Dock cities

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DOCK CITIES AND COINTEGRATION

DEGREE OF FOOD MARKETS IN

EUROPE

1700-1811

London School of Economics, April 2011

Carles Manera, Gabriel Jover, Andreu Sansó Universitat de les Illes Balears

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THE FIRST GLOBALIZATION

• _{The first globalization has been considered one}

of the key factors in the current debate about the first modern growth.

• _{Modern growth: change process on a dual}

revolution: the industrious and the consumption one.

• _{Industrious Revolution (De Vries): reduction of}

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IMPORTANCE OF COMMERCE

• _{Formation of commercial networks in order to}

guarantee the demand increase.

• _{These networks facilitate obtaining resources}

with a high price-income flexibility (cereals, wood) in remote markets: Baltic,

Mediterranean, American and Asian.

• _{This makes the optimization of resources}

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Sense of globalization: Jan De Vries’s

classification

• _{Warm or soft globalization: Gunder Frank and}

Wallerstein works on the world trade articulation, on the economy-world.

Difficulty in establishing the effective economic impact.

• _{Strong or hard globalization: works by O’Rourke}

and Williamson. Progressive price convergence of goods, because of the decrease of the

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We assume the notion of the hard

globalization…

• _{O’Rourke-Williamson: in order to measure the} globalization influence in the economy, it is

necessary that the forces generated by the

commerce cause changes in goods prices. This implies changes in the production scale, in the distribution and in the standard of living.

• _The_{Big Bang}_{of the globalization: in the early XIX} century, based on econometric analysis on the volume of the international trade (XVI-XVIII

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…which lead to specific hypothesis

• _{1. Europe depended on their own resources in}

order to keep the population growth.

• _{2. There is an evidence of a “revolution of}

consumption”: an increase of luxury goods in imports, an increase of the incomes of the

wealthy classes.

• _{These are, in short, the starting theoretical}

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Aim: to analize the food markets integration

degree

• _{Certain European space areas (availability of}

statistical sources).

• _{Importance of maritime communication.}

• _{Cereal prices adoption as a precise indicator of}

the commercial integration.

• _{Regional perspective: provides a higher depth}

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Research structure

• _{1. Formation and advance of the commercial networks}

from the strategies of the mercantile resources and the States themselves.

• _{2. Empirical application: Allen and Unger historical}

prices database (www.gcpdb.info). Prices expressed in

silver grams per litre. Statistical universe with more than a hundred European cities.

• _{3. Period: 1700 – 1811: London, Paris, Amsterdam and}

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Networks

• _{1. New trader profile: more mobility, very}

precise knowledge of the markets. Need of mutual relations in order to face the markets uncertainty. Reduction of transaction costs (along the suggested line by Coase).

• _{2. Networks formation: strategic element.}

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What do networks contribute?

• _{1. Greater productivity: they reduce costs.}

• _{2. Capacity to guarantee the fulfilment of the}

established obligations.

• _{3. Confidence, derived from the group}

cohesion.

• _{4. The company resolves the conflicts through}

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This twists the conventional vision of the

international commerce theory

• _{1. Transaction costs were not considered. They}

were supposed to be nil.

• _{2. It was thought that the agents have perfect}

information and they try to profit from their comparative advantage.

• _{3. The reality of Economic History: the}

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Crucial changes in the commercial field from

XIVth century

• _{A) Increase of the capital mobility: dynamism of the} payment mechanisms exchange effects (payments, promissory notes)

• _{B) Information costs reduction: an impetus of} mercantile infrastructures.

• _{Recession of the risk: Use of maritime changes and} maritime insurances.

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Improvements in the commercial

organization

• _{1. This perspective defends that innovation is not only applicable to}

the economies of technological base supported over the technical change, with new machines.

• _{2. The described commercial improvements favor the productivity}

advance, although being made in lesser industrial base economies.

• _{3. Mokyr: The technological progress is any change in the}

application of the information in the production processes.

• _{4. Rosenberg: A large part of the development comes from the}

already available information rather than the totally new knowledge generation.

