Earlier this week, Michael Makovi and I submitted the following paper for publication. It concerns the theory of state capacity and its measurement. We argue that one of the proposed channels from which strong and capable states are able to foster economic development is not generalizable. That channel, the Post Office’s role as market coordinator, has been used frequently especially in economic history. We use the insights proposed by others to test it in Quebec between 1831 and 1861 (an area for which there is excellent data). The abstract is below and the paper is available here on SSRN:
The theory of state capacity predicts that states with powerful abilities—as long as they are constrained—can promote economic growth, because these abilities can serve to support market development. A difficulty in the study of state capacity relates to its measurement. Some scholars, especially in economic history, argue that post offices area proxy for government effectiveness and state capacity (Chong et al., 2014; Acemoglu et al., 2016; Rogowski et al., 2017; Jensen and Ramey, 2019), because a well-functioning communication network helps markets operate. We test whether this claim is generalizable by using data from nineteenth century Quebec. We use a difference-in-difference method to estimate the effect of gaining, or losing, a post office on the value of agricultural output per acre between 1831 and 1861. We find no treatment effect, implying that post offices had no relationship with agricultural productivity. This may suggest that post offices are not a valid proxy for state capacity or, at the very least, that they do not constitute generalizable evidence
A few weeks ago, Vadim Kufenko, Klaus Prettner and I received news that Structural Change and Economic Dynamics accepted our paper “Divergence, convergence and the history-augmented Solow model“. The paper is available here at the journal’s webpage and the abstract is below:
We test the recently proposed history-augmented Solow model with respect to its predictions on the evolution of cross-country income inequality between nowadays industrialized countries. Using a broad range of deterministic and stochastic simulations, we illustrate that the model predicts the following pattern. There is low cross-country income inequality before the Industrial Revolution (during the period of “Malthusian Stagnation”), strongly increasing cross-country income inequality afterwards (the period of “The Great Divergence”), and finally declining cross-country income inequality toward a level that is higher than the level before the Industrial Revolution (the period of “Club Convergence”). Tests on the structural break of the observable time series of income dispersion and segmented regressions show that this development is fully consistent with the empirical evolution of cross-country income inequality since the late 19th century. Additional tests using quadratic polynomials, fractional polynomials, polynomial ridge regressions, and polynomial LASSO regressions confirm this finding.
Gonzalo Macera (Texas Tech University) and I heard back from Social Science Quarterly. Our paper harnessing wages from the 1842 censuses of Lower and Upper Canada have been accepted. The older version of the paper is available here on SSRN, the abstract is below and the online appendix is here :
This paper uses the censuses of 1842 of Canada East (modern-day Quebec) and Canada West (modern-day Ontario) to help explain the historical differences in living standards between Canada and the United States. The wage and price data contained in the censuses suggest a gap of 42 percent between Canada East and Canada West. We argue that Canada East was substantially poorer than the rest of Canada and, as it represented such a large proportion of the total population of the initial four Canadian provinces (over 35 percent), that relative poverty weighed heavily in determining the extent of differences in living standards between Canada and the United States. These findings change the perspective on the roots of the differences between the two countries. We propose that any research agenda trying to explain those differences should focus heavily on Quebec.
Alexander Salter and I just received news that the Journal of Economic Behavior & Organization has accepted our paper on state capacity. The paper can be found here on SSRN and the abstract is below.
In this paper, we explore why there are no examples of societies with low state capacity and high economic development. We argue that such an outcome is unlikely because of the nature of investments in state capacity. Societies that become rich in the absence of a strong state invite predation by societies that develop such states. Thus societies invest in state capacity, in part, to plunder other societies’ wealth. Those investments are a form of rent-seeking. Potentially preyed-upon societies are forced to invest in state capacity in turn so as to deter potential attackers. This entails that as soon as a rent seeker enters the game, the likelihood of a low-capacity, high-development society surviving falls. This explains the historical lack of such societies. We thus interpret state capacity not as a causal condition for widespread economic prosperity, but a survivability condition for enjoying this prosperity.
Yesterday, I received news from the Journal of Multilingual and Multicultural Development will publish my article (co-authored with PhD student Alex Arsenault Morin – economics at Queen’s University) on why the vitality of the French language in Quebec is underestimated. In the last decade, fears of a “French crisis” have surged (with the belief that the French population would grow increasingly marginalized). Skeptics point to the fact that French-usage in the public sphere is rising while believers point to a decline of French-usage at home. We show that the rise of multiple language use within households (and across spheres of life) lead to this debate. We propose a new metric that resolves this problem. We show that there is no decline (nor are there any improvements).
The paper is here on SSRN.
I received news yesterday that a revised version of my paper with Michael Hinton on the improvement of price deflators for Canadian GNP figures between 1870 and 1900 will be published by Research in Economic History. The old version of the paper is here on SSRN. The key result from our paper is that Canada’s rate of growth is heavily underestimated during the country’s first three decades after “independence” (for lack of a better term). Instead of being a less-than-average performer, Canada is the fastest growing economy of the western world.
The data, once the paper is published, will be shared in full detail on the Macro History of Canada section of my website with read-me files (i.e. methodology, details, explanations of choices made).
I have a new working paper out there co-authored with Louis Rouanet of George Mason University. Louis and myself argue that the formation of new cultural groups and new ethnic groups is a form of investment in governance in stateless environments. New ethnic groups can organize because they have low costs of providing governance within them and because they can serve as efficient intermediaries between other groups. Their ethnic identity is thus a collective action decision that reduces transaction costs between other groups and expands the size of the market.
We use two examples from Canadian economic history to make our case: the Acadians of Atlantic Canada and their relation with the Mi’kmaq and the Métis of the Canadian Prairies. Our paper is available here on SSRN and the abstract is below:
The process of ethnogenesis (i.e. the formation of new ethnic groups) can be considered equivalent to the production of “governance goods” in situation of statelessness. The process of ethnogenesis is a response to the problem of social distance between heterogeneous groups which is a barrier to trade. As an investment in governance, ethnogenesis reduces this trade barrier and expands the scope for specialization. To argue the case, this paper relies on two examples of peaceful and productive relations between Native Indians and European settlers in Canada before the mid-19th century. The emergence of “hybrid” cultural groups and identities fostered peaceful relations and permitted trade to occur in borderlands areas where state rule was virtually nonexistent. This in turn facilitated the transatlantic fur trade. Both these examples suggest that cultural processes can be endogenous responses to the production of governance.