Term 2 Flashcards
Define globalisation
Integration of world markets
When is the first globalisation?
1870-1913 (19thC)
Which wave of colonisation coincides with first wave globalisation?
1st wave globalisation & 2nd wave colonisation = late 19C
(1st wave colonisation = 15C to early 19C)
(2nd wave globalisation = late 20C)
Evidence globalisation is taking place
Reduction in ‘t’ = price convergence = integration of world markets = globalisation.
What are the components of ‘t’?
Tariffs, transport costs, information asymmetries.
3 possible causes of globalisation
- Transport revolution - steamship & Suez Canal
- Trade?
- Reduction in information asymmetries - Telegraph & Gold standard
What was the transport revolution?
Steamship: 1840s screw propeller & iron hull, Elder & Radolph’s compound engine in 1853 = enabled long distance trade with more cargo space.
Suez Canal - 1869 Europe closer to Asia
When did Suez Canal open?
1869
By how much did ocean freight rates fall according to North’s index?
41% decline from 1840-1910
What method did Pascali (2016) use to show importance of steamship for globalisation?
Looked at wind patterns as these are exogenous w.r.t trade. Asymmetric reduction in shipping times
Problems with using ocean freight rates to evidence globalisation
They are endogenous to trade - more trade = increase D for shipping = shift in demand curve affects freight rates. affected by economic activity & market structure. Pascali argues gold standard, income growth & trade liberalisation caused demand curve to change. And shipping line cartels created monopoly structure.
Sailing vessels from Western Europe to US took what route? How did this change after the steamship?
Travelled south before heading westward due to clockwise wind Patterns in North Atlantic. After steamship could take direct route as not dependent on wind patterns.
When were the corn laws abolished in Britain?
1846
When were the corn laws introduced?
1815
What free trade treaty did British & France sign and when?
Cobden Chevalier treaty in 1860
Why does trade not explain globalisation?
Because 1870-1880 reversion to protectionism everywhere except Britain in most intense globalisation period.
USA tariffs as north won civil war 1860s.
By how much were German wheat tariffs increased in late 1880?
From5% to 40%
What is asymmetric & symmetric info problems?
Symmetric info = risk e.g. Currency risk
Asymmetric = contracting problems - adverse selection & moral hazard.
When was the classical gold standard era?
1880 to 1914
How did gold standard help reduce information problems?
Reduced currency risk = reduced symmetric info problems
When was the Atlantic telegraph cable built?
1866
Hoag (2006): what are his results on how telegraph helped globalisation?
Hypothesis tests the difference in share prices between NY & London stock exchanges for Erie Railroad. Significance differentials from t=0 to t=9 therefore telegraph reduced time lag by 10 days = share price convergence.
Why do Bordo et al argue that info asymmetries remained a problem?
40% UK pre-1914 overseas investment in railways and 30% in government as deemed lower risk and easier to monitor.
Debt > equity
Proof info asymmetries still a problem - sacrifice profitability for lower risk.
2 expected gains from trade
Comparative advantage - increased output
New trade theory - economies of scale
How does comparative advantage benefit a country even if their ability to produce is unchanged?
If country B becomes more productive in producing good Y, it becomes comparatively even worse at producing good X = willing to trade more Y for same amount of X, so country A receives more Y for every unit of X.
What did Heckscher & Ohlin show are the distributional consequences of globalisation for FOPs?
Country specialises in the good produced using the relatively abundant FOP. E.g. US lots of land and not much labour = specialise in resource / agricultural goods = increased demand for land = rental price of land rises = landowners benefit, while price of scarce FOP falls = wages fall.
What is the factor proportions model?
HOS model of trade similar to Ricardian model but includes labour and capital, not just labour. Different countries have difference endowments of K & L - specialise in & export goods produced using abundant factor. Price of abundant FOP rises, and price of scarce FOP falls.
What is the compensation principle w.r.t. Globalisation?
As long as total benefits > total losses from free trade, it must be possible to redistribute some of the income from winners to the losers so that everyone has at least as much income as before.
Why was there wage convergence between US & UK in 19C?
Before 19C: US wages higher as labour scarce
Globalisation: UK specialised in relatively abundant labour intensive goods = wages rose; US specialised in resource intensive goods = wages fell –> convergence.
What reinforced wage convergence between US & Europe?
Labour flows from Europe to US = increased supply if labour = wages fell in US, opposite in Europe
What mitigated wage convergence between US & Europe?
Capital flows from Europe to US = increased capital in US = makes labour more productive so wages rise, but overall we have wage convergence.
In 19C the impact of globalisation was known as…
The Great Specialisation
Two views on how globalisation impacts industrialisation
- Specialisation in primary products –> deindustrialisation as cannot compete in capital intensive markets = worse off in LR
- Industry in other countries = market for primary products in exchange for high quality industrial goods –> boosts other sectors of economy.
