Carol H. Shiue

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“Human Capital and Fertility in Chinese Clans, 1300-1850,” March 2008.

Abstract: Theories of modern economic growth assume the income and technological shocks of the industrial revolution triggered the declining fertility and increasing human capital of the demographic transition. To shed light on the question of whether households might be engaging in investment behavior in the pre-industrial period, this paper provides demographic evidence on China over the 14^th to 19^th centuries, a period well before the onset of its demographic transition and industrialization to investigate the relationships between human capital, fertility, and social mobility. Social mobility, both upward and downward, was substantial during much of this period. Fertility was linked to household’s objectives for upward social mobility, which depended on high level investments in child education. I first show fertility varied across the status of households. Second, I examine the sibling size and family characteristics of men who obtained success in the official state administered examinations. I find that conditional on father’s status, there appears to be a robust negative relationship between family size and sons’ education since the late 17^th century that is consistent with a quantity-quality trade off in an instrumental variables estimation framework. The findings suggest there may be a demographic role for modern growth that pre-dates the industrial revolution.

“Institutions, Technology, and Trade,” with Wolfgang Keller, December 2008.

Abstract: We study the importance of technology and institutions in determining the size of markets in five different countries and fifteen different German states. The setting of 19^th century Europe presents a unique opportunity to address this issue, since it witnessed fundamental change in both dimensions. At the beginning of the century, numerous customs borders, separate currencies with different monetary systems, and poor transportation facilities were major obstacles that held back trade. Important institutional change, through the Zollverein customs treaties and currency unification, and major technological innovation in the steam train all had a role in increasing market size as measured in terms of the spatial dispersion of grain prices across 68 markets. However, we find that the impact of steam trains is substantially larger than the effects from customs liberalizations and currency agreements in increasing market size, where correcting for the potential endogeneity in institutional and technological changes are crucial for this result. We also find that a state’s institutions influence the rate of adoption of steam trains, thereby identifying an important indirect effect from institutions on economic performance. The institutional and technological changes account for almost all of the decline in price gaps over this period.

“Markets in China and Europe on the Eve of the Industrial Revolution,” with Wolfgang Keller, American Economic Review, September 2007.

Abstract: Prevailing views suggest the Industrial Revolution began in Europe because markets had gradually become more efficient and by the 18^th century the scope of economic activity was far larger than in other parts of the world. This paper compares the actual performance of markets in Europe and China, two regions of the world that were relatively advanced in the pre-industrial period, but would start to industrialize about 150 years apart. The analysis covers economies that account for about two-fifths of the world’s population in the mid-18^th century, and it considers some three centuries of data. Our findings suggest that relative levels of market function in China and Europe were similar prior to the Industrial Revolution. Higher efficiency in Europe is seen only in the nineteenth century when industrialization was already underway. Moreover, these improvements occurred in a dramatic and sudden fashion, further casting doubt on the evolutionary view of market development. Rather than being a key condition for subsequent growth, gains in efficiency appeared simultaneously with the turning point of modern growth. We discuss the implications of these findings for a number of explanations for long-run growth and the Industrial Revolution.

“The Origins of Spatial Interaction: Evidence from Chinese Rice Markets, 1742-1795,” with Wolfgang Keller, Journal of Econometrics, September 2007.

Abstract: Geography shapes economic outcomes in a major way. This paper uses spatial empirical methods to detect and analyze trade patterns in a historical dataset on Chinese rice prices. Our results suggest that spatial features were important for the expansion of interregional trade. Geography dictates, first, over what distances trade was possible in different regions, because the costs of ship transport were considerably below those for land transport. Spatial features also influence the direction in which a trading network is expanding. Moreover, our analysis captures the impact of new trade routes both within and outside the trading areas. We also discuss the long-run implications this might have.

“From Political Fragmentation towards a Customs Union: Border Effects of the German Zollverein, 1815 to 1855,” European Review of Economic History, August 2005.

Abstract: Over the first half of the 19^th century, the Prussian-German Customs Union known as the Zollverein gradually unified a scattered confederation of sovereign states under an internal free trade agreement. This paper uses grain prices to quantify the differential effect of the Zollverein for market integration among Zollverein members versus European powers that were not part of the Zollverein, including France, Switzerland, and the Habsburg Empire of Austria. Overall, this border effect is consistently and substantially less than border effect estimates from contemporary samples. For the 1834 liberalization round, the implied border effect, calculated as the implied decrease in distance that comes about as the result of the customs border being eliminated, is between 140 and 160 kilometers, with the smaller distance for non-German speaking cities, and the larger distance for German speaking cities. Thus, common language in this sample provides an additional benefit of lowering trade barriers by 11-15% in distance, making border elimination more valuable among German-speaking cities than for mixed-language-speaking cities. The paper offers a few reasons for why I estimate smaller border effects than are found in studies on 20^th century economies, and the analysis gives a new historical perspective on what drives trade costs and changes in market integration.

