IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/22896.html
   My bibliography  Save this paper

Purchasing Power Disparity before 1914

Author

Listed:
  • Peter H. Lindert

Abstract

Economic historians’ Divergence debates since 2000 have asked a different question from that asked by Angus Maddison. The issue has become “when did countries’ contemporaneous purchasing powers diverge?”, not “when did countries’ productivity grow at different rates?” The two questions have different answers, especially before 1914. Using pre-1914 prices to compare real purchasing powers on six continents, this article sketches some historical geography of the departures from the conventional Maddison estimates. One underlying reason for the divergence between projections back from 1990 and direct price comparisons from long ago is that before the great 1870-1914 wave of trade globalization, consumer staples were not traded over great distances, and regions specialized in narrow luxury trade. Inter-continental price ratios for subsistence goods thus varied more widely than since 1914. The new measures open up a new economic history of international differences in purchasing power before 1914. Northwest Europe was further ahead of Asian countries than earlier measures have shown. The discrepancy stems from a Gerschenkron effect, magnified before 1914 by Engel effects as well as by Balassa-Samuelson. Yet Northwest Europe was behind America and Australia across the nineteenth century, consistent with the same accounting framework but not with Maddison’s estimates.

Suggested Citation

  • Peter H. Lindert, 2016. "Purchasing Power Disparity before 1914," NBER Working Papers 22896, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:22896
    Note: DAE
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w22896.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Tena Junguito, Antonio & Federico, Giovanni, 2016. "World trade, 1800-1938 : a new data-set," IFCS - Working Papers in Economic History.WH wp16-01, Universidad Carlos III de Madrid. Instituto Figuerola.
    2. Allen, Robert C. & Murphy, Tommy E. & Schneider, Eric B., 2012. "The Colonial Origins of the Divergence in the Americas: A Labor Market Approach," The Journal of Economic History, Cambridge University Press, vol. 72(04), pages 863-894, December.
    3. Collins, William J. & Williamson, Jeffrey G., 2001. "Capital-Goods Prices And Investment, 1870 1950," The Journal of Economic History, Cambridge University Press, vol. 61(01), pages 59-94, March.
    4. Williamson Jeffrey G., 1995. "The Evolution of Global Labor Markets since 1830: Background Evidence and Hypotheses," Explorations in Economic History, Elsevier, vol. 32(2), pages 141-196, April.
    5. Milanovic, Branko, 2009. "Global inequality recalculated : the effect of new 2005 PPP estimates on global inequality," Policy Research Working Paper Series 5061, The World Bank.
    6. Robert C. Allen & Jean-Pascal Bassino & Debin Ma & Christine Moll-Murata & Jan Luiten Van Zanden, 2011. "Wages, prices, and living standards in China, 1738–1925: in comparison with Europe, Japan, and India," Economic History Review, Economic History Society, vol. 64, pages 8-38, February.
    7. Leandro Prados de la Escosura, 2016. "Mismeasuring long-run growth: the bias from splicing national accounts—the case of Spain," Cliometrica, Journal of Historical Economics and Econometric History, Association Française de Cliométrie (AFC), vol. 10(3), pages 251-275, September.
    8. Studer,Roman, 2015. "The Great Divergence Reconsidered," Cambridge Books, Cambridge University Press, number 9781107020542, October.
    9. Nuxoll, Daniel A, 1994. "Differences in Relative Prices and International Differences in Growth Rates," American Economic Review, American Economic Association, vol. 84(5), pages 1423-1436, December.
    10. Allen, Robert C., 2000. "Economic structure and agricultural productivity in Europe, 1300 1800," European Review of Economic History, Cambridge University Press, vol. 4(01), pages 1-25, April.
    11. Antoni Estevadeordal & Brian Frantz & Alan M. Taylor, 2003. "The Rise and Fall of World Trade, 1870–1939," The Quarterly Journal of Economics, Oxford University Press, vol. 118(2), pages 359-407.
    12. Ward, Marianne & Devereux, John, 2004. "Relative U.K./U.S. Output Reconsidered: A Reply to Professor Broadberry," The Journal of Economic History, Cambridge University Press, vol. 64(03), pages 879-891, September.