Why is there an issue in estimating the causal effect of trade on development?
Correlation doesn’t mean causation. Issue of reverse causation - development leads to more demand for imports & more exports produced = more trade.
How did Pascali estimate effects of trade on development?
Exogenous variable = wind patterns causing trade to increases
Positive correlation between actual change in trade & change in GDP; but negative correlation between predicted change in trade due to wind patterns & steamship & GDP = negative effect on development
What 2 factors separate the first and second waves of colonisation?
1) geography
First wave = Americas
Second wave = rest of the world
2) settlement
First wave = massive European settlement
Second wave = little settlement, instead direct control
When did the first wave of colonisation start?
15th century
When is the second wave of colonisation?
19th and 20th centuries (1800 to 1914)
What and when was the Berlin conference?
1884 - scramble for Africa was formalised
From what to what proportion of the earths surface did Europe increase its control from?
37% in 1800 to 84% in 1914.
What was India first conquered by?
A private company - East India Company (EIC)
When was the Indian rebellion? When was EIC liquidated by British?
Rebellion 1857-59
EIC liquidated in 1858 = India becomes a British colony
What private company controlled the Dutch East Indies?
VOC - Dutch East India company
When was VOC liquidated? When did the Dutch take over control of the East Indies?
VOC dissolved in 1800.
1816 - Dutch state takes over territories in Indonesia
When was the union of Indochina created? Who controlled it?
French Indochina
Created in 1887
By which data is Africa fully colonised? Which 2 countries are exceptions?
1913 Africa is fully colonised expect Liberia and Ethiopia
3 inventions that enabled Europe to colonise in 19C
Colonisation without massive settlement required military superiority & quick communications:
IR inventions: telegraph & steamship & Suez Canal,
medicine advancements quinine to treat malaria
Advanced in weapons - maxim gun and gunboat
Define imperialism
Extending power by the exploration & acquisition of territories = linked to colonisation.
What is the Hobson Lenin thesis relating to motives for colonisation?
Hobson Lenin thesis = investment driven imperialism
- industrialisation means growth of production > growth of consumption so need foreign markets for goods & investment. KL ratio high at home = declining returns to capital. Investors with surplus wealth look for higher returns abroad. Then pressure gov for political/military control to protect & secure their investments.
What did Hopkins believe the motive for imperialism was?
TRADE - British & French first conquered places they had strong commercial relations with e.g. Slave trade on Gold Coast. IR increased price of African commodities due to higher demand, then prices fell after 1860s provoking intra-African conflicts & rising tariffs = undermined free trade = Europe intervened.
What is the formula for net barter terms of trade?
NBTT = Laspeyres price index for exports / price index for imports
Why is an increase in NBTT good?
Price of exports rises faster than price of imports = can get more imports for every unit of exports.
What happened to Africa’s NBTT across 19C? Why (3)?
NBTT boomed from mid-18C to 1880s. Exceptionally sharp boom in 4 decades before the Berlin conference.
Commodity price boom due to transport revolution, liberal trade policy in Europe, increased demand from IR.
Why did the commodity price boom in Africa incentivise European colonisation?
Increasing African NBTT = worsening European NBTT. Imports from Africa more expensive for Europe = incentive to reduce price by lowering tariffs & imposing free trade on Africa by force.
Non economic motives for imperialism?
Political demonstration of power and national prestige in an age of increasing intra-European tensions (Hyam). Share of African in total British trade small = scramble for Africa economically irrational.
How many square miles was British empire by 1901?
11.2 million square miles
Benefits of British empire in terms of trade
Colonies if independent would’ve taxed British imports making them less competing & reducing British exports. Commercial policies in colonies provided export markets for manufactured goods + could acquire cheap raw material imports.
How much of GNP would’ve been lost from dismantling the British empire?
Edelstein estimates 3.3% 1913 GNP would’ve been lost on account of commodity trade.
What fraction of British Imports came from the empire? What does this say about the gains from the empire?
Only 1/5 of imports came from empire in 1860. No commodity from empire what unobtainable elsewhere.
How could the British empire be argued to have harmed British productivity?
Sheltered Britain from world competition = schumpeterian argument - competition forced innovation = higher productivity & economic growth in the counterfactual? - Source of late Victorian failure?
How much of British overseas investment went to colonies?
Only 25% - 42% to foreign e.g. Americas
Were capital returns higher in the colonies?
Average annoyance rates of return on capital higher 1860-1880s but lower 1880s-1890s - should’ve invested at home and improved SOL
How much of Britain’s budget was spent on its empire?
