Antebellum Manufacturing Returns, Risks, and Patterns of Specialization
Quade, Robert Clyde
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https://hdl.handle.net/2142/70796
Description
Title
Antebellum Manufacturing Returns, Risks, and Patterns of Specialization
Author(s)
Quade, Robert Clyde
Issue Date
1988
Doctoral Committee Chair(s)
Ulen, Thomas S.
Department of Study
Economics
Discipline
Economics
Degree Granting Institution
University of Illinois at Urbana-Champaign
Degree Name
Ph.D.
Degree Level
Dissertation
Keyword(s)
Economics, History
Abstract
At the middle of the nineteenth century returns to investment in manufacturing exceeded those to investment in agriculture. This difference was significantly greater in the South. The South also had the lowest value of manufactures per capita, the smallest manufacturing facilities, and the greatest risk premia of all the regions of the United States. Data suggest that this was not always the case. The eighteenth-century South had not lagged behind the North, if anything, it had been the industrialized region. The relative success of the South in the eighteenth century weakens traditional explanations of Southern manufacturing backwardness in the nineteenth.
This dissertation offers another explanation. A general equilibrium model of investment under conditions of risk is developed. It is discovered that an increase in systematic risk leads to an increase in the risk premium. If manufacturing was the riskier sector in the nineteenth century, the increased systematic risk due to Southern monoculture for export may have been the cause of the observed Southern backwardness. As Southern concentration on cotton did not begin until the end of the eighteenth century, the timing appears to be correct.
The model was tested using the Bateman and Weiss sample of firms drawn from the 1850 and 1860 Censuses of Manufactures. Rates of return were calculated for each firm and risk premia were calculated for each state from this sample. The variances of wholesale price indices were used as proxies for variance in aggregate demand-systematic risk. Risk premia were regressed against these variances and the resulting equations used to adjust rates of return for risk. It was found that Southerns were no more risk averse than their Northern counterparts. The increased risk in the South may very well have been the cause of the lack of Southern manufacturing development.
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