Trade and Poverty

Trade and Poverty: When the Third World Fell Behind

Jeffrey G. Williamson
Copyright Date: 2011
Published by: MIT Press
Pages: 320
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  • Book Info
    Trade and Poverty
    Book Description:

    Today's wide economic gap between the postindustrial countries of the West and the poorer countries of the third world is not new. Fifty years ago, the world economic order -- two hundred years in the making -- was already characterized by a vast difference in per capita income between rich and poor countries and by the fact that poor countries exported commodities (agricultural or mineral products) while rich countries exported manufactured products. In Trade and Poverty, leading economic historian Jeffrey G. Williamson traces the great divergence between the third world and the West to this nexus of trade, commodity specialization, and poverty.Analyzing the role of specialization, de-industrialization, and commodity price volatility with econometrics and case studies of India, Ottoman Turkey, and Mexico, Williamson demonstrates why the close correlation between trade and poverty emerged. Globalization and the great divergence were causally related, and thus the rise of globalization over the past two centuries helps account for the income gap between rich and poor countries today.

    eISBN: 978-0-262-29572-7
    Subjects: Economics

Table of Contents

  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-viii)
  3. Acknowledgments
    (pp. ix-xii)
  4. 1 When the Third World Fell Behind
    (pp. 1-10)

    Before the Gang of Four (Hong Kong, Singapore, South Korea, Taiwan) had completed their postwar growth miracle, before China, India and the rest of Asia began to play with double-digit growth rates, and just as Africa gained independence from their European colonial masters, there was aworld economic orderin place that had been two hundred years in the making. Income per capita in Asia and Africa was less than 14 percent of western Europe in 1960, Latin America was a little more than 41 percent, and the three combined were about 16 percent (table 1.1). Thus one characteristic of...

  5. 2 The First Global Century up to 1913
    (pp. 11-24)

    Four things happened to the world economy from the early 19th century to World War I, four things that had never happened before and that would not happen again until after World War II. First, the richest and fastest growing European economies went open, removing long-standing mercantilist policies, lowering tariffs, and removing nontariff barriers. Their colonies in Africa and Asia did the same, and many of the others were forced to follow suit with gunboat diplomacy. In addition much of the world integrated their currencies by going on the gold standard and other currency unions, lowering exchange risk. Thus liberal...

  6. 3 Biggest Third World Terms of Trade Boom Ever?
    (pp. 25-44)

    The economic impact of the industrializing core on the poor periphery during the long century before World War I was carried by four dramatic global events: a world transport revolution, a liberal policy move in industrial Europe toward greater openness, an acceleration in GDP growth rates associated with the industrial revolution, and colonialism. As chapter 2 pointed out, the transport revolution was driven by technological events along sea lanes and by railroads connecting ports to interiors. All of this helped integrate world commodity markets, lowered price gaps between exporters and importers, and fostered trade. Since falling trade costs from all...

  7. 4 The Economics of Third World Growth Engines and Dutch Diseases
    (pp. 45-58)

    This chapter will try to make the underlying economics of this book as clear as possible. We know there were gains from 19th-century trade, and we know opening up to trade should have augmented the growth rate in the third worldunless the underlying growth fundamentals were altered. The next section repeats the standard arguments for the gains from trade and shows how the terms of trade boom might have augmented third world growth rates. Section 4.3 demonstrates, at least theoretically, how deindustrialization, rent-seeking, and price volatility, also induced by global forces, could have offset the gains from trade. No...

  8. 5 Measuring Third World De-industrialization and Dutch Disease
    (pp. 59-74)

    The idea that the third world suffered de-industrialization during the 19th century has a long pedigree. The image of skilled weavers thrown back on farm employment was a powerful metaphor for the economic stagnation Indian nationalists believed was brought on by British rule. However, quantitative evidence on the overall level of economic activity in the 18th- and 19th-century third world is scant, let alone evidence on its breakdown between agriculture, industry, and services. Most de-industrialization assessments rely on very sparse employment and output data. Price data are more plentiful, and, as a consequence, chapters 6 through 8 will use newly...

  9. 6 An Asian De-industrialization Illustration: An Indian Paradox?
    (pp. 75-100)

    That India suffered de-industrialization during the 19th century has long dominated the historiography. The image of skilled weavers thrown back on the soil was a powerful metaphor for the economic stagnation Indian nationalists believed was brought about by British rule, a metaphor used by Karl Marx to great effect. Like the rest of the third world national economic histories, the literature attributes most of India’s de-industrialization to Britain’s productivity gains in textile and metal manufacture and to the world transport revolution. Improved British and European productivity in manufacturing led to declining world textile and metal product prices, making their production...

