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EC104 > EC104 > Flashcards

EC104 Flashcards

1
Q

Malthusian Model Key Features

A
  • Land is in fixed supply
  • Diminishing returns to labour
  • Theory failed due to assumption that increases in income always lead to increasing number of children
  • Assumed shocks to income are intermittent
    Assumed that shocks to income are eaten by population growth- failure to see gains in labour productivity and specialisation
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2
Q

Smithian Model Key Features

A
  • Specialisation is central to growth
  • Gains from trade linked to specialisation
  • Division of labour
  • Good institutions linked to specialisation
  • Tech change linked to specialisation
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3
Q

Lewis Model Key Features

A
  • Splits economy into traditional sector and modern sector
  • Traditional sector is agriculture and modern sector is manufacturing
  • Labour can move freely from traditional to modern at a low cost
  • Cheap labour from traditional sector means high profits due to reduced labour costs in the modern sector
  • Modern sector profits reinvested
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4
Q

Solow-Swan Model Key Feautres

A
  • Tech change exogenous to model
  • Temporary rapid growth from capital accumulation
  • Eventually economies reach a steady state rate of growth
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5
Q

Becker’s Q-Q Model for Children

A
  • Explains the market for children
  • As income increases, quantity demand for children falls (negative income elasticity for demand for quantity of children)
  • As income increases, quality demand for children increases (positive income elasticity demand for the quality of children)
  • Explains why population growth does not eat up income growth
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6
Q

Unified Growth Theory

A
  • Tech change is a function of population and education
  • Level of tech change determines returns to education
  • Malthusian state characterised by slow tech growth, benefits of tech change offset by pop growth
  • Higher levels of education generate higher tech change and this feeds back through to education
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7
Q

New Institutional Economics (NIE)

A
  • English Language
  • Religion
  • Property rights
  • Legal System
  • Social Capital
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8
Q

New Economic Geography (NEG)

A
  • Market potential
  • Transport costs
  • Distance to equator
  • Miles of coastline
  • Resource curse
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9
Q

Tropics Theory

A

Hall and Jones, 1999

  • Distance to equator plays a role
  • Tropics determined settlement patterns in Europe
  • Wester European institutions came with migrants
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10
Q

Germs Theory (AJR)

A
  • Good institutions in areas with low settler mortality (less germs and diseases)
  • Bad institutions in areas with high settler mortality (more germs and diseases)
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11
Q

Crops Theory

A

Engerman and Sokoloff

  • ‘Ba d’ institutions were set up in areas of high pop density- Asia
  • ‘Good’ institutions were set up in areas of low pop density
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12
Q

Criticism of institutional view

A

Sachs 2003

  • Better to focus on reducing disease, increasing transport links and prevent depletion of soil nutrients than to improve institutions
  • Subtler differences may not be explained by institutions
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13
Q

Geography view 2003

A 
Sachs 2003
lack of coal deposits
lack of dry season 
high transport costs 
disease conditions
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14
Q

Geography View 2004

A 
Sachs et al., 2004
distance to coast
dependence on neighbours infrastructure
cross boarder relations
access to markets
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15
Q

Geography Trade 1990

A

Schedvin 1990
countries with ideal conditions for wheat did better
wheat prices drove boom in late 19C

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16
Q

Revisionist View of Great Divergence

A
  • product of 19C IR
  • due to coal, colonial policy and historical shocks
  • reject reliability of income dat, use national accounting instead
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17
Q

Traditionalist View of Great Divergence

A
  • NW Europe ahead at an early stage due to its institutions
  • commercial expansion
  • urbanisation
  • agricultural productivity
  • high wages
  • cheap energy
  • argue that wage comparison doesn’t make sense because developed countries’ food prices are higher- would have to adjust prices into a basket of comparable goods
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18
Q

Traditional School suggestions for Europe diverging from Asia

A
  • China less urbanised
  • China expensive energy
  • China poor institutions, cultural and government
  • China less innovative
  • China different demographic patterns
  • China had higher births and deaths
  • China had lower real wages due to institutions governing marriage
  • Europe had higher FAFM
  • Europe had higher celibacy
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19
Q

