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Sailing away from Malthus: intercontinental trade and European economic growth, 1500–1800

Listed author(s):
  • Nuno Palma

    ()

    (Departments of Economic History and Economics, London School of Economics and Political Science, and Centre for Globalisation Research, School of Business and Management, Queen Mary, University of London)

What was the contribution of intercontinental trade to the development of the European early modern economies? Previous attempts to answer this question have focused on static measures of the weight of trade in the aggregate economy at a given point in time, or on the comparison of the income of specific imperial nations just before and after the loss of their overseas empire. These static accounting approaches are inappropriate if dynamic and spillover effects are at work, as seems likely. In this paper, I use a panel dataset of 10 countries in a dynamic model that allows for spillover effects, multiple channels of causality, persistence, and country-specific fixed effects. Using this dynamic model, simulations suggest that in the counterfactual absence of intercontinental trade, rates of early modern economic growth and urbanization would have been moderately to substantially lower. For the four main long-distance traders, by 1800, the real wage was, depending on the country, 6.1–22.7 % higher, and urbanization was 4.0–11.7 percentage points higher, than they would have otherwise been. For some countries, the effect was quite pronounced: in The Netherlands between 1600 and 1750, for instance, intercontinental trade was responsible for most of the observed increase in real wages and for a large share of the observed increase in urbanization. At the same time, countries which did not engage in long-distance trade would have had real wage increases in the order of 5.4–17.8 % and urbanization increases of 2.2–3.2 percentage points, should they have done so at the same level as the four main traders. Intercontinental trade appears to have played an important role for all nations that engaged in it, with the exception of France. These conclusions stand in contrast to the earlier literature that uses a partial equilibrium and static accounting approach.

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File URL: http://dx.doi.org/10.1007/s11698-015-0126-1
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Article provided by Association Française de Cliométrie (AFC) in its journal Cliometrica, Journal of Historical Economics and Econometric History.

Volume (Year): 10 (2016)
Issue (Month): 2 (may)
Pages: 129-149

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Handle: RePEc:afc:cliome:v:10:y:2016:i:2:p:129-149
Contact details of provider: Web page: http://www.cliometrie.org

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  1. Ronald Findlay & Kevin H. O'Rourke, 2007. "Power and Plenty: Trade, War and the World Economy in the Second Millennium (Preface)," Trinity Economics Papers tep0107, Trinity College Dublin, Department of Economics.
  2. Jonathan Hersh & Joachim Voth, 2009. "Sweet diversity: Colonial goods and the rise of European living standards after 1492," Economics Working Papers 1163, Department of Economics and Business, Universitat Pompeu Fabra, revised Jan 2011.
  3. Robert C. Allen, 2003. "Progress and poverty in early modern Europe," Economic History Review, Economic History Society, vol. 56(3), pages 403-443, 08.
  4. Nathan Nunn & Nancy Qian, 2011. "The Potato's Contribution to Population and Urbanization: Evidence From A Historical Experiment," The Quarterly Journal of Economics, Oxford University Press, vol. 126(2), pages 593-650.
  5. Romer, Paul, 1993. "Idea gaps and object gaps in economic development," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 543-573, December.
  6. Allen,Robert C., 2009. "The British Industrial Revolution in Global Perspective," Cambridge Books, Cambridge University Press, number 9780521868273, February.
  7. Reis, Jaime & Palma, Nuno & Costa, Leonor Freire, 2013. "The great escape? The contribution of the empire to Portugal’s economic growth, 1500-1800," IFCS - Working Papers in Economic History.WH wp13-07, Universidad Carlos III de Madrid. Instituto Figuerola.
  8. Allen, Robert C., 2001. "The Great Divergence in European Wages and Prices from the Middle Ages to the First World War," Explorations in Economic History, Elsevier, vol. 38(4), pages 411-447, October.
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