Let's break up France

Forget the talk about breaking up the euro zone. There’s an economic case for breaking up France.

The problem is that France does not seem to be a single capital market. If France had been created with the intention of creating a single market, therefore, we’d have to conclude that the project had failed.

To see this, consider what a well-functioning capital market would look like. One feature it would have is that there would be no correlation across regions between saving and investment. In a free capital market, investment would be highest in those places where prospective returns were highest. There’s no reason to suppose that that those places would be places with high savings.

This means there’s a simple (ish) test for capital mobility. It’s the sensitivity of investment-GDP ratios to savings-GDP ratios across regions or countries. The lower is this sensitivity (known as the Feldstein-Horioka coefficient), the more mobile is capital.

And here’s the case for breaking up France. This paper has found that there are high Feldstein-Horioka coefficients for regions within France. Capital, it seems, does not flow freely from region to region. Indeed, there’s less capital mobility within France than there was between developed countries in the late nineteenth century (pdf).

In this respect, France is less of a unified capital market than is the euro zone. Feldstein-Horioka coefficients are low across all regions in the euro zone. Indeed, they are also low between the north of France and Belgium, or between the south of France and Italy.

Now, there are reasons in theory why savings-investment correlations might be high even if capital markets are efficient.

Even so, one reasonable interpretation of the data is that the euro zone is a successful unified capital market, but France isn’t.

So, let’s break up France.

Comments

[katie]

Are you saying this to provoke me? Do you know how centralised the French State is? Splitter!

The people that run every departement (administrative region created after the revolution so that any man on a horse could reach his local administrative capital in one day and therefore never feel far away from his rulers) are appointed by Paris. The elected officials (especially mayors) have very little power in comparison. Cities above a certain size aren't allowed a police force, so that they never become a threat to Paris. In France, all roads lead to...Paris.

Because of years of pressure to assimilate and genuflect to Paris (culturally, economically, politically), France is so much more of a single nation (and for a lot longer) than any of its peers. The rest were either principalities, made up of mini nations or full of splitters.

A break-up? As a certain Florentine would have said, "Inconceivable!"

[edward]

Point taken, but I wouldn't mind seeing what the coefficients looked like for the UK ( think Wales and think Scotland) too. The catalans of course would love your post :).

[Robert Schwartz]

Has anybody run these numbers on the USA?

[Angry Economist]

Well France is a country where they speak Alsacian in the North East, Breton in the West, Basque in the South West, Provencal in the South East, Corsican in Corse of course... and that's just the ones I know about. France is , like all other European large states, made up of regions that were once independent and had their own linguistic nuances or entirely different languages.

Parts of France are recent additions - like Nice/Cote D'Azure - once part of Lombardy.

In WWII France was split in two and, conceivable three or four (if we could the Marxists and Resistance along with the Vichy and those oppressed by the Nazis).

Does France have Catalans? I am not sure - I know that they share Basques with Spain, but do Catalunians also live in France across the artificial state boundaries?

Its funny how the stereotypical Parisian (arrogant, no sense of humour, indifferent) now represents the stereotypical French person. I don't endorse these stereotypes though myself, having met many different French persons. The only stereotypical thing they did was all laugh at my bad French.

[edward]

"Does France have Catalans?"

Yes, basically the Rousillon is Catalan. Catalunya Nord.

[katie]

They don't really "speak" those languages as everyday transactions - language is very very heavily centrally controlled and administered through very strict emphasis in schools on spelling, grammar, handwriting, diction.

Those languages are rarely if ever first languages. Think of it like gaelic in Scotland, and in some cases like lumbee in North Carolina even...

[katie]

PS again - I don't pretend it wasn't fractured, I'm just saying it was made brutally whole a lot earlier than any of its neighbours.