Hajnal Study

A
  • study on fertility
  • Western Europe had lower marriage rate and higher FAFM
  • NW Europe limited fertility within marriage
  • confirmed that western Europe relied on preventative checks
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20
Q

Theory of Bandits Olson 1993

A
  • no incentive to produce beyond subsistence
  • society will seek security but free-rider problem will prevent cooperation e.g. China and USA expected to contribute more towards global warming prevention and other countries free ride the benefits
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21
Q

Glorious Revolution

A
  • Europe fast in transitioning towards democracy (English Glorious Revolution of 1688)- Olsen’s Government Theory
  • balance of power between parliament and co-monarchy of William and Mary made government more credible
  • issues dividing the King and parliament before
  • government ability to borrow increased
  • capacity of government to provide services
  • government employment increased
  • investment in infrastructure increased
  • role in legislation increased
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22
Q

European Miracle

A
  • view that Europe overtook Asia vs Asia falling behind
  • state involvement
  • private order institutions
  • independent legal and religious systems
  • increased trade and finance
  • structural change

two phases
1- Mediterranean responds to Black death, Italy captures opportunity to trade overland and via Mediterranean with Asia, Iberia captures opportunity to break Mediterranean trade via Atlantic

2- Dutch and English responds to Great Discoveries- Holland captures opportunity to break Portuguese monopoly and English capture opportunity to break Dutch monopoly

3-MEG- British capture opportunity for sustained economic development

Conclusions:

  • Europe had good institutions for LR growth
  • Europe capitalised on opportunities for trade and commerce
  • Pre modern European success based on Smithian growth
  • Britain first economy to transition this to MEG
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23
Q

Italian Success

A
  • urbanised
  • trade related industries emerged such as ship building
  • import substitution
  • banking
  • food productivity high
  • good policy and state involvement
  • good institutions, political, legal and agriculture
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24
Q

Portugal

A
  • overtook Italy in shipbuilding
  • established trading ports from Mozambique to Indonesia
  • established major slave and sugar colonies
  • replaced Venice as main producer of sugar
  • good state involvement
  • good geography, location and luck
  • broke Venetian trade monopoly
  • not based on good institutions
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25
Q

Dutch Golden Age

A
  • replaced portugal as dominant European traders
  • productive agriculture
  • industry generally less productive than agriculture
  • developed bills of exchange
  • established Amsterdam exchange
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26
Q

Dutch and English Success

A
  • good state involvement
  • good institutions, free flow of knowledge and low tariffs
  • founded universities
  • peasants freer than rest of europe
  • good geography
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27
Q

British Exceptionalism

A
  • acquired massive trade empire from rivals
  • empire allowed manufactured goods to the periphery
  • agricultural revolution, enclosure, crop rotation, selective breeding and root crops
  • structural change- agriculture to proto-industry to industry
  • good institutions- property rights
  • good human capital, applied tech and scientific knowledge
  • good credit markets- BoE
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28
Q

Role of Atlantic Trade

A
  • only really SR success
  • created opportunities for Smithian growth
  • allowed Europe to increase urbanisation and its population
  • provided SR growth without good institutions
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29
Q

MEG Kuznets 6 characteristics

A
  • sustained rates of growth of population and GDP per capita
  • significant evidence of structural change
  • urbanisation and secularisation
  • rapid transport and communications
  • wide gaps between rich and poor countries
  • high sustained growth of efficiency (TFP growth)

Britain first example of MEG during IR

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30
Q

Reasons why Britain first to undergo IR

A
  • High agricultural productivity
  • Proto-industrialisation (early start)
  • Strong fertility patterns
  • Strong applied tech knowledge of labour and high wages
  • Good policy, banking, finance, taxes
  • Good resources and geographic isolation
  • Speculative- luck in war, empire and religion
  • Good institutions, legal and informal

Italy, Netherlands and France not first because:

