Temporary Protection and Technology Adoption: Evidence from the Napoleonic Blockade - Job Market Paper

Industrial policy is always a contentious argument in development economics between free-marketers and state intervention. Réka Juhász's Job Market Paper "TemporaryProtection and Technology Adoption: Evidence from the Napoleonic Blockade" brings historical evidence to that debate through an interesting natural experiment from the early 19th century.

Abstract

"This paper uses a natural experiment to assess whether temporary protection from trade with industrial leaders can foster development of infant industries in follower countries. Using a new dataset compiled from primary sources, I find that in the short-run regions (départements) in the French Empire which became better protected from trade with the British for exogenous reasons during the Napoleonic Wars (1803-15) increased capacity in a new technology, mechanised cotton spinning, to a larger extent than regions which remained more exposed to trade. Temporary protection had long term effects. In particular, by exploiting the fact that the post-war location of the cotton industry was determined to a large extent by the historical accident of the wars, I first show that the location of cotton spinning within France was persistent, and firms located in regions with higher post-war spinning capacity were more productive 30 years later. Second, I find that after the restoration of peace, exports of cotton goods from France increased substantially, consistent with evolving comparative advantage in cottons. Third, I show that as late as 1850, France and Belgium - both part of the French Empire prior to 1815 - had larger cotton spinning industries than other Continental European countries which were not protected from British trade during the wars; this suggests that adoption of the new technology was far from inevitable."

Interestingly, the paper studies the effects of an event and policy that was not designed for industrial purposes: the Napoleonic Wars and the Continental Blockade. While the Continental Blockade had the foreign policy purpose of undermining Britain's trade advantage/power and not necessarily a protectionist measure for French industry (in this case cotton). Probably the most interesting case may be that of Belgium and not that of France. During the Napoleonic Wars, Belgium was under French control (1794-1815) until it became part of the Netherlands. However, cotton industry grew more in Belgium than in the Netherlands in the post-Napoleonic period.. pointing out to the second issue: Technology Adoption

The results show there may be some role to be played for protectionist policies for infant industries not only to establish productive capacity but also the be able to adopt/adapt new technologies more successfully. On the other hand, the temporary protection was not sector-specific but across the board, leading to the interpretation that industrial policy may be more effective by focusing on the general environment rather than specific industries, allowing for an efficient internal reallocation of resources.

To note that the study focuses on a successful case and does not look at the industries that may have been wiped out after the lifting of the blockade, so we should be careful in making general economic welfare interpretations at country level.

Crime and the Depenalization of Cannabis Possession - Research Paper

 While medical marihuana has been at the forefront for legalization in the USA, the crime reduction perspective remains one of the key arguments for legalization. Adda, McConnell and Rasul's paper "Crime and the Depenalization of Cannabis Possession:Evidence from a Policing Experiment" looks at a policing experiment in the UK where cannabis was temporarily (and partially) depenalized (not to confuse with legalized!!) Abstract below:

"We evaluate the impact on crime of a localized policing experiment that depenalized the possession of small quantities of cannabis in the London borough of Lambeth. Such a policy can: (i) impact the demand for cannabis in Lambeth as users move there to purchase cannabis; (ii) enable the Lambeth police to reallocate effort towards other types of crime.

We investigate whether the depenalization policy impacts the level and composition of crime, using administrative records on criminal ofences by drug type, and for seven types of non-drug crime. We find that depenalization in Lambeth led to significant increases in cannabis possession ofences that persisted well after the policy experiment ended. We find evidence that the policy caused the police to reallocate effort towards crimes related to the supply of Class-A drugs, as well as reallocating effort towards non-drug crime: there are significant reductions in five types of non-drug crime, and significant improvements in police effectiveness against such crimes as measured by arrest and clear-up rates. Despite the overall fall in crime attributable to the policy, we find the total welfare of local residents likely fell, as measured by house prices. These welfare losses are concentrated in Lambeth zip codes where the illicit drug market was most active. Finally, we shed light on what would be the impacts on crime of a citywide depenalization policy, by developing and calibrating a structural model of the market for cannabis and crime, accounting for the behavior of police and cannabis users. This highlights that many of the gains of the policy can be retained, and some of the deleterious consequences ameliorated, if all jurisdictions depenalized cannabis possession. These results provide new insights for the current policy debate on the regulation of illicit drug markets"

As the paper highlights, cannabis users represent the majority (up to 80%) of illicit drug users in the world. Any policy that would allow reallocation of resources either to other kinds of drugs or to non-drug related crime, should have a noticeable impact. And impact it had, on the one hand cannabis possession increased (to note that their definition of Crime Hotspots refers to all kinds of drug crime and not necessarily cannabis specific) due to "spill over" from other (still penalized) jurisdictions and reduced risk of possession; and on the other, police resource reallocation that led to overall reductions in crime.

The issue of jurisdictions is key here, given that, according to the paper, the negative effects of depenalization in Lambeth due to transfer of users would have been countered by a general depenalization (so the user risk equalizes and Lambeth would have not been an attractive destination). This not only applies to cannabis, but also to other products and behaviors that society may want to regulate. Even if general depenalization is not to occur, coordination between jurisdictions is advisable so compensatory or complementary policies can be adopted.

Much like in the TV series "The Wire" and their "Hamsterdam" experiment (Season 3), managing public perceptions and minimizing negative dynamics within the hotspots are paramount for the policy to be a success.

I personally have some problems with using housing prices as a proxy for welfare of local residents, but I can't offer any better indicator. It would be interesting to know further in detail the effects of this experiment had on personal welfare (criminal records, impact on sentencing, etc..), judicial costs (not only courts, but also jail and prison resources) and other (value of reduced crime, insurance, public property and resources, tax, etc..); that could be compared to the estimated welfare (housing) loss.

While the legalization/decriminalization debate has multiple spheres, cultural, medical, political, etc.. whether one is in favor or not, one need to take into account the potential impact of the decision will have, and this paper helps in that quest.

 HT to Marginal Revolution