Williamson's Talk

Williamson's Talk - Christian A. Johnson Lecture Middlebury...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Christian A. Johnson Lecture Middlebury College September 28 2009 Trade and Poverty: Trade When the Third World Fell Behind Jeffrey G. Williamson Harvard University and the University of Wisconsin [email protected] Motivation Motivation In David Landes’ (1998) words, why is the In Landes Third World periphery in the South so poor, and the industrial OECD core in the North so rich? The competing explanations or fundamentals: The fundamentals Culture: Polyani 1944; Landes 1998; Clark Polyani Landes 2007 Geography: Diamond 1997; Sachs 2000, 2001; Easterly & Levine 2003 Institutions: North & Weingast 1989; AJR Institutions North Weingast 2001, 2002, 2005 Problems Problems Fundamentals don’t change very much over time. So, what explains the timing of the great divergence between Core and Periphery? Why did the gap open so fast 1800-1913? One possible explanation: the world was -Closed and anti-global pre-1800 Open and pro-global 1800-1913 Closed and anti-global 1913-1950 Open and pro-global 1950-2009 Four Big Facts Four Fact 1: Rise in the Core-Periphery Income Per Capita Gap Per The rise of the North-South gap The R is e in the C or e -Pe r iphe r y Inc ome Pe r C a pita Ga p 1 8 2 0 -1 9 9 8 14 12 10 8 6 4 2 0 1820 1870 1913 1950 1973 1998 We s te r n Eur ope /Afr ic a We s te r n Eur ope /As ia We s te r n Eur ope /La tin Ame r ic a Pa r ity Source: Maddison (2001, Table B-21) … and extending backwards with real wages Table 1. The Great Divergence: Income Per Capita Gaps 1775-1913 1775 Western Europe Southern Europe Eastern Europe Latin America Asia Africa Poor Periphery Average 100 75.2 70.0 75.2 56.4 46.1 64.6 1820 100 62.4 58.1 55.3 42.6 34.8 50.6 1870 100 52.7 48.8 37.9 27.5 22.7 37.9 1913 100 47.3 42.0 40.9 20.0 15.5 33.1 Four Big Facts Four Fact 1: Rise in the Core-Periphery Income Per Capita Gap Per Fact 2: De-Industrialization in the Poor Periphery Periphery Do Industrial Countries Get Richer? Do Current GDP per capita 1820-1950 and Industrialization 50 or 70 Years Before Per Capita Levels of Industrialization 1750Per 1953 1750 European Core Asian and Latin American Periphery 8 7 1800 8 6 1860 17 4 1913 45 2 1953 90 5 Ratio Core/Periphery 1.1 1.3 4.3 22.5 18 Source: Bairoch (1982, Table 4, p. 281). The European core contains: AustriaHungary, Belgium, France, Germany, Italy, Russia, Spain, Sweden, Switzerland, United Kingdom. The Asian and Latin American periphery contains: China, India (plus Pakistan in 1953), Brazil and Mexico. More de-industrialization More figures India 1833 India 1887 Textiles Percent of Home Market Supplied by Imports Domestic Industry 5 95 58-65 35-42 3 62-89 97 11-38 Ottoman 1820s Ottoman 1870s Four possible causes of deFour industrialization in the Poor Periphery The Big Two ● Rapid industrial productivity growth in Europe. ● Globalization, transport revolutions and better world markets cause trade boom and country specialization via comparative advantage. Note: Both of these cause deindustrialization in the poor periphery, but they also cause its terms of trade to improve (where terms of trade = price exports/price imports). … and two lesser causes ● Deterioration in industrial productivity and competitiveness in the periphery. ● Improved productivity in the primary product export sector in the periphery. Note: Both of these cause deindustrialization in the poor periphery, as before, but they do not cause its terms of before, not trade to improve! Four Big Facts Four Fact 1: Rise in the Core-Periphery Income Per Capita Gap Per Fact 2: De-Industrialization in the Poor Periphery Fact 3: Secular Terms of Trade Boom and Bust in the Periphery The 18th c calm before the storm The … The 19th c storm … The Some more than others Some Figure 4. The Poor