Foreign Trade and Economic Growth in the Nordic Countries, Australasia and the Rio De La Plata Region, 1870–1970

This chapter explores the relationship between economic growth and foreign trade in three regions in the period 1870–1970: the Nordic countries, the Rio de la Plata region and Australasia (Australia and New Zealand). Starting out from strikingly different levels of income per capita, the poorest region in 1870, the Nordic countries, had caught up with the richest, Australasia, by 1970, while the Rio de la Plata region had fallen behind drastically. In all these countries foreign trade had a comparably high share of GDP in the late nineteenth century. In the Nordic region this trade share was maintained or even raised in the post-war period, while it declined in the other regions. The growth rate differences between countries are explored using the theoretical framework of Thirlwall’s Law, according to which the growth rate of a country is constrained by its balance of payments and approximately determined by the ratio of the income elasticities of demand for exports and imports times the growth rate of its trading partners. It is shown that Thirlwall’s Law accounts for the bulk of the differences in growth rates between the countries in our regions, but wild swings in the commodity terms of trade also played a role in the less stellar growth performance of Australasia and the Rio de la Plata region.