State Capacity and Economic Development: Causal Mechanism or Correlative Filter?

I have a new working paper available with Alexander Salter (Texas Tech University). This time, we tackle the topic of state capacity by asking the question of why we fail to observe persistent cases of societies with low state capacity and high levels of economic development. The paper is available on SSRN here, 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.

Collusion and combines in Canada, 1880–1890

I have a new working paper available (it is under consideration as we speak). The paper studies Canada’s Anti-Combines Act of 1889. The Act, meant to limit collusion in business practices, was passed a full year before the American Sherman Antitrust Act. It is generally a forgotten piece of history that Canada adopted such an Act before the United States. However, the Act’s genesis is very much like that of the Sherman Act. In the paper, I study price and output evidence and argue that the impetus for its passage had little (if nothing) to do with consumer welfare. The paper is available here on SSRN and the abstract is below:

It is a little-known fact that Canada adopted its own antitrust laws one year before the landmark Sherman Antitrust Act of 1890. The Anti-Combines Act of 1889 was adopted after a decade in which ‘combines’ (the Canadian equivalent of ‘trusts’) grew more numerous. From their numbers, Canadian historians, legal scholars and economists inferred that consume welfare was hindered. However, price and output evidence has never been marshalled to provide even a first step towards assessing the veracity of this claim. This paper undertakes that task. I highlight that the output from industries accused of collusion increased faster than national output in the decade before the passage of the Act and that their prices accordingly fell faster than the national price index. I argue that these findings militate for the position that the origins of Canada’s Anti-Combines Act were rooted in rent-seeking processes similar to those that American scholars have found driving the Sherman Antitrust Act of 1890.

Monopsony and Industrial Development in Nineteenth Century Quebec: The Impact of Seigneurial Tenure

Along with Vadim Kufenko and Alex Arsenault Morin, I have a new paper available (here on SSRN) on labor coercion. Labor coercion (i.e. labor market institutions that are geared towards redistributing rent from workers to employers) is a topic that has garnered growing interest on the part of economists such as Daron Acemoglu (see here).  Numerous case studies exist concerning sugar plantations in the Caribbean (here and here), the regulation of emigration agents in the United States that reduced the internal migration of Black Americans (see here) and British servants in the 19th century (see here). What this literature has cemented is the possibility that even “mild” coercion (i.e. the “lighter shades of coercion”) can have large negative effects.   In this most recent paper, myself and my co-authors use a mild coercive institution – that of seigneurial tenure of Canada – to expand on this insight. Using a provision in the Constitutional Act of 1791, we test the impact of this feudal institution on wages and industrial development in the province of Quebec between 1831 and 1851. We find that it had a large negative effect which depressed wages by a margin sufficient to bring Quebec in line with large portions of North America (rather than being a laggard). The abstract is below and the paper can be consulted here on SSRN:

We argue that the system of seigneurial tenure used in the province of Quebec until the mid-nineteenth century — a system which allowed significant market power in the establishment of plants, factories and mills, combined with restrictions on the mobility of the labor force within each seigneurial estate — is best understood as a system of regionalized monopsonies in the non-farm sector. Seigneurs had incentives to reduce their employment in those sectors to reduce wage rates. We use the fact that later, with the Constitutional Act of 1791, all new settled lands had to be settled under a different system (British land laws). This fact lends itself efficiently to a regression discontinuity design. Using wages contained in the 1831 census, we find strong evidence that the monopsonist features of seigneurial tenure depressed wages and industrial development.

Was (English) Canada Poorer than the United States? Living Standards circa 1830 to circa 1845

I have a new working paper available. This time, it is co-authored with Gonzalo Macera (Texas Tech University & Free Market Institute). We use evidence from the censuses of 1842 in Canada to showcase that most of the differences in living standards between the United States stem from the relative poverty of Quebec – home of the French-speaking population of Canada. Because of Quebec’s important demographic weight, we argue that this finding that Canada was nearly equal to the US in the early 19th century highlights the need to consider what institutions weighted down Quebec and Canada as a second order effect. The abstract is below and the link to SSRN 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 argument made in this paper is that Canada East was substantially poorer than the rest of Canada. The wage and price data contained in the censuses suggest a gap of 42% between Canada East and Canada West. As it represented such a large of the total population (north of 35%) of Canada, that relative poverty weighed heavily in determining the extent of living standards differences between Canada and the United States. This changes the perspective on the roots of the differences between the two countries. It proposes that any research agenda trying to explain them should focus heavily on Quebec.

Markets for Rebellions? The Rebellions of 1837–38 in Lower Canada

Along with Vadim Kufenko, I have a new working paper available where we assess the role of market development as a cost-reducing mechanism to the coordination of rebellious activities. We use the colony of Lower Canada which rebelled against British rule in 1837-38. The paper is available here on SSRN and the abstract is below:

In 1837–38, the British colonies of Upper and Lower Canada rebelled. The rebellion was most virulent in the latter of the two colonies. Historians have argued that economic consideration were marginal in explaining the causes of the rebellions. To make this claim, they argue that the areas that rebelled in Lower Canada were among the richest in the colony, and the least likely to be motivated by economic factors. In this paper, we use the census of 1831 and databases of rebellious events to question this claim. We argue that the rich areas were more prone to rebellion because they were where markets were most developed. These well-developed markets allowed for cheaper coordination of seditious elements while also increasing the wealth (i.e. the rent) over which to fight.

Adjusting Inequalities for Regional Price Parities: Importance and Implications

My paper with Youcef Msaid on the impact of adjusting inequality figures with regional price indices (as opposed to national indices) is now available at the Journal of Regional Analysis & Policy.  In the paper we show that doing this adjustment reduces modestly the level of inequality and changes dramatically the geographical distribution of households in the top and bottom deciles of the income distribution. The latter point is crucial to formulating proper policy to deal with inequality. The abstract is below :

Corrections to CPS data dramatically change the geographic distribution of the top and bottom deciles of the income distribution. We correct the measure of real personal and household income with regional price indices from BEA. Uncorrected figures have poorer states over-represented in the bottom decile, while corrected figures have much of that decile living in urban areas in NY and CA. We draw policy-relevant conclusions from these facts, mostly with regard to housing policy.

Forthcoming: Distinct from the Rest of North America: Living Standards in French Canada, 1688 to 1775

I received news yesterday that my paper on real wages in Quebec (French Canada) from 1688 to 1775 has been accepted for publication at Cliometrica. The SSRN version of the paper is no longer the exact version that has been accepted, but its core results are still valid:

This paper uses a novel dataset of prices and wages from the French colony of Quebec (Canada’s second largest province today) between 1688 and 1775 in order to measure living standards during the colonial era. Using these data, I follow a welfare ratios approach and find that Quebec was poorer than the American colonies and England, while being slightly richer than France. However, this last conclusion is sensitive to changes in the basket used to compare wages. When one shifts from a bare-bones basket in the welfare ratio to a respectable basket, Quebec becomes only as rich as France, but remains poorer than the American colonies and England.

This is an important development for me as I have been waiting for the publication of this paper to set up my other papers. Indeed, finding that Canada was poorer (and in line with most of Latin America) during the colonial era suggests that a) Canadian institutions should be considered in the same light as American and Latin American institutions; b) that there is something clearly exceptional that is happening in the American colonies at the time.