Periphery: Net Barter Terms of Trade 1796-1913 250 200 Terms of Trade 150 100 Middle East 50 Lat in America Sout heast Asia European Periphery Sout h Asia 0 1796 1802 1808 1814 1820 1826 1832 1838 1844 1850 1856 1862 1868 1874 1880 1886 1892 1898 1904 1910 And the terms of trade bust, as And seen from Latin America 18111939 Fi g u re 1 Lat i n Am eri c an T erm s o f T rad e 1 8 1 1 -1 9 3 9 160 140 120 100 Px/Pm 80 60 40 Average LA TOT Unadjus t ed Average LA TOT Adjus t ed 20 0 1923 1915 1935 1891 1927 1883 1919 1911 1867 1903 1859 1939 1895 1851 1931 1887 1843 1879 1835 1871 1827 1907 1863 1819 1899 1855 1847 1839 1875 1831 1823 1815 1811 Year So u r c e : Un a d ju st e d - - Clin g in g smit h a n d Willia mso n ( 2004) , F ig u re 9, b a se d o n d a t a in Co a t swo rt h a n d Willia mso n ( 2004a ) ; Ad ju st e d - - se e Ap p e n d ix 1. What caused the 120-year secular What boom-bust in terms of trade for primary-product producers? First World market integration generated by a world-wide transport revolution caused world-wide transport CPC, lowered Pm and raised Px. Very CPC, Px fast initially, then a slow-down to steady state. The 19th Century Transport Revolution on Sea The Lanes And then a slow approach to steady state … 18 70 0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 18 75 -1 87 9 4 88 84 9 4 9 4 9 4 9 4 9 4 9 4 9 50 19 19 19 19 19 19 19 19 55 60 65 70 75 80 85 90 -1 -1 -1 -1 -1 -1 -1 -1 -1 95 95 96 96 97 97 98 98 99 4 9 4 9 4 9 4 9 4 -1 18 -1 88 89 89 90 90 91 91 92 92 93 93 94 94 -1 -1 -1 -1 -1 -1 -1 -1 -1 -1 -1 -1 80 4 18 -1 87 18 85 90 95 00 05 10 15 20 25 30 35 40 45 18 18 19 19 19 19 19 19 19 19 19 19 19 Figure 2.2: Real Global Freight Rate Index(1869-1997) (1884=1.00) Second Second Diffusion of the industrial revolution in core Diffusion raised GDP growth rates there, and thus in the derived demand for luxury foodstuffs. Growth rates of manufacturing were even greater in core – since its share in GDP was rising, and in thus so too was derived demand for primary product intermediates. Manufacturing growth slowed down in core as industrial transition was completed there, and thus so too did the derived demand for primary product intermediates. Third Third Manufacturing searched for new technologies and synthetic products to save on or even replace the increasingly expensive primary products. It finally found them adding further to the demand-led terms of trade bust. Four Big Facts Four Fact 1: Rise in the Core-Periphery Income Per Capita Gap Per Fact 2: De-Industrialization in the Poor Periphery Fact 3: Secular Terms of Trade Boom and Bust in the Periphery Fact 4: Terms of Trade Volatility Much Bigger in the Periphery Table 3. Terms of Trade Volatility 1782-1913 Core vs Poor Periphery Region Before 1820 1820-1870 United Kingdom Average Periphery European Periphery Italy Russia Spain Latin America Argentina Brazil Mexico Middle East Egypt Ottoman Turkey South Asia Ceylon India Southeast Asia Philippines Siam East Asia China J apan 11.985 6.460 4.036 0.922 3.226 7.959 3.728 4.409 N/A 1.658 2.902 2.982 2.821 11.876 17.860 5.891 7.788 7.992 7.583 15.554 15.554 N/A 2.910 9.176 10.720 19.003 10.722 6.472 6.429 6.961 2.174 5.531 13.611 17.861 6.549 9.628 7.590 11.666 6.977 9.778 7.951 10.527 19.752 1.302 1870- 1913 2.006 7.089 7.058 11.214 6.104 6.023 8.140 8.303 10.283 5.379 7.316 11.760 3.289 5.364 7.532 3.196 7.303 6.603 6.732 4.952 4.311 5.592 Four Big Facts Four Fact 1: Rise in the Core-Periphery Income Per Capita Gap Per Fact 2: De-Industrialization in the Poor Periphery Fact 3: Secular Terms of Trade Boom and Bust in the Periphery Fact 4: Terms of Trade Volatility Much Bigger in the Periphery One Big Question Are the correlations spurious or are they causal? So, what about the theory, and what about the magnitudes? What’s the Impact of a Secular Improvement in What the