E&BE. Summary of 14 papers on globalization. Course: 'Globalization: the great unbundlings'.
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Course
Globalization - the great unbundlings (EBB083A05)
Institution
Rijksuniversiteit Groningen (RuG)
Summary of the following papers:
1. Meissner, C. M. 2014. Growth from Globalization? A View from the Very Long Run. In Aghion P. and Durlauf, S. (eds.): Handbook of Economic Growth (Vol. 2, pp. ). Elsevier.
2. Nunn, N. 2014. Historical Development. In Aghion P. and Durlauf, S. (eds.): Handbook of...
PAPERS CONNECTED TO LECTURE 1: A LONG VIEW OF GLOBALIZATION IN SHORT
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PAPER 1: Meissner, C. M. 2014. Growth from Globalization? A View from the Very Long Run. In Aghion P. and Durlauf,
S. (eds.): Handbook of Economic Growth (Vol. 2, pp. 1033-1069). Elsevier.
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This paper talks about the connection between different forms of globalization, economic growth and welfare. The paper
critically summarizes various measures of international integration in the spheres of international trade, cross-border
capital flows and labor movements.
Adam Smith formulated that international trade is welfare enhancing and Pareto optimal although there are different
views, much of the literature continues to agree with Smith’s view that there are significant gains from trade for all
parties involved. The view that it is not only beneficial has evolved from a long-run analysis that also looks at the
interaction between market failures and globalization. The findings of literature are largely, but not uniformly supportive
of the idea that globalization has been positively associated with growth. Those who are less supportive often suggest
that the relationship is conditional and certain other factors might influence the gains from globalization.
Literature that looks at the idea that colonization and the slave trade damaged the prospects for growth in non-
European countries are founded to be true.
There has been a gap in incomes between Europe and the rest of the world that opened up after 1800 which is
called the Great Divergence. This fact cannot only be pinned on globalization. There are other factor
endowments, institutional quality and political factors that together with globalization enhance/limit the gains in
certain countries.
What actually is globalization?
It is defined as the economic and social connections between the world’s nations.
- It can be measured/studied by looking at the integration between different markets. Which is the degree of connection
between markets.
- It can also be studied by looking at prices/ price gaps, if everything else is namely eliminated, all prices for equal
products should be the same.
- Another way to study integration is by using gravity models of international trade this says that international trade is
positively related to the size of two markets and negatively related to distance.
- It can also be studied by looking at the interest rate. There is a strong evidence for high levels of integration based on
small observed deviations from exchange-risk -free interest parity.
- with workers, open borders lead workers to move to places with higher wages. Flows are larger when wage gaps are
higher, when the sending country has a high previous migration number. With high labor market integration there should
be a wage convergence following this paper.
- ideas and technologies such as the telegraph and shipping connected the globe and allowed for rapid transmission of
information.
There are many different views on the channels through which globalization/integration might affect economic growth.
But many of these links were derived in static environments while the history of the economy is dynamic. Some findings:
limited international integration increases the efficient allocation of resources. countries can specialize in
goods in which they have a comparative advantage.
there is a wider variety of goods to choose from which increases the welfare of people.
larger/more integrated markets enable entrepreneurs and investors to more easily cover the fixed costs related
to the development of a new idea thus open markets promote the sharing of income enhancing ideas, raising
incomes and providing further stimulus for new ideas. Thus leading to economic growth. And also the growth
rate of ideas rises as integration rises/ the incentives to innovate improve.
When integration is depended on skill level then this may lead to a Malthusian regime in some countries which
means that their living standards grow only very slowly. This is due to the fact that productivity growth depends
on skill intensity while some countries are just resource-abundant or labor-abundant. These countries are then
forced to specialize in low-skill activities and thus stay in the Malthusian trap.
All countries of the world were in a Malthusian trap until the 18 th century. The spread of people over the entire
world, and the Black death helped countries to get out of this. The Black Death revolutionized western Europe.
(lecture 2)
, Regions that are heavily involved in international trade and which had greater checks on their rulers, urbanized
and grew more quickly than other regions in Europe governed by absolutist monarchs.
The First unbundling is marked from 1820-1913/1990. And in this time period there was an international diffusion of the
industrial revolution.
From 1820 onwards, international commodity markets became rapidly more integrated.
growth takeoffs, increased urbanization, and improvements in well-being were significant which transformed the
way of live of the inhabitants in Europe and North America in the 19 th century
not every region in the world shared equally in this increase in prosperity, but most regions participated, and in
most places, higher incomes were associated with greater integration.
Information on the periphery falling behind due to globalization:
(unexplained) early advantages in factor endowments are decisive for the now richest countries and how they
were able to become rich. The countries that are now rich were relatively technologically advanced being
abundant in semi-skilled and high-skilled workers and hence less land and lab-abundant by the early 19 th century
when the global trade boom happened.
