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Globalization and the Great Divergence: Terms of Trade Booms and Volatility in the Poor Periphery 1782-1913

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  • Jeffrey G. Williamson

    (Harvard University and NATIONAL BUREAU OF ECONOMIC RESEARCH)

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 paper assess 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, based on econometric evidence from 1870-1939, we know that while a terms of trade improvement raised long run growth in the rich core, it did not do so in the poor periphery. Given that the secular terms of trade boom in the poor periphery was much bigger over the century before 1870 than after, it seems plausible to infer that it might help explain the great 19th century divergence between core and periphery. Third, the boom and its de-industrialization impact was only part of the story; growth-reducing terms of trade volatility was the other. Between 1820 and 1870, terms of trade volatility was much greater in the poor periphery than the core. It was still very big after 1870, certainly far bigger than in the core. Based on econometric evidence from 1870-2000, we know that terms of trade volatility lowers long run growth in the poor periphery, and that the negative impact is big. Given that terms of trade volatility in the poor periphery was even bigger during the century before 1870, it seems plausible to infer that it also helps explain the great 19th century divergence between core and periphery.

Suggested Citation

  • Jeffrey G. Williamson, 2008. "Globalization and the Great Divergence: Terms of Trade Booms and Volatility in the Poor Periphery 1782-1913," Working Papers 08-07, Association Française de Cliométrie (AFC).
  • Handle: RePEc:afc:wpaper:08-07
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    Cited by:

    1. 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.
    2. 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.
    3. Sharp, Paul & Weisdorf, Jacob, 2013. "Globalization revisited: Market integration and the wheat trade between North America and Britain from the eighteenth century," Explorations in Economic History, Elsevier, vol. 50(1), pages 88-98.
    4. Vicente Pinilla & Gema Aparicio, 2014. "Navigating in Troubled Waters: South American Exports of Food and Agricultural Products in the World Market, 1900-1938," Documentos de Trabajo (DT-AEHE) 1406, Asociación Española de Historia Económica.
    5. 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.
    6. 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.
    7. 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.
    8. 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, vol. 51(2), pages 150-177, July.
    9. Jeffrey G. Williamson, 2009. "Five Centuries of Latin American Inequality," NBER Working Papers 15305, National Bureau of Economic Research, Inc.
    10. Sambit Bhattacharyya & Jeffrey Williamson, 2013. "Distributional Impact of Commodity Price Shocks: Australia over a Century," CEH Discussion Papers 019, Centre for Economic History, Research School of Economics, Australian National University.
    11. 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.
    12. Jeffrey G. Williamson, 2010. "Latin American Growth-Inequality Trade-Offs: The Impact of Insurgence and Independence," NBER Working Papers 15680, National Bureau of Economic Research, Inc.
    13. Jeffrey G. Williamson, 2009. "History without Evidence: Latin American Inequality since 1491," NBER Working Papers 14766, National Bureau of Economic Research, Inc.
    14. Dante Aldrighi & Renato P. Colistete, 2013. "Industrial Growth and Structural Change: Brazil in a Long-Run Perspective," Working Papers, Department of Economics 2013_10, University of São Paulo (FEA-USP).
    15. Williamson, Jeffrey G., 2009. "History without evidence: Latin American inequality since 1491," Center for European, Governance and Economic Development Research Discussion Papers 81, University of Goettingen, Department of Economics.
    16. Jeffrey G. Williamson, 2011. "Industrial Catching Up in the Poor Periphery 1870-1975," NBER Working Papers 16809, National Bureau of Economic Research, Inc.
    17. 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.
    18. Roberto Bonfatti, 2012. "Trade and the Pattern of European Imperialism, 1492-2000," Economics Series Working Papers 618, University of Oxford, Department of Economics.
    19. 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.
    20. Awel, Ahmed Mohammed, 2012. "Terms of Trade Volatility and Economic Growth in Sub-Saharan Africa," MPRA Paper 45453, University Library of Munich, Germany.
    21. repec:got:cegedp:81 is not listed on IDEAS
    22. 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.

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    JEL classification:

    • F01 - International Economics - - General - - - Global Outlook
    • N7 - Economic History - - Economic History: Transport, International and Domestic Trade, Energy, and Other Services
    • O2 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy

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