    13. Jutta Bolt & Jan Luiten Zanden, 2014. "The Maddison Project: collaborative research on historical national accounts," Economic History Review, Economic History Society, vol. 67(3), pages 627-651, August.
    14. Peter H. Lindert & Jeffrey G. Williamson, 2016. "Unequal Gains: American Growth and Inequality since 1700," Economics Books, Princeton University Press, edition 1, number 10670.
    15. Bassino, Jean-Pascal & Broadberry, Stephen & Fukao, Kyoji & Gupta, Bishnupriya & Takashima, Masanori, 2015. "Japan and the Great Divergence, 725-1874," CAGE Online Working Paper Series 230, Competitive Advantage in the Global Economy (CAGE).
    16. Johnson, Simon & Larson, William & Papageorgiou, Chris & Subramanian, Arvind, 2013. "Is newer better? Penn World Table Revisions and their impact on growth estimates," Journal of Monetary Economics, Elsevier, vol. 60(2), pages 255-274.
    17. Broadberry, Stephen, 2003. "Relative Per Capita Income Levels in the United Kingdom and the United States since 1870: Reconciling Time-Series Projections and Direct-Benchmark Estimates," The Journal of Economic History, Cambridge University Press, vol. 63(03), pages 852-863, September.
    18. Dobado-González, Rafael & García-Hiernaux, Alfredo & Guerrero, David E., 2012. "The Integration of Grain Markets in the Eighteenth Century: Early Rise of Globalization in the West," The Journal of Economic History, Cambridge University Press, vol. 72(03), pages 671-707, September.
    19. Jacks, David S. & Meissner, Christopher M. & Novy, Dennis, 2010. "Trade costs in the first wave of globalization," Explorations in Economic History, Elsevier, vol. 47(2), pages 127-141, April.
    20. Heston, Alan & Nuxoll, Daniel A & Summers, Robert, 1994. "The Differential-Productivity Hypothesis and Purchasing-Power Parties: Some New Evidence," Review of International Economics, Wiley Blackwell, vol. 2(3), pages 227-243, October.
    21. Rafael Dobado-González & Alfredo García-Hiernaux & David E. Guerrero, 2015. "West versus Far East: early globalization and the great divergence," Cliometrica, Journal of Historical Economics and Econometric History, Association Française de Cliométrie (AFC), vol. 9(2), pages 235-264, May.
    22. Roy, Tirthankar, 2010. "Economic Conditions in Early Modern Bengal: A Contribution to the Divergence Debate," The Journal of Economic History, Cambridge University Press, vol. 70(01), pages 179-194, March.
    23. Ward, Marianne & Devereux, John, 2003. "Measuring British Decline: Direct Versus Long-Span Income Measures," The Journal of Economic History, Cambridge University Press, vol. 63(03), pages 826-851, September.
    24. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, vol. 72, pages 584-584.
    25. Angus Deaton & Alan Heston, 2010. "Understanding PPPs and PPP-Based National Accounts," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(4), pages 1-35, October.
    26. Arroyo Abad, Leticia & Davies, Elwyn & van Zanden, Jan Luiten, 2012. "Between conquest and independence: Real wages and demographic change in Spanish America, 1530–1820," Explorations in Economic History, Elsevier, vol. 49(2), pages 149-166.
    27. David S Jacks & Krishna Pendakur, 2010. "Global Trade and the Maritime Transport Revolution," The Review of Economics and Statistics, MIT Press, vol. 92(4), pages 745-755, November.
    28. Lorraine Greyling & Grietjie Verhoef, 2015. "Slow growth, supply shocks and structural change: The GDP of the Cape Colony in the late nineteenth century," Economic History of Developing Regions, Taylor & Francis Journals, vol. 30(1), pages 23-43, June.
    29. Samuelson, Paul A, 1994. "Facets of Balassa-Samuelson Thirty Years Later," Review of International Economics, Wiley Blackwell, vol. 2(3), pages 201-226, October.
    30. de Zwart, Pim, 2016. "Globalization in the Early Modern Era: New Evidence from the Dutch-Asiatic Trade, c. 1600–1800," The Journal of Economic History, Cambridge University Press, vol. 76(02), pages 520-558, June.
    Full references (including those not matched with items on IDEAS)

    More about this item

    JEL classification:

    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • N0 - Economic History - - General
    • N30 - Economic History - - Labor and Consumers, Demography, Education, Health, Welfare, Income, Wealth, Religion, and Philanthropy - - - General, International, or Comparative

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:22896. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: http://edirc.repec.org/data/nberrus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.