37% budget military costs mainly for empire
27% budget interest payments on debt accumulated due to past wars fought to acquire and defend empire = 64% budget
By how much could Britain have reduced its taxes by if it relinquished the empire?
25% reduction if relinquished empire and only spent as much on military as Germany did.
What were the distributional effects of British imperialism?
British elite - investors in empire, those employed in administration and army, white settlers in dominions and colonies benefitted from lower taxes. British taxpayers bore the brunt of the cost.
What were Huillery’s findings on the cost of French West Africa?
Computed direct costs for French taxpayer of French West Africa. Military expenses <1% French budget, net subsidies only >1% in late colonisation period.
Was colonisation necessary for free ish trade?
No - Britain had good commercial relations with France, Spain, US and even Brazil without political intrusion.
How is colonisation exogenous in its nature?
“Natural Experiments” which can see the effect on development. Exogenous as decisions taken from abroad that don’t make sense in a local context.
2 aspects of exploitation of colonies
1) land grabbing by white settlers
2) coerced labour - as African farmers only produced at subsistence level, not for market = hard to tax = reason for coerced labour.
How do Lowes and Montero (2015) determine the impact of colonisation on the development of Congo?
Compared villages on either sides of the border of rubber concessions - borders chosen without much knowledge of geography so random & exogenous. For 60% of the country part of concessions, wealth would be 15% higher if hadn’t been concession. Areas with concessions less developed today.
Congo Free State was a colony of…
Personal colony of King Leopold II of Belgium until 1908 when it became a colony of the Belgium State.
Did incomes increase for colonised regions over the colonial period?
Yes - gradually increasing per capita incomes
But this doesn’t mean colonisation was positive - incomes could’ve increased more in the counterfactual.
What does the industrialist school believe?
That institutions are a fundamental determinant of development
Define inclusive institutions. Where were these set up?
Inclusive institutions = secure property rights, law and order, markets and state services, quite free entry of new businesses, education for the majority.
Set up in “Neo-Europes” I.e. Where Europeans settled (US) during 1st colonisation.
Define extractive institutions. Where were these set up?
Designed by the politically powerful elites to extract resources and rents. “Gate keeper states”. Little state capacity.
What are the growth outcomes for extractive vs inclusive institutions?
Inclusive = create incentives for investment & innovation = sustained growth.
Extractive = only deliver growth when economy inside technological frontier. Fail to push PPF out when needed = sustained growth not possible.
Why is it argued that British colonies had superior institutions?
Because Britain itself had superior institutions - explains why first to industrialise.
What type of law did British colonies have? Name & define it.
Common law = judges have an active role in developing rules, more flexible, adapt to circumstance.
What type of law did French colonies have? Name & define it.
Civil law - based on fixed codes and statuses, judges have a more limited role, laws stated explicitly.
How is common law argued to be better for growth?
La Porta et al (1999) examined 49 countries. Argue common law have stronger legal protection of investors = these countries have larger equity and debt markets = contribute to economic growth.
Why cannot we just compare British and French colonies to see the relative impact of them on development?
Because the British chose to colonise the richest regions since it was most powerful and richest country at the time of the scramble for Africa, so these countries aren’t necessarily richer due to British colonial rule.
Cogneau and Moardi - what colony do they look at to compare British and French colonial rule? Why?
German Togo - after Germany lost WWI, League of Nations divided Togo between British and French.
West Togo became part of Gold Coast = British colony.
East Togo = French colony.
Each location of border random as didn’t regard local terrain = exogenous - regions either side homogenous at time of division.
What border effects did Cogneau and Moardi discover in Germany Togo?
Education expenditure 3-4 times higher in British vs French Togo. Lowest British student:teacher ratios = higher quality education. Higher gross enrolment in primary school. Persistence of border effects after independence (15% greater primary enrolment) = British colonies superior
What is direct vs indirect colonial rule?
Direct rule = administer directly with European administrators
Indirect rule = share power with local pre-colonial leaders
What method does Iyer use to compare direct vs indirect rule in India?
Doctrine of Lapse - the director of the EIC before its liquidation decided that if a prince died without an heir, the state would be property of EIC and so became British property = exogenous determinant of whether a state came under British direct rule. Death of a prince is random. Compare princely (indirect) states to ones where the prince died without an heir (British direct rule)
What does Iyer discover about direct vs indirect rule in India?
Direct rule states = lower access to public goods in postcolonial period compared to princely states. Not much better off in terms of agricultural productivity. British underinvestment vs greater investment by princes in human and physical capital.
Why did Britain invest less in Indian states compared to the princely states? (3)
1) democratic process - former princes elected to office, stronger local ties = greater pressure to deliver public goods
2) British perhaps didn’t intend to settle in India LR = no incentive to set up good institutions. Little European settlement.
3) native state rulers had longer terms than British administrators
