europe was differentiated from the rest of the continent by its demographics centuries before the Black Death.

A new set of stylised facts has been uncovered that seem to raise more questions than they answer. Why were noble lifespans longer in Northwest Europe in 1000AD? What caused noble lifespan to shoot upwards in 1400? Why did violence decline so suddenly in the 16th century? Future research will tell us more.

The EHES working paper can be downloaded here

The blog post was written by Neil Cummins,
Assistant Professor of Economic History, London School of Economics

Wednesday, 1 October 2014

Paving the way to modernity: Prussian roads and grain market integration in Westphalia, 1821-1855

New EHES working paper

Europe in the early nineteenth century has seen enormous changes: Borders were redrawn at the Congress of Vienna in 1814 and 1815, economic liberalism took hold in Britain and the continent alike, urbanisation grew and industrialisation began to change the standard of living and the environment, to speak of just a few. Yet, economic history research on this period has been overshadowed by the late 19th century. Apparently, the events in this period – be it in politics such as the US Civil War in the 1860s, the founding of the German Reich in 1871, or be it in technology such as the railroad, the steamship, and the telegraph – have in hindsight been too monumental to not casting their shadows over the events just a few years earlier. 


In this paper we follow up on recent findings about the surprising macroeconomic and demographic changes in Germany before 1850 and investigate one of the possible drivers of these changes: increasing market integration due to investment in paved roads.

For centuries, overland transport remained almost unchanged since Roman times until the late 18th century. Before the establishment of paved roads, roads were often described by contemporaries as mortal traps for men and horses, whose state barely allowed carriages to travel faster than pedestrians. An example might be illustrating. Before the Muenster-Hamm road was paved, it took 36 hours to go from one city to the other. After being paved, travelling time was reduced to only eight hours.

The importance of this mean of transport was soon recognised by the Prussian government in the early 19th century, which invested a considerable amount of resources in establishing a large paved road network. Around 1816, there were about 3.700 km of paved roads in the whole Prussian kingdom. By the middle of the century, there were 13.400km. This impressive development did not stop with the coming of the railway age, but it continued until the late 19th century.

The spread of the paved road network in the Prussian kingdom was very uneven. The Western provinces of the empire such as Westphalia and the Rhineland had a special trait (at least until 1850) from the Prussian government and they did benefit more from public investment due to their economic importance. In our study, we focus on the province of Westphalia.

To analyse the effects of paved roads on economic development, we focus on market integration. One way in which spatially separated markets become more integrated is through lower transport costs, since regions become closer in economic terms. From this integration, regions can benefit in many ways. One of the most important is the intensification of trade that leads to the regional specialization of production (i.e. Smithian growth).

From our analysis, at least two points are worth noting. One is that we take a novel approach to analyse the effects of paved roads. Instead of coding whether a city had access to the paved road network or not (i.e. dummy-variable approach), we went through all cities and for each time period we looked at the number of paved road connections to neighbouring cities. By doing this, we are able to capture some network effects that arise with the building of new paved roads that a dummy approach does not capture. The second point is that we put paved roads in a comparative perspective with other transport infrastructures such as waterways and railways by developing a digitised map of Westphalia for the period 1821-1855. We find that paved roads have always a significant and positive effect on market integration and that this effect is surprisingly bigger than the effect of railways.

These results point out that paved roads deserve a closer inspection – and there is a good reason to listen for policy makers, too: In advanced countries, the railway networks have been declining for decades, and more goods are transported on trucks. In developing countries, the state is often too poor to finance a railroad, but could maybe afford a paved road. Roads are also more flexible, as they can be used by the broad public, be it lorries, bicycles or mule-drawn carriages without time constraints.

Today, many underdeveloped regions still suffer from the same transport problems the Kingdom of Prussia suffered two hundred years ago. The lack of paved roads complicates social and economic exchange especially in the rainy season, where most unpaved roads cannot be used. Thus, we think both for economic historians and for development policy makers alike, roads and economic development are increasingly worth the trip.

Article written by Daniel Gallardo Albarrán (University of Groningen) and Martin Uebele (University of Groningen).

The paper can be downloaded here.

Daniel Gallardo Albarrán 
Martin Uebele