Globalization and the Great Divergence: Terms of Trade Booms and Volatility in the Poor Periphery 1782-1913

51 Pages Posted: 10 Mar 2008 Last revised: 29 Oct 2022

See all articles by Jeffrey G. Williamson

Jeffrey G. Williamson

Harvard University - Department of Economics, Laird Bell Professor of Economics, Emeritus; Honorary Fellow, University of Wisconsin - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Date Written: March 2008

Abstract

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.

Suggested Citation

Williamson, Jeffrey G., Globalization and the Great Divergence: Terms of Trade Booms and Volatility in the Poor Periphery 1782-1913 (March 2008). NBER Working Paper No. w13841, Available at SSRN: https://ssrn.com/abstract=1104178

Jeffrey G. Williamson (Contact Author)

Harvard University - Department of Economics, Laird Bell Professor of Economics, Emeritus ( email )

Littauer Center
Room 216
Cambridge, MA 02138
United States
617-495-2438 (Phone)
617-496-7352 (Fax)

Honorary Fellow, University of Wisconsin - Department of Economics

716 Langdon Street
Madison, WI 53706-1481
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany