Lecture1 - Introduction Administration Readings Long-Term Growth Colonization Welcome to Econ 113 American Economic History University of

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Unformatted text preview: Introduction Administration Readings Long-Term Growth Colonization Welcome to Econ 113! American Economic History University of California, Berkeley Department of Economics August 26, 2010 Econ 113 (UC Berkeley) Lecture 1 8/26/2010 0 / 38 Introduction Administration Readings Long-Term Growth Colonization Course Organization Instructors: Jeffrey Greenbaum and Shari Eli Course Meetings: Tuesday and Thursday, 3:30-5:00 Office Hours: Thursday, 5:00-6:30, 520 Evans E-mail: [email protected] Econ 113 (UC Berkeley) Lecture 1 8/26/2010 1 / 38 Introduction Administration Readings Long-Term Growth Colonization Today's Agenda 1. What is economic history? 2. Administrative details 3. How to read an economics research paper 4. Long-term cross-country growth 5. Colonizing Americas Econ 113 (UC Berkeley) Lecture 1 8/26/2010 2 / 38 Introduction Administration Readings Long-Term Growth Colonization What is economic history? The study of how the economy has developed from the past through today How did we get to where we are today and where are we going What do economic historians do? Use theory to show the mechanism by which the economy has evolved Mechanism: the explanation for how and why the economy developed Validate the mechanism with quantitative and narrative evidence Quantitative: data and statistics Narrative: qualitative evidence from primary sources Econ 113 (UC Berkeley) Lecture 1 8/26/2010 3 / 38 Introduction Administration Readings Long-Term Growth Colonization Examples of economic history 1. Long-term growth: In 1700, income per resident was lower in the U.S. than other New World (American) colonies, such as Barbados and Cuba. How did the U.S. pull ahead and become a world economic leader? 2. Public policy: Child labor still plagues the developing world, but virtually ceased to exist in the U.S. about a century ago. Why did U.S. households start to send their children to school regularly? Are there any lessons that can be learned for international policy making? 3. Reinterpreting historical events: Slavey had been viewed as unprofitable Why did Southerners engage in this "unprofitable" institution? Econ 113 (UC Berkeley) Lecture 1 8/26/2010 4 / 38 Introduction Administration Readings Long-Term Growth Colonization What questions will this course cover? Development of U.S. as most productive country throughout the 20th century Why did the U.S. overtake other countries as a world economic power? Natural advantages such as natural resources and geography Created advantages such as institutions and technological development What were the consequences of rapid American economic development? Pros: Mass schooling, Women's Rights, and Civil Rights Movement Cons: Wage inequality, divorce, segregation, and discrimination Econ 113 (UC Berkeley) Lecture 1 8/26/2010 5 / 38 Introduction Administration Readings Long-Term Growth Colonization What economics skills will be developed? 1. Microeconomics: Supply and Demand, profit maximization Why did some children never enroll in school? 2. Macroeconomics: Growth and factors of production Growth of U.S. vs. other countries; relative (in?)efficiency of slavery 3. Econometrics: Using data to test economic models 1 more year of schooling caused earnings to increase by how much? 4. Electives: Studying an economy entails all fields of economics Labor (female labor), Public (school finance), Demography (migration) 5. Independent Research: Econ 196, senior thesis Will learn what economic research is and how to evaluate it Econ 113 (UC Berkeley) Lecture 1 8/26/2010 6 / 38 Introduction Administration Readings Long-Term Growth Colonization A few themes of economic history Path dependence: policies from the past have persisting effects Lessons for policy: how different are the fundamentals from the past Reinterpretation of history: theory and data offer new insights "History is a seamless cloth that can be unfolded to the present and that is regularly rewritten as the issues of the present change." -Claudia Goldin Econ 113 (UC Berkeley) Lecture 1 8/26/2010 7 / 38 Introduction Administration Readings Long-Term Growth Colonization Course Organization Course divided in two halves Jeff will cover all aspects of first half, through October 12 Shari will cover the second half, through the final exam Grading Each part will receive equal weight Each part will conclude with an exam Econ 113 (UC Berkeley) Lecture 1 8/26/2010 8 / 38 Introduction Administration Readings Long-Term Growth Colonization Lecture Organization Course organized chronologically From colonization to Civil Rights Movement Visit Civil War, Women's Rights, and Great Depression along the way Lectures: 1 topic/event each lecture, organized