  • new inventions made cost effective in Britain (Allen, 2009a)
  • Crafts (1997) said emphasis on luck and macro invention
  • Mokyr said emphasis on institutions
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31
Q

Definition of IR

A

A fundamental redeployment of resources away from agriculture- Mathias, 1969

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32
Q

Characteristics of IR

A
  • rapid shift from agriculture to industry
  • substitution of labour
  • use of fossil fuels
  • shift in scale of production
  • regional specialisation
  • high rates of investment to GDP
  • social and institutional change
  • emergence of general purpose technologies e.g. steam
  • integration of markets

Crafts thought that there was a slower increase in tech change in the IR than previously thought

TFP growth fast during IR

33
Q

Tech Change in Britain- Allen Theory and Mokyr’s criticisms

A
  • Britain had high wages, cheap energy and cheap capital
  • macro inventions expensive and required R&D
  • Britain only country with right factor prices and market size for IR macro inventions

Criticism by Mokyr

  • Macro inventions are generated from pool of enlightened inventors- institutions matter not costs
  • Macro inventions are not subject to biased change exclusively- firms will always try and save on all input costs not just relatively expensive factor
34
Q

Tech Change in Britain- Mokyr Theory and Allen’s criticisms

A
  • IR not based on innovative returns
  • IR result of scientific knowledge, skilled craftsmen and good incentives
  • advancement of science during the Enlightenment

Allen’s criticisms

  • only half of these inventors had links to Enlightenment science
  • many inventors upper class, many simple artisans
35
Q

Crafts Theory combining Allen and Mokyr

A
  • Allen and Mokyr see their models as competing: geograhy vs institutions
  • Crafts suggests they are complements
  • science and factor prices mattered equally
  • implies some macro invention driven by factor prices and some by higher science
36
Q

Individual incentive and entrepreneurial talent (Landes)

A
  • individual entrepreneurship explains innovation in the economy
  • based on Schumpeter’s theory that entrepreneurship is inelastic and important
37
Q

Agricultural revolution

A

Split into Yeomans Revolution, Landlord’s revolution and 19C

The agricultural revolution was a series of tech and institutional developments in agriculture that dramatically increased productivity and output

38
Q

Tech and institutional changes in AR

A
  • arable rotations
  • fodder crops
  • heavier use of manures
  • enclosure
  • large scale farming
  • regional specialisation
  • introduction of machines
  • floating of water meadows
39
Q

Pro Enclosure Argument

A
  • increased productivity
  • linked to timing of IR and AR
  • proper draining and irrigation
  • removed fallow periods
40
Q

Anti Enclosure Argument

A
  • Neeson 1993 argued that enclosure more costly than productive
  • Overton argues that enclosed farms and more new crops, crop rotation and mixed farming
  • Allen argues that enclosure only increased productivity marginally and that gains by yeoman were greater
41
Q

AR- Neo Revisionist View

A
  • Growth fast before 18C and slowed down in 18C
  • Enclosure only important before the 18C or completely unimportant
  • Puts emphasis on the increasing scale of agriculture rather than enclosure
  • Puts emphasis on irrigation, manures and regional specialisaton- not use of new crops and new rotations
42
Q

AR- Counter Revisionist View

A
  • Growth slow before 18C
  • Growth accelerated in 18C
  • advances didn’t take hold until after the main enclosure acts passed in late 18c
  • puts emphasis on enclosure replacing inefficient peasant farmers and increasing productivity
  • puts emphasis on the education of fallow land on enclosed farms
  • puts emphasis on the importance of probate inventories and local case studies
43
Q

Dualistic Labour Supply Model

A
  • labour in traditional sector available in surplus
  • labour from traditional sector can be drawn by the modern sector without increasing wages
  • this generated high profits in the modern sector which could be reinvested
  • MPL lower in traditional sector than modern sector
  • Williamson argues that this model doesn’t apply to England, wages never equal APL in proto-industry
  • timing of growth is also inconsistent with labour surplus model
  • Allen’s argument is keeping low wages could lead to industrialisation in LR
44
Q

