Empirical Essays on Agriculture in Germany: Past and Present DISSERTATION zur Erlangung des Grades Doktor der Wirtschaftswissenschaft (Dr. rer. pol.) der Juristischen und Wirtschaftswissenschaftlichen Fakultät der Martin-Luther-Universität Halle-Wittenberg vorgelegt von Hakon ALBERS, M.Sc. Halle (Saale) Februar 2020 ERSTGUTACHTER: Prof. Dr. Wolf-Heimo GRIEBEN ZWEITGUTACHTER: Prof. Dr. Michael KOPSIDIS TAG DER VERTEIDIGUNG: 06.11.2019 iii Abstract Empirical Essays on Agriculture in Germany: Past and Present by Hakon ALBERS Since the Neolithic Revolution, humans have produced and consumed cereals. This thesis com- prises three essays on the past and present of cereal production and trade. Together with my coauthors I analyze how humans and nature shape these economic activities. Against the background of global warming and increasing cereal yield variability, the first paper develops an approach to decompose wheat yield volatility into input and weather driven categories. We apply this approach to data for Germany in the period 1995–2009 and show that increasing wheat yield volatility stems in parts from changes in weather variables. However, also input adjustments of farmers and macro-level shocks such as policy changes and the price boom in agricultural commodities in 2008 matter for the surge in yield volatility. Only few people work in agriculture in an industrialized economy like Germany today. The second paper focuses on the Malthusian period when agriculture was the dominant economic activity in Germany. We ask in how far an integrated market for grain existed in Germany in the pre-railway era, in particular in the period 1650–1790. That period also witnessed climate change, namely the disappearance of the Little Ice Age. We create a new grain price data set, which we analyze to learn about trade in those times based on the law of one price. As weather shocks influence grain price data, measuring market integration is a challenge. The coefficient of variation may be susceptible to shocks and lead to incorrect inferences about the improvements in trade. We find advances in market integration for the foodgrain rye in North-Western Germany and along major rivers; our analysis shows that this result is not driven by weather shocks or climate change in a plausible way. An important consequence of improved spatial arbitrage was the increased stability of aggregate foodgrain prices, a key aspect of food security. The third paper analyzes the impact of the Napoleonic and Revolutionary Wars (1792–1815) on Germany as a natural experiment. Applying a difference-in-differences framework to rye price data from 1780 to 1830, we find that the territorial expansion of states led to larger internal markets and entailed a significant reduction of price gaps after the wars. These effects are evident for Bavaria and a region that was integrated into Prussia after the wars. Both inland regions had been left untouched by earlier improvements in market integration. This thesis shows how both nature and humans shape economic activity. Weather and climate affect agricultural production; humans form the institutions governing trade in agricultural com- modities. Next to the decisions about trade, humans also develop new agricultural technology to arrest the detrimental effects of nature on the production of food, which remains an essential con- sumption good also in the modern growth regime. Given global challenges such as climate change and population growth, it follows that the determinants of technological change in agriculture are an important area of future research. v Acknowledgements I would like to thank my first supervisor Wolf-Heimo Grieben for constant funding, trust, support and guidance. I would like to express my gratitude to him for being always available when re- quested and for letting me follow my interests. The combination of trust and freedom was vital for me. The studies at his chair introduced me to growth theory and the economics of technological change. He has been a teacher who motivated me to extend my personal boundaries. Michael Kopsidis, my second supervisor, supported my thesis whenever necessary with dis- cussions in his office full of books at the IAMO—I am grateful for his constructive feedback and guidance. This thesis was improved without doubt based on his knowledge on the economic history of Germany. I have benefitted from the knowledge and experience of my coauthors and I would like to thank them all for their excellent collaboration. I have learned a good share on econometrics from Silke Hüttel and her ability to detect weak points in an argument. When studying agricultural eco- nomics at Humboldt-University in Berlin, I also met Christoph Gornott, who opened my eyes to the agronomic/natural science