Secular the Terms of Trade for a Primary Product the Primary Exporter? Short Run: unambiguous income increase Medium Run: unambiguous income increase via resource allocation and specialization response, e.g. deindustrialization Long Run: ambiguous impact on growth due to de-industrialization and the belief that industry is a carrier of modern economic growth Net Impact: theory ambiguous, history must resolve the issue What’s the Impact of a Secular Improvement in What the Secular the Terms of Trade for an Exporter of Manufacturers? Short Run: unambiguous income increase Medium Run: unambiguous income increase via resource allocation and specialization response, e.g. more industrialization Long Run: unambiguous impact on growth due to industrialization and the belief that industry is a carrier of modern economic growth Net Impact: theory unambiguous So … What Should We Find in History? Asymmetric impact of secular terms of trade improvement Core versus Periphery! What’s the Impact of Terms of Trade What Volatility on the Exporter of Manufactures in the Rich Core? Exporters of manufactures in the rich core can insure against price volatility cheaply since: ● they face well developed capital markets; ● governments have varied revenue sources; ● they export many products, spreading risk; What’s the Impact of Terms of Trade What Volatility on the Primary Product Primary Exporter in the Poor Periphery? Poor primary product exporters cannot insure Poor against price volatility cheaply since: against ● they face undeveloped capital markets; ● governments rely very heavily on import duties and export taxes; ● they export few products, so more vulnerable to price shocks; ● their export prices are more volatile. And risk-aversion begats lower begats accumulation! So … . So What Should We Find In History? Asymmetric impact of terms of trade volatility Core versus Periphery! A new historical database, annual, 35 new countries, 1870-1939 6 Core industrial leaders: AH, Fr, Ger, It, UK, USA 8 European Periphery: Den, Grc, Nor, Port, Serb, Sp, Swe, Rus 8 Latin American Periphery: Arg, Brz, Col, Ch, Cuba, Mex, Per, Ur 10 Asia-MidEast: Bur, Cey, Egy, Ind, Indo, Jap, Phil, Siam, Turk 3 English-speaking European Offshoots: Aus, Can, NZ Covers more than 85% of world population and more than 95% of world GDP in 1914. Growth and the Terms of Trade 1870-1939 (Dependent variable: Decadal average GDP per capita growth) Periphery TOT Growth 0.05 [0.119] TOT Volatility -0.08 [0.033]** Observations R-squared Decade Dummies Country Dummies Controls Summary Statistics: GDP Growth TOT Growth TOT Volatility Impact on Growth: TOT Growth TOT Volatility 0.07 -0.39 0.64 0.11 0.11 1.05 [1.66] -0.28 [1.46] 8.8 [5.17] 1.59 [1.28] 0.3 [1.02] 6.82 [4.86] 167 0.35 Yes Yes Yes Core 0.63 [0.251]** 0.02 [0.058] 32 0.74 Yes Yes Yes Robust standard errors in brackets ** significant at 5% Growth and the Terms of Trade 1870-1939 (Dependent variable: Decadal average GDP per capita growth) Periphery TOT Growth 0.05 [0.119] TOT Volatility -0.08 [0.033]** Observations R-squared Decade Dummies Country Dummies Controls Summary Statistics: GDP Growth TOT Growth TOT Volatility Impact on Growth: TOT Growth TOT Volatility 0.07 -0.39 0.64 0.11 0.11 1.05 [1.66] -0.28 [1.46] 8.8 [5.17] 1.59 [1.28] 0.3 [1.02] 6.82 [4.86] 167 0.35 Yes Yes Yes Core 0.63 [0.251]** 0.02 [0.058] 32 0.74 Yes Yes Yes Robust standard errors in brackets ** significant at 5% Growth and the Terms of Trade 1870-1939 (Dependent variable: Decadal average GDP per capita growth) Periphery TOT Growth 0.05 [0.119] TOT Volatility -0.08 [0.033]** Observations R-squared Decade Dummies Country Dummies Controls Summary Statistics: GDP Growth TOT Growth TOT Volatility Impact on Growth: TOT Growth TOT Volatility 0.07 -0.39 0.64 0.11 0.11 1.05 [1.66] -0.28 [1.46] 8.8 [5.17] 1.59 [1.28] 0.3 [1.02] 6.82 [4.86] 167 