  10. 7 A Middle East De-industrialization Illustration: Ottoman Problems
    (pp. 101-118)

    If a country de-industrializes because its comparative advantage in agriculture has been strengthened, either by productivity advances on the land (or more land) or by increasing openness in the world economy, or both, then GDP increases in the short run. In the case of more land or more productive land, and assuming the country to be “small” in the sense that international economists use that term—a condition that clearly applied to the Ottoman empire—then the country faces no change in its terms of trade.¹ In the case of increasing openness, the country enjoys an unambiguous terms of trade...

  11. 8 A Latin American De-industrialization Illustration: Mexican Exceptionalism
    (pp. 119-144)

    Latin America underwent a steady increase in its terms of trade from the 1810s to the early 1890s, and the improvement was especially dramatic during the first few decades. Its quality-adjusted terms of trade probably grew at about 2.2 percent per annum over the four decades up to the late 1850s, and about 1.4 percent annum over the eight decades up to the early 1890s (figure 3.4 and table 3.1). This was a very big terms of trade boom, but up to 1870 it was considerably less pronounced than it was in almost everywhere else in the poor periphery. Thus...

  12. 9 Rising Third World Inequality during the Trade Boom: Did It Matter?
    (pp. 145-166)

    What was the effect of the pre-1913 world trade boom on the poor periphery? W. Arthur Lewis (1978a) pioneered the exploration of this question by looking at factor market responses in primary-product exporting economies. He composed a long shopping list of effects including these three: the response of international capital flows, the response of international labor migration and land settlement, and the impact of the terms of trade boom on de-industrialization everywhere around the periphery as primary-product export sectors expanded and import-competing manufacturing contracted. Lewis’s shopping list also included a fourth, the impact of these external price shocks on income...

  13. 10 Export Price Volatility: Another Drag on Third World Growth?
    (pp. 167-180)

    In the modern world economy, primary products, or export commodities as they are called, have far greater price volatility than do manufactures or services. In addition third world economies that specialize in such products have high export concentration and thus do not spread their risk, yielding even greater volatility in their terms of trade. Table 10.1 summarizes the modern evidence with the latter: from the 1960s to the 1990s, East Asia had terms of trade volatility 1.7 times that of the industrialized economies; the figures were much bigger for the rest of the third world—3.1, 2.6, and 3.8 for,...

  14. 11 Tying the Knot: The Globalization and Great Divergence Connection
    (pp. 181-198)

    Chapter 1 showed how the great divergence between Europe and the third world rose to huge heights across the 19th century: that is, the third world fell behind. Chapter 2 showed how the first global century between about 1815 and 1913 was characterized by a world trade boom during which what we now call the third world enjoyed a spectacular improvement in its terms of trade. Thus, for most of the century its primary-product export prices soared and its manufactures import prices plunged. Was this correlation between world globalization, the third world terms of trade, and the great divergence spurious...

  15. 12 Better Late Than Never: Industrialization Spreads to the Poor Periphery
    (pp. 199-214)

    There are some parts of Africa and Asia where modern factories are rare even today, where the majority still till the soil with primitive techniques, and where only the minority live in cities. But in some parts of the poor periphery modern industrialization started more than a century ago. Latin America had two emerging industrial leaders in the late 19th century—Brazil and Mexico; Asia had four—Bengal, Bombay, Japan, and Shanghai; and the European periphery had at least three—Catalonia, the north Italian triangle, and Russia. Why the late 19th century and why these places?

    No doubt the answer...

  16. 13 Policy Response: What Did They Do? What Should They Have Done?
    (pp. 215-230)

    This chapter isnotabout the impact of anti-trade policies on economic performance in the poor periphery over the century before the 1930s. Research has already confirmed that tariff walls did not alone improve growth rates in the poor periphery (Vamvakidis 2002; Clemens and Williamson 2004).¹ Indeed it seems likely that the openness–growth causation probably went the other way round in the poor but autonomous (e.g., not colonial) periphery. For example, countries achieving rapid GDP per capita growth also underwent faster growth in import duties and other parts of the tax base, thus reducing the revenue need for high...

  17. 14 Morals of the Story
    (pp. 231-234)

    The long 19th century up to World War I produced two big economic events. First, the west European leaders (and their English-speaking offshoots) underwent an industrial revolution, but the poor periphery did not. The living standard and income per capita gap between the industrial leaders and the poor periphery widen dramatically to levels much like they are today. Second, the world went global. Trade barriers fell steeply and commodity trade boomed. The poor periphery enjoyed almost a century of soaring terms of trade, as the demand for the intermediates to feed Europe’s (and their English-speaking offshoots) factories and for the...

  18. Notes
    (pp. 235-250)
  19. References
    (pp. 251-280)
  20. Index
    (pp. 281-302)