Leonard Dudley

Religion and Economic Growth: Was Weber Right?

Evidence of falling wages in Catholic cities and rising wages in Protestant cities between 1500 and 1750, during the spread of literacy in the vernacular, is inconsistent with most theoretical models of economic growth. In The Protestant Ethic, Weber suggested an alternative explanation based on culture. Here, a theoretical model confirms that a small change in the subjective cost of cooperating with strangers can generate a profound transformation in trading networks. In explaining urban growth in early-modern Europe, specifications compatible with human-capital versions of the neoclassical model and endogenous-growth theory are rejected in favor of a “small-world” formulation based on the Weber thesis.

The demand for military expenditures: An international comparison

Earlier studies have explained inter-country variations in the share of GNP devoted to military expenditures by international spillovers and by differences in the threat of attack related to relative incomes. In this paper, we use the theory of public choice to explain these differences. We attempt to measure the importance of both international spillovers and relative incomes, along with two other factors: the tax-price elasticity of demand and economies of scale in the consumption of security.We find that international spillovers are significant and positive, that the income elasticity of demand is greater than unity, that the tax-price elasticity of demand explains part of observed inter-country differences, and that there are considerable economies of scale in the consumption of military spending. Finally, between 1960 and 1975, there was apparently a substantial increase in the value which each country derived from a dollar of military spending by its allies. This phenomenon, which seems related to the increased importance of deterrent weapons, has tended to induce individual alliance members to reduce the share of their national income devoted to defense.

Information as a substitute for inventories

Abstract In recent years, the ratio of inventories to sales in North American manufacturing has fallen without the offsetting increases in unfilled orders or price variation that are predicted by some theoretical models. The explanation offered here is that in the face of falling relative costs of communications, firms will substitute information for inventories, thereby allowing their production systems to absorb a greater part of demand shocks. The implicit hypothesis that the demands for communications and inventories are therefore determined simultaneously is tested with data on Canadian inventories and on telecommunications between Canada and Europe and is not rejected.

Communications and economic growth

Abstract Over the past millennium, each of the three centuries of most rapid demographic growth in the West coincided with the diffusion of a new communications technology. This paper examines the hypothesis of Harold Innis (1894–1952) that there is two-way feedback between such innovations and economic growth. First, detailed historical evidence is studied. Second, Inniss ideas are translated into a formal growth model. Finally, the model is simulated and its predictions compared with historical data. The results suggest a technological explanation for the long cycles of the period 1000–1975 and for the puzzling productivity growth slowdown in industrialized countries after 1975.

Structural change in interdependent bureaucracies: Was Rome's failure economic or military?

Abstract Previous explanations of Romes decline fail to explain the frequency of civil war and the continued survival of the Byzantine empire. This paper demonstrates that symptoms similar to those observed in the Mediterranean region over the first millennium A.D. can result from a permanent shock to a system of interdependent bureaucracies. A decrease in military scale economies will lead to a contraction of territorial boundaries and an increase in tax levels. Historical evidence suggests that in the case of Rome, the shock took the form of a series of improvements in cavalry combat.

A Spatial Approach to Structural Change: The Making of the French Hexagon

Previous studies explain the extension of royal power in fifteenth-century France by the professionalization of military combat or by the commercialization of economic activity. Neither approach can account for the turnaround in Charles VIIs fortunes between 1435 and 1445. Using LA¶schs model of spatial competition to examine the determinants of state borders, we suggest that the key factor in the formation of the French hexagon was an innovation in artillery projectiles that increased military scale economies. A reduction in state economic intervention apparently accompanied this development rather than the increase suggested elsewhere.

Bureaucratic Corruption As a Constraint on Voter Choice

ConclusionThis paper has attempted to explain variations among countries in the tax level, in the importance of progressive taxes and transfers, and in the after-tax share of middle-income groups. Particular attention was paid to the declines in each of these variables which are observable in cross-section data in the intermediate ranges of development. It was argued that these phenomena are difficult to explain by variations in the demand for public spending or in the degree of tax evasion.The hypothesis set out in this paper was that these nonlinearities are a result of the inability of elected representatives to observe taxable activities at certain levels of income. The result is a loss of potential tax revenues through bribes to officials. Such bribes, it was suggested, are most likely in the income brackets where total income is increasing rapidly in developing countries. A theoretical model based on expected vote maximization by political candidates indicated that voter-taxpayers will be unwilling to make up the short fall by additional taxes. To the extent that the problem of observing taxable activities is more serious for direct than for indirect taxes, direct tax revenues should fail to keep pace with total income in the early stages of development.The presence of supply-side constraints on the capacity of the fiscal system to generate direct-tax revenues was tested by means of a simultaneous-equation model. Since in practice transfer payments or negative taxes form an important part of the direct tax system, it was necessary to include them in the empirical analysis. It was decided to define an unobservable variable, the overall fiscal structure, which reflects the effects of both tax structure and transfer payments. Use of the LISREL technique allowed this new variable to be treated as a latent variable in statistical estimation.The results indicated that overall fiscal structure varied in nonlinear fashion with the logarithm of per-capita income, as the theoretical model predicted. This variable was found in turn to be a significant determinant of the level of taxes and the distribution of after-tax income. Little evidence was found of feedback from these other variables to the overall fiscal structure. These findings were interpreted as being consistent with the hypothesis that voter choices may be constrained by the revenue-generating capacity of the fiscal system if a significant portion of taxable activities is not easily observable.

Standardised Latin and medieval economic growth

Traditional explanations for Western Europes demographic growth in the High Middle Ages are unable to explain the rise in per-capita income that accompanied observed population changes. Here, we examine the hypothesis that an innovation in information technology changed the optimal structure of contracts and raised the productivity of human capital. We present historical evidence for this thesis, offer a theoretical explanation based on transaction costs, and test the theorys predictions with data on urban demographic growth. We find that the information-technology hypothesis significantly increases the capacity of the neoclassical growth model to explain European economic expansion between 1000 and 1300.

PUNISHMENT, REWARD AND THE FORTUNES OF STATES

Existing theories explain the rise and fall of states either by random factors specific to each state or by a life cycle to which any state eventually succumbs. However, neither approach is able to explain systematic patterns such as the tendency toward smaller political units during the millennium from 400 to 1400 A.D. and the movement in the opposite direction over the last six centuries. Here it is argued that such changes are due to innovations in the technology of information processing and military control that alter the cost of generating rewards and imposing punishment.

Explaining forecasting bias: The case of real exchange rate variance

Recent Tests of the Rational Expectations Hypothesis (R.E.H.) Based on the Assumption That Agents Are Risk-Neutral Have Yielded Conflicting Results When Applied to Foreign Exchange Markets. Here a Two-Stage Procedure Which Does Not Assume Risk Neutrality Is Derived From a Model of a Utility Maximizing Importer Who Incurs on Adjustment Cost If He Changes His Import Order. Although a Short-Run Test (Based on Aggregate Imports) Leads to Rejection of the R.E.H. in the Majority of Cases. a Longer-Run Test (Based on Machinery Imports) Is More Favorable to the Null Hypothesis. the Observed Short-Run Tendency to in Effect Ignore Low Levels of Real Exchange-Rate Variation Is Found to Be More Likely When Bilateral Rates Have Remained Relatively Stable, When the Importing Economy Is Relatively Closed, Or When Governments Have Announced Policies of Intervention to Stabilize Bilateral Rates.