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Globalization and the Great Divergence: terms of trade booms, volatility and the poor periphery, 1782–1913

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  • WILLIAMSON, JEFFREY G.

Abstract

W. Arthur Lewis argued that a new international economic order emerged between 1870 and 1913, and that global terms of trade forces produced rising primary product specialization and de-industrialization in the poor periphery. More recently, modern economists argue that volatility reduces growth in the poor periphery. This article assesses these de-industrialization and volatility forces between 1782 and 1913 during the Great Divergence. First, it argues that the new economic order had been firmly established by 1870, and that the transition took place in the century before, not after. Second, evidence from 1870–1939 confirms that while terms of trade improvements raised long-run growth in the rich core, they did not do so in the poor periphery. Given that the secular terms of trade boom, and thus de-industrialization, was much bigger in the poor periphery before 1870 than after, one might plausibly infer that it might help explain the Great Divergence. Third, growth-reducing terms of trade volatility also contributed to the Great Divergence. Terms of trade volatility was much greater in the poor periphery than the core before 1870. It was still very big after 1870, certainly far bigger than in the core. Based on evidence drawn from 1870–2000, we know that such volatility lowers long-run growth in the poor periphery, and that the negative impact is big. Since terms of trade volatility in the poor periphery was even bigger before 1870, one might plausibly infer that it also helps explain the Great Divergence before 1870.

Suggested Citation

  • Williamson, Jeffrey G., 2008. "Globalization and the Great Divergence: terms of trade booms, volatility and the poor periphery, 1782–1913," European Review of Economic History, Cambridge University Press, vol. 12(03), pages 355-391, December.
  • Handle: RePEc:cup:ereveh:v:12:y:2008:i:03:p:355-391_00
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    Cited by:

    1. Pierre JACQUET & Alexis ATLANI & Marwan LISSER, 2017. "Policy responses to terms of trade shocks," Working Papers P205, FERDI.
    2. Federico, Giovanni & Vasta, Michelangelo, 2010. "Was industrialization an escape from the commodity lottery? Evidence from Italy, 1861-1939," Explorations in Economic History, Elsevier, vol. 47(2), pages 228-243, April.
    3. Mitchener, Kris James & Weidenmier, Marc, 2015. "Was the Classical Gold Standard Credible on the Periphery? Evidence from Currency Risk," CEPR Discussion Papers 10388, C.E.P.R. Discussion Papers.
    4. Sambit Bhattacharyya & Jeffrey G. Williamson, 2013. "Distributional Impact of Commodity Price Shocks: Australia over a Century," OxCarre Working Papers 117, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
    5. Francis, Joseph A., 2014. "Resolving the Halperín Paradox: The Terms of Trade and Argentina’s Expansion in the Long Nineteenth Century," MPRA Paper 57915, University Library of Munich, Germany.
    6. Sambit Bhattacharyya & Jeffrey G. Williamson, 2016. "Distributional Consequences of Commodity Price Shocks: Australia Over A Century," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 62(2), pages 223-244, June.
    7. Gianfranco Di Vaio & Kerstin Enflo, 2009. "Did Globalization Lead to Segmentation? Identifying Cross-Country Growth Regimes in the Long-Run," Working Papers CELEG 0902, Dipartimento di Economia e Finanza, LUISS Guido Carli.
    8. Di Vaio, Gianfranco & Enflo, Kerstin, 2011. "Did globalization drive convergence? Identifying cross-country growth regimes in the long run," European Economic Review, Elsevier, vol. 55(6), pages 832-844, August.
    9. Chilosi, David & Federico, Giovanni, 2015. "Early globalizations: The integration of Asia in the world economy, 1800–1938," Explorations in Economic History, Elsevier, vol. 57(C), pages 1-18.
    10. Cemal Eren Arbatli, 2016. "Trade and income growth in the Ottoman Empire: assessing the role of volatility and trend growth in terms of trade," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 6(2), pages 173-194, August.
    11. MA, Ye & JONG, Herman de, 2016. "Unfolding the Turbulent Century: A Reconstruction of China's Economic Development, 1840-1912," Discussion paper series HIAS-E-29, Hitotsubashi Institute for Advanced Study, Hitotsubashi University.
    12. Pierre JACQUET & Alexis ATLANI & Marwan LISSER, 2017. "Policy responses to terms of trade shocks," Working Papers P205, FERDI.
    13. Patricia Gómez-González & Daniel Rees, 2013. "Stochastic Terms of Trade Volatility in Small Open Economies," RBA Research Discussion Papers rdp2013-10, Reserve Bank of Australia.
    14. Jeffrey G. Williamson, 2015. "Latin American Inequality: Colonial Origins, Commodity Booms, or a Missed 20th Century Leveling?," NBER Working Papers 20915, National Bureau of Economic Research, Inc.
    15. Jeffrey G. Williamson, 2011. "Industrial Catching Up in the Poor Periphery 1870-1975," NBER Working Papers 16809, National Bureau of Economic Research, Inc.
    16. Harvey, David I. & Kellard, Neil M. & Madsen, Jakob B. & Wohar, Mark E., 2017. "Long-Run Commodity Prices, Economic Growth, and Interest Rates: 17th Century to the Present Day," World Development, Elsevier, vol. 89(C), pages 57-70.
    17. Laura Panza, 2014. "De-industrialization and re-industrialization in the Middle East: reflections on the cotton industry in Egypt and in the Izmir region," Economic History Review, Economic History Society, vol. 67(1), pages 146-169, February.
    18. Şevket Pamuk & Jeffrey G. Williamson, 2011. "Ottoman de‐industrialization, 1800–1913: assessing the magnitude, impact, and response," Economic History Review, Economic History Society, vol. 64(s1), pages 159-184, February.
    19. Manuel Llorca-Jaña, 2014. "The impact of early nineteenth-century globalization on foreign trade in the Southern Cone: A study of British trade statistics," Investigaciones de Historia Económica (IHE) Journal of the Spanish Economic History Association, Asociacion Espa–ola de Historia Economica, vol. 10(01), pages 46-56.
    20. Laura Panza & Jeffrey G. Williamson, 2017. "Australian Squatters, Convicts, and Capitalists: Dividing Up a Fast-Growing Frontier Pie 1821-1871," CEH Discussion Papers 02, Centre for Economic History, Research School of Economics, Australian National University.
    21. Kym Anderson & Signe Nelgen, 2012. "Agricultural trade distortions during the global financial crisis," Oxford Review of Economic Policy, Oxford University Press, vol. 28(2), pages 235-260, SUMMER.
    22. David Harvey & Neil Kellard & Jakob Madsen & Mark Wohar, 2012. "Trends and Cycles in Real Commodity Prices: 1650-2010," CEH Discussion Papers 010, Centre for Economic History, Research School of Economics, Australian National University.
    23. 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.

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