Consumer Revolution

A
  • households demanded goods to indicate status
  • import bills for luxury goods led domestic firms to import substitute
  • different tech and raw materials required innovation
  • marketing and commercical skills developed
  • income earning opportunities increased for women and children
45
Q

Industrious Revolution

A
  • process of household based resource reallocation that increased both the supply of marketed commodities and labour and the demand for market supplied goods
  • demand side phenomenon that preceded the IR
  • change in household consumption patterns based on expanding trade and choices
  • required a change in employment patterns to match
  • De Vries argued that family or household labour increased per year in response to market changes
  • consumption patterns changing led to increased market labour
  • IR was a result of increasing labour force participation
46
Q

SoL debate

A

Lindert and Williamson found that overall workers wages improved

confirm optimists view on the IR- wages increased

adult male wages used instead of family incomes- critic

lack of regional industry evidence

family incomes also increased alongside adult male wages

47
Q

Williams Thesis (Slave trade)

A

Theory that slave trade and transatlantic trade was somehow linked to the British IR

48
Q

Triangular Trade Theory

A

Trade between Europe, Africa and American colonies involving slave trade and sale of sugar

49
Q

Summary of slave trade and its effects

A

Generated high supernormal profits for Britain that could be invested in capital and therefore initiated the IR

Conflict that the profits were used for consumption and not investment

National Income data showed that profits from slave trade didn’t make up that large of a proportion of the NI

France, Spain, Portugal also benefited from slave trade but did not experience the same industrial growth as Britain- questions importance of slave trade

Overall, slave trade benefitted Britain but was not the only reason for the growth of Britain- timing, empire and institutions also contributed

50
Q

Summary of real wages and SoL

A
  • variability and stagnation in 18C
  • real wage boom in early 19C
  • overall wages nearly doubled
  • every class of worker made better by early 19C
  • inequality gap increased
  • overall workers wages improved- trickle down effect
51
Q

Results of Real Wage Debate

A
  • real wages rose but only slowly during early IR
  • SoL look worse if we consider the impact of unemployment, dependents and urban disamenities
  • Feinstein (pessimism) estimates unemployment reduced average real wages
  • Rising number of dependents reduced average real wages
  • Disamenities (poor housing, inadequate public health) reduced average wages
  • implies real wages grew much slower than output per worker
  • slower real wage growth would imply rising inequality
52
Q

Anthropometrics and links to IR

A

anthropometrics is the measure of heights, weights and the correlation to age

height can be an indicator of net nutritional status and therefore diet and SoL

military data (where boys in the navy had minimum height requirements) showed that the average height increased until the late 19C, after which average heights fell

evidence that the average heights fell through the IR (only increased through early IR)

heights even lower in rural areas due to enclosures and underemployment

53
Q

Mortality and SoL

A

Conclusions of different economists included rising infant mortality rates and the worst rise was in industrialising areas

54
Q

Criticisms of Anthropometrics as an Indicator for SoL

A

not much variance in height over time

migration not properly accounted for

height and mortality do not directly reflect SoL

variances could have occurred for other reasons

some people sacrifice health for utility e.g. city life vs country life

55
Q

Child labour and SoL

A

child labour reduced SoL

Hayami style Industrious Revolution based on child labour allowed families to survive in period of falling male incomes

Exploitation in mills and mines was one of the worst outcomes of the IR

Poor families forced children to work in factories in the IR

Optimists argue that child labour resulted in higher earnings and higher SoL- child labour response to Smithian specialisation and division of labour

might argue that child labour is unrelated to IR

Humphries argue that:

  • child participation rates increased during IR
  • age of children working fell
  • child labour in factories and mills
  • Britain made use of child labour more so than any other country in the IR
56
Q

Pessimist Model- Child labour

Luxury Axiom

A
  • parents are not selfish
  • non work (play and education) is a luxury
  • prefer children not to work
57
Q

