AP WORLD HISTORY CHAPTER 21 “THE COLLAPSE AND RECOVERY OF EUROPE” (1914-1970S) The Great Depression.
The Swedish Recovery from the Great Depression: A ...
Transcript of The Swedish Recovery from the Great Depression: A ...
The Swedish Recovery from the Great
Depression: A disaggregated perspective
Kerstin Enflo (Lund) and Joan R. Rosés (LSE)
Contents
Historical patterns of the Depression in Sweden.
Alternative explanations for the recovery.
Macro evidence on these explanations.
The regional variability of the Depression.
New approach for studying the recovery: disaggregated
evidence.
Preliminary results.
Enflo & Rosés: Great Depression in Sweden 2
Historical Facts
Sweden was a small and open economy that depended
strongly from export markets.
The Great Depression arrived at the same time than in the
rest of European countries.
Sweden abandoned the Gold Standard earlier (by September
1931) when the country was unable to raises short-term
loans to maintain its currency.
Sweden was one of the countries that recovered earlier and
swiftly from the Great Depression.
Enflo & Rosés: Great Depression in Sweden 3
The “mild” Swedish Depression
Real PPP GDP per capita, 1929=1, source: Broadberry and Klein (2012), interwar borders.
Enflo & Rosés: Great Depression in Sweden 4
Alternative Explanations for the recovery
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1. Keynesian recovery led by Sweden’s Social Democratic Party which implemented large public works.
2. Monetary policy: B of S. targeted an objective inflation facilitating GDP growth.
3. Export-led recovery: Weak Krona and German demand for strategic goods were behind Sweden’s success history.
4. Domestic demand: caused by a combination of factors: demographic, low interest ratas and technological change.
Keynesian recovery was unlikely
Enflo & Rosés: Great Depression in Sweden 6
Deficit/GDP and Debt/GDP ratios were low.
Prices in Sweden were far from stable
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Sweden suffered a severe deflation (like the rest of European countries) and prices recovered 1929 levels by 1940.
85
90
95
100
105
110
1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940
CPI
Deflator GDP
Export versus domestic-led recovery
Enflo & Rosés: Great Depression in Sweden 8
Domestic comsumption, and investments recovered earlier and faster than exports. Even imports recovered earlier.
Also, contribution of domestic demand to GDP growth
was larger than exports contribution …
Enflo & Rosés: Great Depression in Sweden 9
-1000
-800
-600
-400
-200
0
200
400
600
800
1000
1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940
Mil
lio
n C
on
stan
t S
EK
(B
ase
1910
/12
)
Consumption Investment Exports Imports GDP
The impact of the Great Depression was uneven across
Swedish counties
Enflo & Rosés: Great Depression in Sweden 10
And also the recovery
[799.2167,1001.98](1001.98,1204.743](1204.743,1407.506]
(1407.506,1610.269](1610.269,1813.032]
1940
Relative GDPs per capita. Bin widths below 70 per cent of median, 70-90, 90-110, 110-130 and above 130.
The impact of the Great Depression was uneven across
Swedish counties
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Also in employment
Employment to population ratios, Bin widths below 70 per cent of median, 70-90, 90-110, 110-130 and above 130.
[.4212947,.4325522](.4325522,.4438106](.4438106,.4550691]
(.4550691,.4663276](.4663276,.477585]
1930
[.3821603,.4136489](.4136489,.4451386](.4451386,.4766283]
(.4766283,.508118](.508118,.5396066]
1940
Why the North of Sweden experienced this harsh crisis?
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The explanation lies in the localization of export industries
Export industries (1930): Location quotients, lightest (below 1) are relatively unspecialized, specialization in darker shades
from 1-1.5, 1.5-2, 2-3 and above 3)
Explaning the recovery: new data and methodology
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New database of employment and number of firms by
county and industry (24 counties x 10 industries x 10 years).
We consider two different definitions of recovery: (1)
county-industry came back to pre-crisis employment/firm
levels and (2) they came back to pre-crisis growth rates.
We hypothesize that the probability (hazard) of recovery is
positively correlate with the growth of domestic prices,
foreign prices, and domestic market access in 1930
(measured with the Harris specification) and negatively
correlated with the initial level of production.
Explaning the recovery: new data and methodology
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Then we estimate the following equation:
With 3 different econometric methodologies: Logit;
Dynamic Logit with random effects and Cox-Hazard with
gamma frailty (random effects).
(1) Recovery (0,1)ijt = a0 + Δ Domestic Pricesjt + Δ Export Pricesjt + Ln Levelij1930
+ Ln Domestic Market Potentiali1930 + eijt,
Enflo & Rosés: Great Depression in Sweden 15
The contribution of domestic prices is significantly larger than the contribution of foreign prices.
Table 1. Probit and Cox Hazard Models: Main Results
(1) (2) (3) Probit Dynamic Probit Cox Hazard
a) Employment level (0,1) Domestic Prices 2.6153***
(0.7401) 8.7236*** (1.3018)
18.3781*** (1.1213)
Export Prices 1.9322*** (0.4707)
2.7693*** (0.7536)
4.4974*** (0.6420)
LnWorkers 1930 -0.2665*** (0.0211)
-0.5839*** (0.1069)
-0.1959*** (0.0340)
Domestic Market Potential 1930 0.4787*** (0.0311)
1.0417*** (0.1559)
0.4876*** (0.0916)
b) Firms level (0,1) Domestic Prices 3.4922***
(1.0427) 9.3011*** (1.9468)
24.8984*** (0.8194)
Export Prices 1.7703** (0.6183)
3.5569*** (1.0835)
1.4366*** (0.5466)
LnWorkers 1930 -0.1190*** (0.261)
-0.2917*** (0.1203)
Domestic Market Potential 1930 0.3010** (0.1042)
1.1053*** (0.1767)
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The contribution of domestic prices is significantly larger than the contribution of foreign prices.
Table 1. Probit and Cox Hazard Models: Main Results
(1) (2) (3) Probit Dynamic Probit Cox Hazard
c) Employment rates (0,1) Domestic Prices 0.1181n.s.
(0.7165) 0.6071n.s. (0.8860)
21.8152*** (1.0397)
Export Prices -0.0409 n.s. (0.4620)
-0.3754 n.s. (0.5844)
10.4487*** (0.3839)
LnWorkers 1930 -0.2492*** (0.0222)
-0.3570*** (0.0687)
-0.2334*** (0.0151)
Domestic Market Potential 1930 0.3101*** (0.0866)
0.4160 n.s. (0.2875)
0.2707*** (0.0186)
d) Firms Rates (0,1) Domestic Prices -1.5875**
(0.699) -1.9728** (0.8083)
16.7581*** (1.3995)
Export Prices 0.9013** (0.4639)
1.1700** (0.5483)
4.8991*** (0.6275)
LnWorkers 1930 -0.1535*** (0.0208)
-0.1720*** (0.0484)
-0.1187*** (0.0222)
Domestic Market Potential 1930 0.0492*** (0.0868)
0.0860 n.s. (0.02075)
0.3787*** (0.0481)
Provisional Conclusions
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Sweden experienced a mild Great Depression.
However, Depression was uneven distributed across regions
and industries.
The first step towards recovery was the abandonment of the
Gold Standard.
However the recovery was not caused directly by fiscal and
monetary policy.
The main culprit of the recovery was domestic demand
while international markets played a secondary role.
What need to be explained is the sources of this domestic
demand expansion.