Three essays in applied international macroeconomics: causes of growth and stagnation in the 19th Century United States

This dissertation is composed of three essays on U.S. macroeconomic development in the 19th century. Its focus is on the role of international trade and finance in governing the pace and nature of domestic growth. I argue the balance of payments and the institutions that govern its development played a larger role in U.S. economic growth than is normally recognized. The first essay of the dissertation lays the theoretical groundwork for the subsequent papers. Recent literature in the economics of growth has suggested that the main determinant of growth differences lies in institutions and the political process. Thus, "proximate" causes of growth are determined by more "fundamental" national characteristics like the structure of property rights. I argue instead that the developmental orientation of the state emerges as fundamental in U.S. history. Most importantly, the federal government's role in shaping and establishing financial markets and a common money of account allowed the U.S. to escape external constraints on growth related to the capital account. The second paper tests the hypothesis that U.S. growth was balance of payments constrained. This paper provides estimates of the long and short-run import demand function. Structural break tests suggest a shift in import demand after the Civil War. This implies that over time, maintaining balance on current account became less relevant as a potential constraint on growth. As a result, external events like terms of trade shocks and changes in British monetary policy seem to have less of an impact on growth in the latter part of the century. I explain this decline in the income elasticity of imports as the result of the active developmental state. The final paper of the dissertation examines the economic crisis between the years 1837 and the early 1840s. While traditional narrative regards the crisis as a purely monetary event, it can alternatively be seen as a balance of payments problem following a common pattern among small open economies. I outline a model of assymetric balance of payments adjustment, which suggests that the pace of industrialization in England determines export prices and debt sustainability in the U.S.