Globalization and the Great Divergence: Terms of Trade Booms and Volatility in the Poor Periphery 1782-1913
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.
Laird Bell Professor of Economics, Harvard. Address: firstname.lastname@example.org, 216 Littauer, Harvard University, Cambridge, Mass. 02138. This paper explores the impact of the terms of trade boom and its volatility on growth in the poor periphery across the 19th century. In so doing, it offers an assessment of the contribution of globalization to the Great Divergence in per capita income between core and periphery. It will underlie my Fisher Lecture (Adelaide: April 10, 2008) and my Hicks Lecture (Oxford: May 27, 2008). The paper is a sequel to three recent publications of mine that stressed instead the period during and after the late 19th century, 1870-1939 (Williamson 2005, 2006b; Blattman et al. 2007). I gratefully acknowledge help with the data from Lety Arroyo Abad, Luis Bértola, Luis Catão, David Clingingsmith, Aurora Gómez Galvarriato, Rafa Dobado González, Gregg Huff, Pedro Lains, Leandro Prados de la Escosura, and Tarik Yousef, as well as instruction in Excel and data manipulation by Hilary Williamson Hoynes and Amy Williamson Shaffer. I also acknowledge the excellent research assistance of Janet He and Taylor Owings, as well as financial support from the Harvard Faculty of Arts and Sciences.
The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
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.