by answering: 1 2 3 4 What is the event? What do the data look like? What is the economics of the event? How well does the economic theory explain the event? What are the long-term implications of the event? Econ 113 (UC Berkeley) Lecture 1 8/26/2010 9 / 38 Introduction Administration Readings Long-Term Growth Colonization How to succeed in this course 1. Read papers listed on the syllabus before lecture Course reader with one required research article per lecture Think about the economics in each article Textbook and other listed papers provide historical context 2. Come to lecture A complement to the readings, not a substitute Lecture slides are not exhaustive of the material 3. Questions Office hours of course assistants for course questions Post course questions to the bspace forum Econ 113 (UC Berkeley) Lecture 1 8/26/2010 10 / 38 Introduction Administration Readings Long-Term Growth Colonization Grading Scheme for First Half Total weight: 50% of entire course Syllabus lists exam and assignment dates Problem Sets: 20% of first-half grade (10% of total) Only 2 best (of 3) will count No late problem sets will be accepted under any circumstance. Don't try. Few questions graded carefully chosen at random, others for completion Give the problem sets your best attempt, and study solutions carefully Exam: 80% of first-half grade (40% of total) No notes, no readings, no books, no handheld devices, no copying Problem sets will be by far the best way to prepare Econ 113 (UC Berkeley) Lecture 1 8/26/2010 11 / 38 Introduction Administration Readings Long-Term Growth Colonization Readings are mostly research papers what is that? Course Readings: economics research, published as journal paper or book Textbook summarizes many papers, and providing more of the history What is a research paper? Reports a new finding, and how the finding was made Uses new data, proposes new mechanism, and/or invokes new methods Every piece of research makes contributions but comes with limitations Contributions will clarify or overturn how we think about history Yet, assumptions and generalizations often made, usually implicitly Read research with a critical eye Econ 113 (UC Berkeley) Lecture 1 8/26/2010 12 / 38 Introduction Administration Readings Long-Term Growth Colonization What are the components of a research paper? An economics research paper is a scientific report The challenge of economic history is that it is non-experimental The following physics example illustrates the goal and flow of a paper: Question: Why do two objects of different sizes fall at the same speed? Hypothesis: Gravity Theory/Model: distance = 0.5 * g * time2 Experiment: How long it takes an object to fall from different heights Method: Regression of distance on 0.5 * time2 to estimate g Result: The estimate should be approximately 9.8 m s2 Econ 113 (UC Berkeley) Lecture 1 8/26/2010 13 / 38 Introduction Administration Readings Long-Term Growth Colonization How to Read a Research Paper Step 1: Preview Do not read a research paper cover to cover like a textbook. Instead, start by reading the introduction carefully In terms of organization, a paper is the opposite of a mystery novel The intro concisely spoils the ending, and how the mystery was cracked Skim the rest of the paper, focusing on section headings, tables, and figures Get a sense of how the author will make his point Econ 113 (UC Berkeley) Lecture 1 8/26/2010 14 / 38 Introduction Administration Readings Long-Term Growth Colonization Step 2: Underline Answers to the Following Questions Underline concise answers to the following (mostly found in the intro): What is the author's general question? What historical event and/or data is the author trying to explain? What is the author's specific hypothesis? What is the mechanism? What methods and evidence does the author use to test the hypothesis? What is the main finding? Question list resembles the example of the physics experiment Course will provide insight into what is done in lieu of experiments Note that some evidence at the end of the paper will be secondary Econ 113 (UC Berkeley) Lecture 1 8/26/2010 15 / 38 Introduction Administration Readings Long-Term Growth Colonization Step 3: Finishing the paper. Think critically Is the evidence for the hypothesis convincing? Are there limitations? Can you think of an alternative hypothesis? How relevant are the data? Consider the sample and years. Are there outliers? Do they challenge the hypothesis? Are there any limitations to the methods that are chosen? Does the author draw too strong of a conclusion? What did you learn? Does it change how you think about the past? What are the long-term and broader implications of the event studied? Does the paper relate to other topics in the course? Econ 113 (UC Berkeley) Lecture 1 8/26/2010 16 / 38 Introduction Administration Readings Long-Term Growth Colonization Why isn't the whole world developed? Role of colonization First topic: What has economic growth looked like over history? Subtopic: Why were some colonies more attractive to settle in? 1. What is economic growth, and how has it differed across countries? Has income always differed substantially across the world? Were the countries that are rich today always the world's richest? 