“Market Integration and Economic Development, A Long-run Comparison,” with Wolfgang Keller, Review of Development Economics, February 2007.

Abstract: How much of China’s recent economic performance can be attributed to market-oriented reforms introduced in the last two decades? A long-run perspective may be important for understanding the process of economic development occurring today. This paper compares the integration of rice markets in China today and 270 years ago. In the 18^th century, transport technology was non-mechanized, but markets were close to being free markets. We distinguish local harvest and weather from aggregate sources of price variation in a historical sample and in a similarly constructed contemporary sample. Findings indicate the degree of market integration in the 1720s is a very good predictor of per-capita income in the 1990s. Moreover, the current pattern of interregional income in China is strongly linked to persistent geographic factors that were already apparent several centuries ago, well before the enactment of modern reform programs.

“The Political Economy of Famine Relief in China, 1740-1820,” Journal of Interdisciplinary History, Summer 2005.

Abstract: In pre-industrial economies, people often faced unpredictable and catastrophic risks from crop failures brought on by erratic weather patterns, pests, and epidemics. In China, tax exemptions and tax postponement, as well as local state sponsored granaries were used to forestall and curtail the impact of food crises. Relatively little is known about how the application of these two types of relief measures evolved over time across provinces. To study the conceptual issues involved, I present a simple model that separates resource constraints from agency problems. Under this framework, the decision to deviate from officially ascribed duties comes about because the terms of famine relief funding and the command and control structure of the state produces in a class of officials the rational incentive to deviate from the objectives announced by the center. Because similar incentives are perceived by officials of a certain class, their responses may be also similar, and this in turn, I suggest, may produce the kinds of macroeconomic patterns of storage and relief that are consistent with those that we observe in the data.

“The Rise of Markets in the Western World: A Global Comparison,” Russell Sage Foundation Working Paper #211, May 2003.

Abstract: Does trade cause growth? How about the Industrial Revolution? A widely held view is that the more efficient markets in Europe provided an important reason of why the Industrial Revolution started its spread from Europe in the late 18^th century, and not from China. Among the reasons that have been proposed for this supposed efficiency gap are differences in terms of geography, culture, nationality, population, institutions, or historical ‘accidents’ such as the discovery of the Americas. In this paper we compare the actual efficiency of markets using data on the spatial dispersion of grain prices from the 15^th to the early 20^th century. This analysis is made possible by a new detailed and consistent set of grain price data covering about 60% of China in the 18^th century—a part of China larger than Western Europe and contributing about one-fifth of the world’s population at the time. We find, first, that the efficiency of markets in China and Europe was broadly comparable in the late 18^th century, except perhaps for local economic activity, in areas of 150 kilometers or less, where Europe seems to have been ahead. This provides new evidence on a number of explanations for the Industrial Revolution. Second, the differences in market efficiency appear to be small relative to the differences in economic performance between China and Europe during the 19^th century. Rather than being a key condition for subsequent growth, gains in market efficiency and growth might occur essentially simultaneously.

“Local Granaries and Central Government Disaster Relief: Moral Hazard and Intergovernmental Finance in 18^th and 19^th Century China,” The Journal of Economic History, March 2004, 64(1), pp. 101-125.

Abstract: During the eighteenth and nineteenth centuries, the Chinese state attempted to administer famine relief partly through a nationwide institution of local granaries. This paper explores regional variations in the performance of this institution to understand the reasons for its ultimate breakdown. The evidence suggests granary storage levels were systematically lower in provinces that received more frequently disaster relief from the central government; an unintended consequence of disaster relief was that it modified local incentives for self-insurance and led to an incompletely resolved moral hazard problem. China’s experience provides an instructive example of the long-term dynamics present in intergovernmental policies.

“Transport Costs and the Geography of Arbitrage in Eighteenth Century China,” American Economic Review, Vol. 92, No. 5, December 2002.

Abstract: Trade has been considered a condition for growth and development, a view that might have merits in explaining the rise of the Western world. I use a new data set from archival sources of eighteenth-century China to revisit this question. This analysis suggests previous studies of market integration, which attribute much growth to a reduction in transport costs, have overestimated these effects. I find the overall level of market integration in China was higher than previously thought, and, intertemporal effects are important substitutes for trade. Both factors reduce the importance of trade as a unique explanation for subsequent growth.

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