1
East Asian Economic Development in Historical
Perspective Workshop IER, Hitotsubashi
University, Tokyo July 3rd, 2009

• Market Disintegration in Post WWII Japan
• Evidences from Black Market Regional Prices
• Jean-Pascal Bassino
• Faculty of Mathematics and Social Sciences
• Paul Valéry University, Montpellier, France
• E-mail jean-pascal.bassino_at_univ-montp3.fr

2
Motivation(s) ___________________________

• Recent experiences of market failures (and/or
  supervision failure) and of dramatic social
  consequences of erratic price movements (e.g.
  cereals, raw material, real estate, and others)
• Japans immediate post WWII experience
• Severe impact on markets of supply shocks,
  economic chaos, and the disruption of
  transportation and commerce networks
• Hyperinflation
• Collapse of living standards
• Regional market disintegration -gt this paper

3
Research questions and tentative responses
___________________________

• Did regional markets totally disintegrate in post
  WWII Japan?
• Yes, almost completely but the Tokyo-Osaka rice
  price linkage prevailed.
• 2. Did the economic system quickly revert to
  initial conditions?
• No probably more akin to a Markov switch.
• 3. How long did disintegration last?
• Several years close to a decade.
• 4. What were the driving forces leading toward
  regional market reintegration in the 1950s?
• - Unclear it might be that price-fixing played
  an important role.

4
Outline ___________________________

• 1. Economic chaos and the collapse of living
  standards
• 2. Black market price data and descriptive
  statistics
• 3. The prevalence of Tokyo-Osaka price linkages
  VAR and ECM
• 4. Nominal regional price convergence in the 1950s

5
Economic chaos and SCAP reforms__________________
_________

• Economic chaos
• - Siamese twin governments (SCAP Jap. Gov.)
• - Shortage of raw materials and intermediate
  goods
• - Natural hazards and floods
• - Repatriation of soldiers and overseas Japanese
• - Paramount logistic problems (lack of rolling
  stock and merchant fleet)
• 3 main reforms under the SCAP supervision
• - Education reform teenagers not on the street
• - Dissolution of zaibatsu adding to the mess
• - Land reform enhancing the purchasing power of
  rural folks, but also their bargaining position

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The collapse of living standards (1)
___________________________

• O my daughter, you should marry a peasant
• Recurrent complaint among urban Japanese poor
  folks after WWII.
• He decided to abide to the law, never resorting
  to black market. He survived on ration tickets,
  and finally died of starvation.
• Popular story about judge Yamaguchi who died in
  October 1947.
• Prevalence of malnutrition dystrophia (MD)
  estimated at 15 in 1945 (Aoki 2008) and 5 of
  total population in 1947 (Omori 1947).
• Number of deaths due to MD 7476 in 1947, 3474
  in 1948, 2723 in 1949, 4680 in 1950, 2299 in
  1951, 1767, in 1952, 1782 in 1953, 1491 in 1954,
  1117 in 1955 (Aoki 2008).

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The collapse of living standards (2)
___________________________

• Table 1. Average body height of mal students in
  cm
• (year of measurement sample size problems in
  1940-46)

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The collapse of living standards (3)
___________________________

• Table 2. Average per capita daily caloric intake

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Price data and descriptive statistics
___________________________

• Black market prices currently available
• - Agricultural monthly prices in 8 prefectures
  from Sept. 1946 to Dec. 1947 (rice and others)
• - Monthly retail prices of rice and 4 other
  staples (barley, wheat flour, sweet potatoes,
  white potatoes) in Tokyo and Osaka 1947-1950
• Comparison with Meiji-Taisho and the 1950s
• - CV of prefecture-level prices (yearly averages)
• - Monthly price movements of staples in Tokyo and
  Osaka (error correction arbitrage)

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The extent of market disintegration
___________________________

• - Huge regional price gaps in 1947, factor of
  2.1 to 3.3 between the lowest and the highest in
  the case of rice producers prices CV in a
  range between 0.24 and 0.37 (lt0.1 since late
  Meiji)
• - Large retail price gaps between Tokyo and Osaka
  (between 30 and 100) much higher than in
  late-Meiji (in a range of or - 10).
• - Erratic movement of the price of staples
  relative to rice, both in Tokyo and Osaka
  coefficients of correlation in Tokyo in a range
  between 0.59 (wheat flour/sweet pot.) and 0.93
  (rice/barley) in Osaka, 0.29 (barley/sweet pot.)
  to 0.84 (wheat flour/barley)

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The disintegration of regional markets
___________________________

• Figure 3 regional agricultural black market
  rice prices
• (yen per sho around 1.8 l per sho, i.e. 1.5 kg
  rice)

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Rice black market prices in Tokyo and Osaka
___________________________

• Figure 4 Rice black market monthly prices
  (yen per kg)

13
Non-rice staples black market prices in Tokyo
___________________________

• Figure 5 Black market prices relative to
  rice (rice1
• barley and wheat flour, left scale potatoes,
  right scale)

14
Non-rice staples black market prices in Osaka
___________________________

• Figure 5 Black market prices relative to rice
  (rice1
• barley and wheat flour, left scale potatoes,
  right scale)

15
Tokyo-Osaka price linkages (1)
___________________________

• Attempt to uncover causality between price
• variations (5 items) in Tokyo and Osaka using a
  VAR
• (1, 2, 3-month lag Granger causality Wald Test)
• DlogPi,Tyo, t ? ??DlogPi, Tyo, t-q ??DlogPi,
  Osk, t-q e
• Pi,Tyo, t price of item i in Tokyo in t
• Rice Tokyo as leading market (Tokyo was also the
  leading market before WWII)
• Sweet potatoes Tokyo as leading market (no
  information on preWWII)
• Potatoes and wheat flour Osaka as leading market
  (no information on preWWII)
• Barley not significant

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Tokyo-Osaka price linkages (2)
___________________________

• Error Correction Model
• Price of item i in Tokyo and Osaka (5 staples)
• DlogPi,Tyo,t ? ?. DlogPi, Osk,t
  ?.(logPi,Tyo logPi,Osk)t-1 e
• ? Short term adjustment coefficient
• ? Long term adjustment coefficient (error
  correction)
• Critical values for ? based on EricssonMacKinnon
  (2002)
• Results
• - ? is significant and of the expected sign
  (-0.43) for rice
• - Comparable to the conditions in late
  Meiji-early Taisho
• (? significant for rice -0.35)
• - ? also significant for potatoes (but with low
  R-squared)
• - But not significant for barley and wheat

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Nominal convergence in the 1950s_________________
__________

• CV of regional unit prices
• Rice, meat, eggs back to less than 0.1 in 1960
• - Fish, services only limited convergence
• Driving forces of nominal convergence
• - Rice administrative prices
• - Manufactured goods price setting by
  oligopolies (nationwide identical prices for
  beer, pencils, pommade similar prices for sugar,
  nylon stockings, and electric bulbs in a large
  number of prefectures)
• Administrative and nationwide fixed-prices
  generating rent-seeking behavior peasants and
  wholesalers

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Conclusion ___________________________

• Regional market disintegration
• BUT market integration preserved between Tokyo
  and Osaka -gt Enhancing the geographical
  concentration of economic activities in the
  Tokaido region
• Research agenda
• Non-food items black market prices
• Exchange rates of food and non-food items
  (barter trade) was rice used as currency?
• Adjustment of regional prices to changes in
  Tokyo and Osaka (ECM)
• Process of nominal convergence in the 1950s
  (hard evidence of price fixing?)