2. Can economists explain why growth differs across countries? Can one explanation account for both colonial and contemporary trends? Why were some colonies more attractive to settle in than others? Econ 113 (UC Berkeley) Lecture 1 8/26/2010 17 / 38 Introduction Administration Readings Long-Term Growth Colonization How do we measure economic growth? Growth: increases in real GDP per capita over time GDP: All final goods and services produced in a country that year Real: Adjusted for price changes by setting prices to a base year Per capita: Divided by number of residents Real GDP per capita measures quantity per person Can think of as approximately average income per person Econ 113 (UC Berkeley) Lecture 1 8/26/2010 18 / 38 Introduction Administration Readings Long-Term Growth Colonization Is GDP the best measurement of growth? How do we compare two years with vastly different products? 1850 production differs from 2010 (no i-phone, let alone any phone) Some products have improved in quality (from rotary phone to cell) GDP accounts for market production, not domestic production Most production used to occur at home (e.g. food, health care, repairs) Living standards do not directly account for health or happiness Would you care to live in 1850 without modern medicine? What about all of the money in the world but no modern technology? Costs of growth neglected, such as increases in crime and pollution Econ 113 (UC Berkeley) Lecture 1 8/26/2010 19 / 38 Introduction Administration Readings Long-Term Growth Colonization Economic growth took off worldwide circa 1800 Econ 113 (UC Berkeley) Lecture 1 8/26/2010 20 / 38 Introduction Administration Readings Long-Term Growth Colonization Richest countries growing faster than poorer ones Average Annual Growth Rate of GDP Per Capita (Listed in order by 1870 per capita GDP) 1870-1960 1960-1980 1980-1994 U.K. U.S.A. Italy Japan Brazil India China 1.08 1.70 1.54 1.86 1.28 0.31 0.58 2.02 2.48 4.16 6.28 4.13 1.22 2.58 1.31 1.52 1.62 2.87 -0.54 3.07 6.45 Source: Pritchett (1997). Poorer countries not growing as quickly as richest ones for past 2 centuries "Poorer" rich countries growing faster than richest ones Econ 113 (UC Berkeley) Lecture 1 8/26/2010 21 / 38 Introduction Administration Readings Long-Term Growth Colonization 17 richest countries getting richer, converging to each other 17 richest countries include Western offshoots, Western Europe, and Japan Econ 113 (UC Berkeley) Lecture 1 8/26/2010 22 / 38 Introduction Administration Readings Long-Term Growth Colonization U.S. converges to UK 1820-1900, overtakes it, then diverges Convergence: gap narrows between countries. Divergence: gap widens Econ 113 (UC Berkeley) Lecture 1 8/26/2010 23 / 38 Introduction Administration Readings Long-Term Growth Colonization Poor countries diverge from richer countries Econ 113 (UC Berkeley) Lecture 1 8/26/2010 24 / 38 Introduction Administration Readings Long-Term Growth Colonization Reversal of Fortune: Rich countries were not always richest Note: Urbanization is a proxy for greater economic development. Source: Acemoglu, Johnson, and Robinson (2002). (also, next slide) Econ 113 (UC Berkeley) Lecture 1 8/26/2010 25 / 38 Introduction Administration Readings Long-Term Growth Colonization Urbanization correlated with GDP today Econ 113 (UC Berkeley) Lecture 1 8/26/2010 26 / 38 Introduction Administration Readings Long-Term Growth Colonization Zooming in on Americas: US surpasses rest of Americas Econ 113 (UC Berkeley) Lecture 1 8/26/2010 27 / 38 Introduction Administration Readings Long-Term Growth Colonization Summary of Growth Patterns 1-1500: Very little growth throughout the world 1500-today: Reversal of fortune with poor and rich countries trading places Reversal in early 1800s, U.S. and Canada surpass Latin America Industrialization occurring in U.S., Canada, and Western Europe 1800-today: Most growth throughout the world occurs Rich get richer: growth faster in the developed world U.S. converges to U.K. circa 1900, and diverges from it subsequently Since 1960, other rich countries converging to U.S. Divergence between rich and poor countries Econ 113 (UC Berkeley) Lecture 1 8/26/2010 28 / 38 Introduction Administration Readings Long-Term Growth Colonization Colonization explains cross-country growth differences Econ 113 (UC Berkeley) Lecture 1 8/26/2010 29 / 38 Introduction Administration Readings Long-Term Growth Colonization Sokoloff and Engerman (2000): Growth in the Americas Question: "how and why areas [e.g., Caribbean] that were favored