Empire Effect Versus Crowding Out Effect: Shipping Productivity in the North Atlantic from 1764 to 1860

I know, I’ve published a lot of working papers in the last few days, but many of them came to maturity at the same time as a pure coincidence. However, the one I am publishing right now is slightly different. The other ones were ready for submission and publication (if accepted). This one is missing something as me and my co-authors (Jari Eloranta of Appalachian State University and Vadim Kufenko of the University of Hohenheim) fell that there is a need to “add some flesh around the bones” in order to improve the framing and the empirics of the paper. Basically, the paper asks if the public good of global security provided by Empire (i.e. what we call the security effect) comes at a cost too high because of the expenses associated with providing said security. We concentrate on the shipping industry and its productivity and argue that large military navies required to create the security effect generate a crowding-out effect on the industry that depresses trade. The abstract is below, the paper can be consulted here on SSRN and we welcome comments:

While there is a rich literature on the benefits of empire in terms of the provision of key public goods—notably security for international trade—the costs have been downplayed. In this paper, we focus on merchant shipping data between Canada and Britain between 1764 and 1860 to measure these costs. Imperial hegemony would have implied greater security for shippers and this, in turn, would have stimulated investments in productivity. However, we contend that a counter-effect would have operated simultaneously. The provision of greater security meant greater military navies which crowded out merchant navies in terms of availability of capital and labor. We argue that the benefit of the “security effect” has to be weighed against the cost of the “crowding-out” effect. We find that the “crowding-out effect” was larger than the “security effect.” For “security effects” to overpower “crowding out effects,” one had to have a very small navy in absolute terms but a large one relative to other military powers.

 

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