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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 National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10600.

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Date of creation: Jul 2004
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Publication status: published as Blattman, Christopher, Jason Hwang and Jeffrey G. Williamson. “The Impact of the Terms of Trade on Economic Development in the Periphery, 1870-1939: Volatility and Secular Change.” Journal of Development Economics 82, 1 (January 2007): 156-179.
Handle: RePEc:nbr:nberwo:10600

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Cited by:
  1. Sambit Bhattacharyya & Jeffrey G Williamson, 2010. "Commodity Price Shocks and the Australian Economy Since Federation," OxCarre Working Papers, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford 041, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  2. Allan Timmermann & Luis Catão & Marco Aiolfi, 2006. "Common Factors in Latin America's Business Cycles," IMF Working Papers 06/49, International Monetary Fund.
  3. Bhattacharyya, Sambit & Williamson, Jeffrey G, 2013. "Distributional Impact of Commodity Price Shocks: Australia over a Century," CEPR Discussion Papers, C.E.P.R. Discussion Papers 9582, C.E.P.R. Discussion Papers.
  4. 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.
  5. Antonio Tena Junguito & Markus Lampe & Felipe Tâmega, 2012. "How much trade liberalization was there in the world before and after Cobden-Chevalier?," Working Papers in Economic History wp12-02, Universidad Carlos III, Departamento de Historia Económica e Instituciones.
  6. 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.

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