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The Impact of the Terms of Trade on Economic Development in the Periphery, 1870-1939: Volatility and Secular Change

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  • Christopher Blattman
  • Jason Hwang
  • Jeffrey G. Williamson

Abstract

Most countries in the periphery specialized in the export of just a handful of primary products for most of their history. Some of these commodities have been more volatile than others, and those with more volatile prices have grown slowly relative both to the industrial leaders and to other primary product exporters. This fact helps explain the growth puzzle noted by Easterly, Kremer, Pritchett and Summers more than a decade ago: that the contending fundamental determinants of growth—institutions, geography and culture—exhibit far more persistence than do the growth rates they are supposed to explain. Using a new panel database for 35 countries, this paper estimates the impact of terms of trade volatility and secular change on country performance between 1870 and 1939. Volatility was much more important for accumulation and growth than was secular change. Additionally, both effects were asymmetric between Core and Periphery, findings that speak directly to the terms of trade debates that have raged since Prebisch and Singer wrote more than 50 years ago. The paper also investigates one channel of impact, and finds that foreign capital inflows declined steeply where commodity prices were volatile.

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Bibliographic Info

Paper provided by Harvard - Institute of Economic Research in its series Harvard Institute of Economic Research Working Papers with number 2040.

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Date of creation: 2004
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Handle: RePEc:fth:harver:2040

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  1. Elizabeth Frankenberg & Kathleen Beegle & Bondan Sikoki & Duncan Thomas, 1999. "Health, Family Planning and Well-Being in Indonesia during an Economic Crisis: Early Results from the Indonesian Family Life Survey," Working Papers, RAND Corporation Publications Department 99-06, RAND Corporation Publications Department.
  2. Spraos, John, 1980. "The Statistical Debate on the Net Barter Terms of Trade between Primary Commodities and Manufactures," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 90(357), pages 107-28, March.
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  5. Mendoza, Enrique G., 1997. "Terms-of-trade uncertainty and economic growth," Journal of Development Economics, Elsevier, Elsevier, vol. 54(2), pages 323-356, December.
  6. Angus Deaton, 1999. "Commodity Prices and Growth in Africa," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 13(3), pages 23-40, Summer.
  7. Stephen Turnovsky & Pradip Chattopadhyay, 1998. "Volatility and Growth in Developing Economies: Some Numerical Results and Empirical Evidence," Discussion Papers in Economics at the University of Washington, Department of Economics at the University of Washington 0055, Department of Economics at the University of Washington.
  8. Bleaney, Michael & Greenaway, David, 2001. "The impact of terms of trade and real exchange rate volatility on investment and growth in sub-Saharan Africa," Journal of Development Economics, Elsevier, Elsevier, vol. 65(2), pages 491-500, August.
  9. Bidarkota, Prasad & Crucini, Mario J, 2000. "Commodity Prices and the Terms of Trade," Review of International Economics, Wiley Blackwell, vol. 8(4), pages 647-66, November.
  10. Thomas, Duncan & Beegle, Kathleen & Frankenberg, Elizabeth & Sikoki, Bondan & Strauss, John & Teruel, Graciela, 2004. "Education in a crisis," Journal of Development Economics, Elsevier, Elsevier, vol. 74(1), pages 53-85, June.
  11. Luis Catão & Sandeep Kapur, 2004. "Missing Link," IMF Working Papers 04/51, International Monetary Fund.
  12. Tornell, Aaron & Velasco, Andes, 1992. "The Tragedy of the Commons and Economic Growth: Why Does Capital Flow from Poor to Rich Countries?," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 100(6), pages 1208-31, December.
  13. Edward Miguel & Shanker Satyanath & Ernest Sergenti, 2004. "Economic Shocks and Civil Conflict: An Instrumental Variables Approach," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 112(4), pages 725-753, August.
  14. Easterly, William & Kremer, Michael & Pritchett, Lant & Summers, Lawrence H., 1993. "Good policy or good luck?: Country growth performance and temporary shocks," Journal of Monetary Economics, Elsevier, Elsevier, vol. 32(3), pages 459-483, December.
  15. Basu, Parantap & McLeod, Darryl, 1991. "Terms of trade fluctuations and economic growth in developing economies," Journal of Development Economics, Elsevier, Elsevier, vol. 37(1-2), pages 89-110, November.
  16. Bleaney, Michael F & Greenaway, David, 1993. "Long-Run Trends in the Relative Price of Primary Commodities and in the Terms of Trade of Developing Countries," Oxford Economic Papers, Oxford University Press, vol. 45(3), pages 349-63, July.
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Cited by:
  1. Jacks, David S. & O Rourke, Kevin H. & Williamson, Jeffrey G, 2009. "Commodity Price Volatility and World Market Integration since 1700," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7190, C.E.P.R. Discussion Papers.
  2. Sambit Bhattacharyya & Jeffrey G. Williamson, 2013. "Distributional Impact of Commodity Price Shocks: Australia over a Century," OxCarre Working Papers, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford 117, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  3. Aiolfi, Marco & Catão, Luis A. V. & Timmermann, Allan G, 2010. "Common Factors in Latin America’s Business Cycles," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7671, C.E.P.R. Discussion Papers.
  4. Sambit Bhattacharyya & Jeffrey G. Williamson, 2011. "Commodity Price Shocks And The Australian Economy Since Federation," Australian Economic History Review, Economic History Society of Australia and New Zealand, Economic History Society of Australia and New Zealand, vol. 51(2), pages 150-177, 07.
  5. Francis, Joseph A., 2014. "The Periphery’s Terms of Trade in the Nineteenth Century: A Methodological Problem Revisited," MPRA Paper 57934, University Library of Munich, Germany.
  6. Tena-Junguito, Antonio & Lampe, Markus & Fernandes, Felipe Tâmega, 2012. "How Much Trade Liberalization Was There in the World Before and After Cobden-Chevalier?," The Journal of Economic History, Cambridge University Press, Cambridge University Press, vol. 72(03), pages 708-740, September.

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