Pessimist Model- Child labour

Substitution Axiom

A
  • adults and children are substitutes
  • children are not necessary or better at some jobs
  • adults cost more but technical substitution is possible
58
Q

Explanation for rise in child labour

A
  • partially mechanised machinery and tech that complemented children e.g. collecting cotton from under the mills
  • Smithian specialisation and division of labour increased child productivity
  • inadequate male earnings
  • changes to institutions- lack of protective laws
  • many children grew up without a father because of war meaning children forced to work to provide for the family
59
Q

Decline of child labour

A
  • decline due to increased real wages
    • Factory Act limited hours for child labour a day, required education to be provided
  • prohibited child employment for children under 10
  • tech change became more mechanised, made children unproductive in industry
  • education opportunities expanded, more children in school than in work
  • shift from water to steam and mechanised spinning mules in textiles reduced demand for child labour
  • real rising incomes of father reduced supply of child labour
  • child labour linked strongly to family income (as incomes increased, child labour fell), proof that child labour didn’t just fall due to legislation
60
Q

Main characteristics of 2nd IR

A
  • key industries were electricity, steel and fuel

- Resources were coal and natural gas

61
Q

Development of the multinational corporation

A
  • better at gathering and target needed investment
  • better at pushing for political help
  • rising market share home and abroad
62
Q

Sherman Anti-Trust Act

A
  • aimed at limiting anti-competitiveness measures
  • firms avoided anti-competitive behaviour through mergers
  • giant firms better to compete internationally
  • Gold standard eliminated currency risk in international trade and stimulated trade and investment abroad
63
Q

Key industries in 2nd IR

A

Cotton textiles

  • own textile mills developed
  • prices forced down- new export markets in Asia and Latin America
  • South exported more to China than New England

Tobacco

  • Automated cigarette machine purchased
  • Dominant in Asian markets by 1912

Still poorer per capita- labour was plentiful but very poor

64
Q

Mid Victorian Success and Late Victorian Failure for Britain

A 
Mid Victorian success:
-controlled 40% of trade
-richest country
global financial centre 
- produced a significant amount of all manufactures

Late Victorian failure:

  • GDP growth fell post WW1
  • German industrial power overtook in manufacturing
  • British world trade in manufacturing share fell

Causes of failure
-overcommitment

  • too much capital abroad
    • britain generated a lot of foreign investment
    • could have been used for domestic K accumulation
    • social returns to investment high at home but private returns high abroad- spillovers and externalities
  • banking failures
  • poor education
  • business/labour market failures
65
Q

Overcommitment to 1st IR

A
  • Britain invested too much in 1st IR
  • Britain stuck in traditional low productivity industries
  • Legacy of inappropriate institutions
  • tariffs needed to restructure industry

first mover disadvantage

66
Q

Banking failures in Britain in 2nd IR

A

Clearing Banks Inefficient

  • money back on demand, unable to supply LR finance
  • less flexibility, less lending to industry, short term lending

New industry bias

  • K markets were biased against new industries since they were risky
  • poor information was a problem for new industries
67
Q

British Education System in 2nd IR

A
  • elementary education made compulsory in Britain much after Germany
  • secondary education did not include science in public schools in Britain, Germany taught modern subjects
  • Universities taught classical curriculum, German universities taught many science students
68
Q

Failures in Victorian Britain’s Industrial Organisation

A

Atomistic competition (Britain)

  • large number of firms of family firms
  • small market share for firms, low concentration
  • horizontal integration and vertical specialisation
  • poor marketing strategies
  • limited management hierarchy and lack of R&D
  • high unionisation with firm level bargaining, lack of labour control

Corporate capitalism (USA and Germany)

  • small number of firms, industrial oligopoly
  • large market share, high concentration
  • vertical integration
  • advanced market strategies
  • hierarchal management and R&D departments
  • firm control
69
Q

Managerialism and Mass Production

A
  • Modern management techniques represent a general purpose technology (process improvement)
  • management interacted with mass production techniques- mass distribution and advertising
  • USA was first country to understand this complex process (professional management)
  • Britain slow to understand changes, no separation between management and ownership
70
Q

