Factor_Price_Convergence

Factor_Price_Convergence - FACTOR PRICE CONVERGENCE IN THE...

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1 FACTOR PRICE CONVERGENCE IN THE LATE NINETEENTH CENTURY * KEVIN H. O’ROURKE, ALAN M. TAYLOR, AND JEFFREY G. WILLIAMSON Abstract We examine a dramatic historical episode of factor price convergence in the late nineteenth century. Our focus is convergence between Old World and New, and the analysis centers on land and labor. Wage-rental ratios boomed in the Old World and collapsed in the New, moving the resource-rich, labor-scarce New World closer to the resource-scarce, labor-abundant Old World. We use econometrics and simulations to identify pro-convergence forces which include commodity price convergence, factor accumulation, and factor-saving biases. The results confirm that open-economy characteristics and international market integration are important sources of convergence. JEL Classification : N10, N70, F02, F10, F43. * First Submission: October 1994; Revised: July 1995. A number of scholars have helped us construct the international data base on land values used in this paper. These have our grateful thanks: Juan Carmona, Roberto Cortés Conde, Antoni Estevadeordal, Giovanni Federico, Barry Howarth, Peter Lindert, Ian McLean, David Pope, Leandro Prados, Graeme Snooks, and Vera Zamagni. We are grateful for the research assistance of Kimiko Cautero and Boris Simkovich. In addition, we acknowledge the helpful comments of Cormac Ó Gráda, Don Davis and participants at the European Historical Economics Society Conference on Market Integration (Lerici, Italy, April 1993), the NBER Workshop on Macroeconomic History (April 1993) and the Harvard Workshop in Economic History (April 1993). We also gratefully acknowledge the financial support of the National Science Foundation SES-9021951 and SBR-9223002.
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2 1. FACTOR PRICES AND CONVERGENCE IN THE LONG RUN Today’s journalists fill the media with references to the global economic village, politicians talk in terms of world competitiveness, and Americans fear the loss of productivity and living-standard leadership. We often forget that this process of global economic integration and convergence has a very long history. Under the leadership of William Baumol (Baumol, Blackman, and Wolff 1989), Robert Barro (1991; Barro and Sala-i-Martin 1991) and many others, the literature on post-World War II economic convergence has reached enormous proportions, but few economists in this new tradition pay serious attention to history. This seems surprising: after all, the literature was initiated by economic historians like Alexander Gerschenkron (1952) and Moses Abramovitz (1986) with a keen view of the long run. Furthermore, few economists pay much attention to the role which international commodity-, labor-, and capital- market integration has played in the process. In contrast, economic historians of the late nineteenth century pay considerable attention to trade, capital flows, and migration, but pay little attention to their impact on convergence. This paper bridges the gap. When measured by GDP per capita, labor productivity per worker-hour, or real wages,
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Factor_Price_Convergence - FACTOR PRICE CONVERGENCE IN THE...

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