by the forecasters of that era [1700s], and the destinations of the vast majority of migrants to the Americas through 1800s, fell behind [the U.S.] economically," pp. 217-218. Why do the United States and Canada, two of the poorest colonies in the New World, grow faster than the rest of the Americas from 1800 to 2000? Econ 113 (UC Berkeley) Lecture 1 8/26/2010 30 / 38 Introduction Administration Readings Long-Term Growth Colonization Historical events explained 1. Relative attractiveness of Latin American colonies Colonies not industrialized and sugar was more profitable than wheat Pennsylvania and Quebec, for example, grew wheat and not sugar French and British fought Seven Years War (1756-63) over America Voltaire described it as "fighting over a few acres of snow" French preferred Caribbean for sugar over Canada in Treaty of Paris 2. Reversal of fortune in the Americas Poorer countries surpassed richer ones in per capita GDP in 1800s Cross-country differences persisted over past two centuries Econ 113 (UC Berkeley) Lecture 1 8/26/2010 31 / 38 Introduction Administration Readings Long-Term Growth Colonization The Colonies of the New World Econ 113 (UC Berkeley) Lecture 1 8/26/2010 32 / 38 Introduction Administration Readings Long-Term Growth Colonization cess Colonizing the U.S. Econ 113 (UC Berkeley) Lecture 1 8/26/2010 33 / 38 Introduction Administration Readings Long-Term Growth Colonization Factor Endowments can explain reversal after colonization Hypothesis: "...initial conditions, or factor endowments broadly conceived, could have had profound and enduring impacts on long-run paths of institutional and economic development in the New World. ...the extremely different environments in which the Europeans established their colonies may have led to societies with very different degrees of inequality, and on how these differences might have persisted over time and affected the course of development through their impact on the institutions that evolved. ...the great majority were characterized virtually from the outset by extreme inequality in wealth, human capital, and political power," p. 220. Factor endowments: soil quality, native population, climate Colonies pursued the economy conducive to its endowments Cotton, for example, can grow better in climate of Georgia than Maine Econ 113 (UC Berkeley) Lecture 1 8/26/2010 34 / 38 Introduction Administration Readings Long-Term Growth Colonization Mechanism: economies of scale affects development Type 1 Colonies: Land suitable for sugar or mining (e.g., Brazil, Cuba) Economies of scale lucrative colonies that elite exploited plantation agriculture and slave (and native) labor small elite wealth and political inequality limited franchise (voting rights) limited education inequality and institutions persist slow growth Type 2 Colonies: Land suitable for grains like wheat (e.g. U.S., Canada) Small scale farming relatively equal distribution of wealth open franchise broad public education institutions conducive to industrialization and growth Geography: whether it directly affects growth is an alternative hypothesis Factor endowments are in a sense, but geography persists over time Cannot directly explain reversal of fortune because geography is fixed Econ 113 (UC Berkeley) Lecture 1 8/26/2010 35 / 38 Introduction Administration Readings Long-Term Growth Colonization Evidence Consistent with Sokoloff-Engerman Hypothesis Laws Governing Voting Franchise circa 1880 Colony Type Literacy Requirement Percent Voting Chile Costa Rica Mexico Canada U.S. Type 1 Type 1 Type 1 Type 2 Type 2 Yes Yes Yes No No 1.6% 12.9% 18.3% Source: Sokoloff and Engerman (2000). Evidence on voting and growth is consistent with hypothesis Does not imply hypothesis is valid for all countries Did all Type 1 colonies develop extractive institutions and grow poorly? Did any Type 2 colonies not experience good growth? Econ 113 (UC Berkeley) Lecture 1 8/26/2010 36 / 38 Introduction Administration Readings Long-Term Growth Colonization The case of the U.S. is not so clear cut Was the U.S. exclusively small scale farming? No, plantations and slavery developed throughout the South South resembled Type 1 colonies like Brazil Federal government and North helped Southern development North-South differences will be a recurring theme throughout the course Race. Enough said. Differences in female labor, schooling, immigration flows... Do factor endowments account for these differences? Econ 113 (UC Berkeley) Lecture 1 8/26/2010 37 / 38 Introduction Administration Readings Long-Term Growth Colonization Problem Set 1: Acemoglu, Johnson, Robinson (2001) The first problem set will be due Tuesday, September 7 Goal: identify the question, hypothesis, and evaluate evidence Also, to interpret regression results (Lecture 3) Econ 113 (UC Berkeley) Lecture 1 8/26/2010 38 / 38 ...
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