The_Heckscher-Ohlin_Model_Between_1400_a

The_Heckscher-Ohlin_Model_Between_1400_a - NBER WORKING...

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NBER WORKING PAPER SERIES THE HECKSCHER-OHLIN MODEL BETWEEN 1400 AND 2000: WHEN IT EXPLAINED FACTOR PRICE CONVERGENCE, WHEN IT DID NOT, AND WHY Kevin H. O’Rourke Jeffrey G. Williamson Working Paper 7411 http://www.nber.org/papers/w7411 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 November 1999 Paper to be presented to the Conference Commemorating the 100 th Birthday of Bertil Ohlin, Stockholm, Sweden, October 15-16, 1999. The authors acknowledge with pleasure the excellent research assistance of Andrea Cid, Matt Rosenberg, and, especially, Ximena Clark. We thank Vincent Hogan, Anthony Murphy and especially Rodney Thom for their invaluable econometric advice, and Greg Clark for providing us with data on British land rents. Williamson also acknowledges generous research support from the National Science Foundation SBR-9505656. The views expressed herein are those of the authors and not necessarily those of the National Bureau of Economic Research. © 1999 by Kevin H. O’Rourke and Jeffrey G. Williamson. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source.
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The Heckscher-Ohlin Model between 1400 and 2000: When It Explained Factor Price Convergence, When It Did Not, and Why Kevin H. O’Rourke and Jeffrey G. Williamson NBER Working Paper No. 7411 November 1999 JEL No. F14, N7 ABSTRACT There are two contrasting views of pre-19 th century trade and globalization. First, there are the world history scholars like Andre Gunder Frank who attach globalization “big bang” significance to the dates 1492 (Christopher Colombus stumbles on the Americas in search of spices) and 1498 (Vasco da Gama makes an end run around Africa and snatches monopoly rents away from the Arab and Venetian spice traders). Such scholars are on the side of Adam Smith who believed that these were the two most important events in recorded history. Second, there is the view that the world economy was fragmented and completely de-globalized before the 19 th century. This paper offers a novel way to discriminate between these two competing views and we use it to show that there is no evidence that the Ages of Discovery and Commerce had the economic impact on the global economy that world historians assign to them, while there is plenty of evidence of a very big bang in the 19 th century. The test involves a close look at the connections between factor prices, commodity prices and endowments world wide. Kevin H. O’Rourke Jeffrey G. Williamson Department of Economics Department of Economics University College Dublin Harvard University Belfield, Dublin 4, Ireland Cambridge, MA. 02138 USA [email protected] and NBER [email protected]
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1 We also found, but did not emphasize, that Knut Wicksell was wrong. Wicksell argued that trade would lead to a decline in the demand for Swedish labor and thus, we take it, in the real wage (Flam and Flanders 1991, p. 7). In fact, CGE models suggest that commodity price convergence vis à vis America
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