perspective on agriculture. Without that view my understanding of agricultural production would be much poorer. Ulrich Pfister has been part of my development since my time as a bachelor student in history and economics. I would like to thank him for support, trust, and our collaboration throughout the years. A substantial share in my personal consumer basket of knowledge on pre-industrial Germany stems from his work. I would like to express my gratitude to Martin Uebele, who has supported my work and early development since my time as a student research assistant at Ulrich Pfister’s chair. Sumit Deole and I started our doctoral studies together in Halle. Sumit made me talk English much more than I would have otherwise – my everyday reminder of globalization in a middle- sized city in Eastern Germany. Together we have gone through some of the coursework and I am grateful for our lunch and office discussions. Furthermore, I would like to thank all those professors and students who provided me with comments in our research seminar, the CGDE-workshops and at the conferences I attended. Many of these comments helped me to improve the work contained in this thesis. I would like to thank my parents, Ilka and Karl-August for everything. Their love and un- conditional support throughout my life provided me with the strength to write this thesis. I am grateful to my brother Thilo: in our early days we ‘studied’ odd computer magazines together, now we are discussing economic history papers, minor difference... Without my sister Janika I would not be the person I am—I try to keep her with me wherever I go. My wife Lisa supported me and this thesis in a way that is difficult to capture with words. Most importantly, she has been my back-up in the difficult moments and supported the overtime that was necessary; I admit I can improve my management skills. Mika ensured that I did not get lost in my office: someone would be waiting for me to play other games. I hope I can share many more hours in my life with both of them. Similarly, I hope that I can spend more time with the friends I have met in different cities at different times and who are still with me. vi Contents Abstract iii Acknowledgements v Contents vi List of Figures x List of Tables xi 1 Introduction 1 1.1 Paper 1: How do inputs and weather drive wheat yield volatility? The example of Germany . 2 1.2 Paper 2: Market integration or climate change? Germany, 1650–1790 . 4 1.3 Paper 3: War, state growth and market integration in the German lands, 1780–1830 8 1.4 Summary and outline of the thesis . 9 2 How do inputs and weather drive wheat yield volatility? The example of Germany 11 2.1 Introduction . 12 2.2 Conceptual framework and related literature . 14 2.3 Data . 15 2.3.1 Production function for wheat . 15 2.3.2 Weather and phenological stages . 17 2.4 Econometric strategy . 18 2.4.1 Empirical model wheat yield variability in Germany 1995–2009 . 18 2.4.2 Investigating the effect of inputs and weather on yield volatility . 23 2.5 Results and discussion . 24 2.5.1 Production function inputs . 24 2.5.2 Weather . 27 2.5.3 Decomposing wheat yield volatility . 29 2.6 Concluding remarks . 30 SA2 Supplementary appendix: How do inputs and weather drive wheat yield volatil- ity? The example of Germany 33 vii SA2.1 Literature Review . 33 SA2.1.1 Three choices . 33 SA2.1.2 Literature overview tables . 34 SA2.2 Data . 39 SA2.2.1 TF-8 versus TF-14 . 39 SA2.2.2 Yields . 40 SA2.2.3 Details on input and weather data . 40 SA2.2.4 Weather: merging data sets and additional variable definitions . 41 SA2.2.5 Altitude of farms, weather stations and phenological observational units . 43 SA2.2.6 Details on CAP reforms . 43 SA2.3 Regression model . 43 SA2.3.1 Model building, selection, specification tests and robustness . 43 SA2.3.2 Actual and fitted values . 49 SA2.3.3 Cross validation . 50 SA2.4 Yield volatility . 50 SA2.4.1 Detailed results . 50 SA2.4.2 Aggregation bias . 52 3 Market Integration or Climate Change? Germany, 1650–1790 53 3.1 Introduction . 53 3.2 A new data set of pre-industrial grain prices in Germany . 55 3.3 Anatomy of the coefficient of variation . 57 3.3.1 Shocks in the cross-sectional coefficient of variation . 57 Symmetric absolute shock . 57 Asymmetric absolute shock . 58 Proportional shock . 59 Summary . 59 3.3.2 Measuring price convergence robust to weather shocks . 60 3.3.3 Measuring price convergence robust to climate change . 62 3.4 Price convergence at the national level and in North-Western Germany . 64 3.5 Market integration along major rivers . 67 3.6 The reduction in grain price volatility and long-run sample results . 68 3.6.1 More stable foodgrain prices . 69 3.6.2 The role of post-war reconstruction in grain market integration was limited 70 3.7 Conclusion .