0.35 Yes Yes Yes Core 0.63 [0.251]** 0.02 [0.058] 32 0.74 Yes Yes Yes Robust standard errors in brackets ** significant at 5% Growth and the Terms of Trade 1870-1939 (Dependent variable: Decadal average GDP per capita growth) Periphery TOT Growth 0.05 [0.119] TOT Volatility -0.08 [0.033]** Observations R-squared Decade Dummies Country Dummies Controls Summary Statistics: 167 0.35 Yes Yes Yes Core 0.63 [0.251]** 0.02 [0.058] 32 0.74 Yes Yes Yes Note: Percentage point impact of 1 st. dev. change GDP Growth TOT Growth TOT Volatility Impact on Growth: TOT Growth TOT Volatility 1.05 [1.66] -0.28 [1.46] 8.8 [5.17] 1.59 [1.28] 0.3 [1.02] 6.82 [4.86] Robust standard errors in brackets ** significant at 5% 0.07 -0.39 0.64 0.11 0.11 What About pre-1870 History? What The data aren’t sufficient to estimate impact as we did for 1870-1938. But terms of trade volatility was even But terms bigger pre-1870 than post-1870, so so bigger negative impact on growth if the post-1870 impact conditions also held for the pre-1870 period. Table 3. Terms of Trade Volatility 1782-1913 Core vs Poor Periphery Region Before 1820 1820-1870 United Kingdom Average Periphery European Periphery Italy Russia Spain Latin America Argentina Brazil Mexico Middle East Egypt Ottoman Turkey South Asia Ceylon India Southeast Asia Philippines Siam East Asia China J apan 11.985 6.460 4.036 0.922 3.226 7.959 3.728 4.409 N/A 1.658 2.902 2.982 2.821 11.876 17.860 5.891 7.788 7.992 7.583 15.554 15.554 N/A 2.910 9.176 10.720 19.003 10.722 6.472 6.429 6.961 2.174 5.531 13.611 17.861 6.549 9.628 7.590 11.666 6.977 9.778 7.951 10.527 19.752 1.302 1870- 1913 2.006 7.089 7.058 11.214 6.104 6.023 8.140 8.303 10.283 5.379 7.316 11.760 3.289 5.364 7.532 3.196 7.303 6.603 6.732 4.952 4.311 5.592 What About pre-1870 History? What The data aren’t sufficient to estimate impact as we did for 1870-1938. But terms of trade volatility was even bigger But terms pre-1870 than post-1870, so bigger negative impact on growth if the post-1870 impact conditions also held for the pre-1870 period. In addition, the de-industrialization conditions In de-industrialization were much greater pre-1870 during terms of trade boom then during post-1870 terms of trade bust, implying even greater negative trade implying impact on growth before 1870 than after. Reminder: Terms of trade boom Reminder: versus bust (in Latin America) Fi g u re 1 Lat i n Am eri c an T erm s o f T rad e 1 8 1 1 -1 9 3 9 160 140 120 100 Px/Pm 80 60 40 Average LA TOT Unadjus t ed Average LA TOT Adjus t ed 20 0 1923 1915 1935 1891 1927 1883 1919 1911 1867 1903 1859 1939 1895 1851 1931 1887 1843 1879 1835 1871 1827 1907 1863 1819 1899 1855 1847 1839 1875 1831 1823 1815 1811 Year So u r c e : Un a d ju st e d - - Clin g in g smit h a n d Willia mso n ( 2004) , F ig u re 9, b a se d o n d a t a in Co a t swo rt h a n d Willia mso n ( 2004a ) ; Ad ju st e d - - se e Ap p e n d ix 1. Bottom Lines Bottom ● Did globalization experience contribute to the Great Divergence of the 1940? growth rates ● How muchbefore gap in Absolutely! between core and periphery 1870-1940 was explained by different tot growth and volatility impact? Big: a third to a half. ● Would we expect the same tot impact pre1870? Bigger: secular tot boom, not bust, and tot volatility at least as big. Lessons of History? Lessons Would we expect the same today after six decades (1950-2009) in to the second global century? No! The effect has almost certainly vanished today since the old economic order has also vanished everywhere in the poor periphery except Africa, where it is vanishing. That is, they export labor-intensive manufactures now. Many thanks! thanks! ...
View Full Document

This note was uploaded on 04/19/2010 for the course ECON 0430 taught by Professor Arroyoabad during the Fall '10 term at Middlebury.

Ask a homework question - tutors are online