Labour markets in 2nd IR

A
  • development of unions
  • higher wages and lower wage flexibility
  • unions acted as constraints on management choices, technology and production techniques etc
  • cotton industries in GBR organised to control pay and job hierarchy
  • collective bargaining was not industry wide but union specific, contrast with USA and Germany
71
Q

Manufacturing Productivity Hypothesis (Rise of USA in 2nd IR)

A

USA success with manufacturing:

  • USA K deepening was greater than even Britain’s
  • investment in large scale factories and machinery exceeded Britain’s levels
  • More than 50% of USA growth in output was due to this investment
  • intensive production required advances in management, marketing and research
  • depends on human K and business organisation sustained later growth
72
Q

American System of Manufacturing

A
  • large scale production
  • capital intensive production
  • use of machines in production
  • use of machines in production
  • the assembly line, division of labour and specialised tasks
  • use of labour with high general education and literacy but low skills
  • standardised goods
  • interchangeable parts
  • division of firm operations

Colt Revolver, Singer sewing machines, Ford Model T

73
Q

US rise to prominence

A
  • cheap energy
  • Expensive labour
  • British capital flows
  • European migration
  • education
  • tariffs (infant industry argument)
74
Q

Habakkuk Thesis (USA 2nd IR)

A
  • Usa had cheaper capital, natural resources, land abundance and expensive labour
  • tech change more rapid when using K
  • using more K required cheap resources
  • resource use linked to industrialisation and manufacturing
    • resource sector has high returns to investment
    • success has been in developing resource potential
    • resources vital but in conjunction with good institutions
75
Q

Access to British Capital for USA in 2nd IR

A
  • GBR involvement in overseas growth was vital to USA, infrastructure
  • Railroads were massive K projects with strong linkages
    • backward linkages, inputs such as railcars, rails, construction, iron and steel
    • forward linkages, processing and sales, services, farming, mining and railway stations
    • final demand linkages, derived demand, consumer goods, railway towns
76
Q

Results of European Migration in USA in 2nd IR

A
  • migrants had above average productivity
  • migrants transferred tech and knowledge
  • migrants attracted capital flows
  • migrants created markets for goods and inventions
  • property rights needed to be more secure, land acts
  • governments needed to be more democratic
  • institutions needed to be egalitarian, constitutionalism, welfare system, education
77
Q

Homestead Act (1862) USA

A
  • developed from earlier land acts
  • grain agriculture supported Yeoman farmers in the North
  • cash crops (cotton, tobacco) supported large plantations with slaves south
  • homesteaders allowed 160 acres of free land
  • homesteaders had to pay a fee, be at least 21 years old, on the land, make improvements, and farm it for 5 years
78
Q

US Education advantages

A

-USA established an earlier and sustained lead in general education
-high levels of primary enrolment
-high levels of literacy and numeracy
-unskilled labour with high general education vs GBR skilled labour with low formal education
-USA rapidly expanded secondary enrolment
-secondary enrolment corresponded with USA growth boom
-teaching in science and maths was important for 2nd IR sectors
USA had significant lead in tertiary education, USA had much higher university enrolment than European countries
-USA had high levels of human K
-Endogenous growth in 20C

79
Q

Tariffs and US growth

A
  • USA had exponentially high tariffs in the late 19C
  • USA was the most protectionist country before WW1
  • American tariffs were exclusionary, foreigners locked out of USA markets, low competition allowed inefficient firms to develop
  • infant industry development
  • McKinley tariffs raising average industry tariffs to nearly 50%
  • protection given to specific industries thought to have dynamic comparative advantage
  • short term loss was much lower due to GBR commitment to free trade
  • Tariffs on imported manufactures could accelerate K accumulation
  • generated fiscal surpluses and crowd in private investment
    • alternative to tax restructuring
  • tariffs on manufactured goods raised their prices above capital goods
  • tariffs could have promoted FDI in USA
  • tariffs may shift distribution of income to high savings households

EC104 (1 decks)

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