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Empirical examples (1): the profits fall of the commercial capital in the Mediterranean Sea

The example of the graphic corresponds to the

microeconomic analysis which was made in commercial

companies in Mallorca island, during the years 1600-1788. The data allows to prove that between the beginning of the XVIIIth century and its end, the strong commercial competence in the Mediterranean Sea means a reduction of benefits that forces to improve:

a) Commercial networks, b) Reduction of information

costs,

c) Reduction of transaction costs.

Media de negocios comerciales Media de negocios comerciales Arrendamientos de fincas rurales Compra-venta de mercancías Arrendamientos de fincas rurales Seguros marítimos Transacciones con monedas Gestión de suministros públicos

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Empirical examples (2): higher commercial

tranquility in the Mediterranean Sea?

The Mediterranean commercial dynamism means, at the same time, a reduction of the

insurances costs and the maritime risk.

Again, the example corresponds to the Mallorca Island, with data coming from insurance policies and maritime risk of the local companies, and also from

Spooner, Assante, Pons, Addobati, López Nadal and Manera’s

investigations.

The competition in the

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Empirical examples (3): market integration of Mallorca, Valencia and Barcelona (Manera-Sansó)

A common evolution in prices can be observed, together with the fact that each of them follows a non-stable evolutionary trend. An individual analysis of each of the three series shows that they are first-order integrated.

Consequently, there is no evidence that the LOP did not prevail among all three cities during the 18th_century.

The most obvious inference that can be made from all the above is the decisive role that commercial capital came to play in 18th_{century Mediterranean} Spain, economically and financially through taxation, the negotiation of key goods, forms of transport, credit mechanisms, and working capital. Indeed, in some regions most of the economy’s key products were directly or indirectly controlled by the trade sector.

15 01 15 15 15 29 15 43 15 57 15 71 15 85 15 99 16 13 16 27 16 41 16 55 16 69 16 83 16 97 17 11 17 25 17 39 17 53 17 67 17 81 17 95 18 09 0 50 100 150 200 250

THE EVOLUTION OF WHEAT PRICES IN SPANISH MARKETS ON THE MEDITERRANEAN COAST

Test of the Law of One Price

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The empirical aplication

• _{The market integration can be contrasted}

through checking if the Law of One Price (LOP) is done.

• _{This Law establishes that, in two different}

markets, the prices of the same homogeneous and transportable goods have to be equal

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The econometric approach

• _{The simultaneous evolution of a group of}

variables as the prices can be analyzed

through Vector Autoregression (VAR) model.

• _{If the variables are strong and can present}

cointegration relations, the Johansen

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The basis of the study: London, Paris, Milan,

Amsterdam,Valencia, Mallorca,Barcelona, 1700-1811

• _{It has been worked with the stadistic sources}

taken from Allen-Unger (www.gcpd.info) and

with the stadistics taken from Manera-Sansó. The analysis of Valencia is extendable to

Mallorca and Barcelona.

• _{Values reduced to silver grams per litre.}

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The graphic

profile of price movements

London, Milan, Amsterdam and Valencia markets evolve in the long term dominated by a stochastic tendency and they might be cointegrated.

The logarithm of the wheat prices in Paris is stationary. It can be stated that the market in Paris is not integrated with any of the other ones.

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Provisional conclusions (1)

• _{1. The stated} _{data shows that we cannot ignore}

the role that the early globalization had, before

the globalization shown by O’Rourke y Williamson. And this is not only applied in the formation of

product markets, but also in the development of the international payment systems.

• _{2. A degree of integration of European regional}

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Conclusions (2)

• 3. The Mediterranean Sea is crucial in the provisioning of inputs and

consumption products. But it has been demonstrated the wheat exportation availability as well.

• 4. It is possible to observe that there are clear fases of wheat commercial integration before the 1820.

• 5. There is an evidence of integration in the wheat markets of Amsterdam and Milan.

• 6. It can be concluded that the markets of Valencia, London, Amsterdam and Milan are related, although they are not integrated between them.

• 7. Nevertheless, the connection degree between those markets could be enough in order to remedy the crisis period of regional supplies (Atlantic, Baltic and Mediterranean ones).