In these nations with high skills, trade increased the incentive to invest in human capital while in those nations
endowed with natural resources or abundance of low-skilled workers, the incentive to invest in human capital
was low. which means that they also specialized in low-skill intensive industries. Which made that their
income increase was not as high as other countries leading to a gap.
CONCLUSIONS:
The connection between growth and globalization are difficult The decades between the world wars witnessed
an up and down in global integration.
From the 1970s onwards, evidence supports that distortions induced by trade policy and exchange controls are
associated with lower economic performance. thus integration should then increase economic performance.
When globalization has demanded certain countries to specialize in natural resources, low investment and
physical conflict over ‘rents’ can occur (Dutch disease).
Also countries who specialize in primary production and who invest low levels in human capital may experience
welfare losses for future generations through the globalization.
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PAPER 2: Nunn, N. 2014. Historical Development. In Aghion P. and Durlauf, S. (eds.): Handbook of Economic Growth
(Vol. 2, pp. 347-402). Elsevier.
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This paper surveys evidence on the impact that historical events can have on current economic growth. Many papers
provide an analysis and supporting evidence that ‘Europe’s colonization of the globe’ was important for long-term
economic growth.
slavery and forced labor results in economic and political inequality which both inhibit long-term economic
development.
legal traditions of the colonizer are transplanted onto the colonies which have an important impact on the legal
systems that evolved over there and in particular on investor protection. E.g. colonies of France, Spain and
Portugal had weaker investor protection and less financial development relative to former British colonies with a
legal system based on common law.
The climate/disease environment of colonies was also important in how they developed. Countries were the
environment was good (Canada, Australia, US) facilitated European settlement on a large scale better. In these
areas, the Europeans brought with them their values and beliefs and developed European-like institutions that
emphasized the protection of property rights. In areas such as sub-Saharan Africa where European mortality was
high due to diseases over there, Europeans did not settle. Instead, they engaged in an extractive strategy in
which they extracted natural resources without regards for the consequences. Which led to a lack of property
rights and other institutions in these places.
The impacts of European colonial rule in various places:
Americas
Parts of America that specialized in ‘bad’ activities (sugar, coffee, rice) experience a negative correlation between long-
run development and initial colonial specialization. These bad activities display economies of scale and exploited labor in
these colonized areas. Other activities such as subsistence farming, or manufacturing are not negatively related to long-
, term development unless there were large native populations that could potentially be exploited in the production
process.
Asia
Countries after independence with non-landlord systems (collection of money) have higher levels of health, education
and agricultural technology investments relative to landlord systems. And had long-term impacts on economic growth.
Island colonies
For Island economies that were a colony, those who were colonies for a longer time period had better economic
development and a higher per capita income in 2000 than those who were colony for a shorter time period. However
whether colonized islands were better of than uncolonized islands is not looked at.
Africa
Africa was the last continent to be colonized. A finding is that greater education spending during the colonial period is
associated with more education in the post-colonial period. And that more infrastructure investment during the colonial
period is associated with greater access to infrastructure today. Also a higher health investment during the colonial period
is associated with better health outcomes today.
However colonization in Africa also resulted in the creation of country boundaries that paid little/no attention to pre-
existing kingdoms, states or ethnic groups. The portioning of ethnic groups is associated with lower economic
development and more civil war.
Other historical events that can have an impact on current economic growth:
The Columbian exchange (lecture 2)
This refers to the transfer of crops, disease, ideas and people between the Americas and the rest of the world following
Columbus’s discovery of the ‘new world’ in 1492. The exchange brought diseases that decimated the Native American
populations. It introduced the Eastern countries to a variety of new plants that were widely adopted: tomatoes, potato,
cassava, corn and tobacco. What was the impact of the spread of these new foods?
Overall especially the potato had a large positive shock to agricultural productivity in places that it was newly adopted. It
also had a positive impact on total population and urbanization rates.
International trade and globalization
Trade can have very different impacts on economic growth, depending on initial conditions and the specifics of the
environment. Evidence suggests that Europe, India and China in the 19 th century benefitted from international trade.
Africa and Latin America did not have beneficial impact of trade development, especially due to Africa taking part in the
slave trade.
Warfare and conflict
The Tilly hypothesis says that an important determinant of the rise of Europe was interstate warfare which promoted the
development of strong European states. This also resulted in European centralized governments and institutions that
were able to raise sufficient capital and maintain large populations that could be used to wage war. War made states.
Also, evidence is found that a country that is a conflict also puts more money in education and that there is more
education enrollment. War made education.
War higher degree of political centralization.
War decrease in trust in the political system.
An example of a war is the French Revolution. The institutional reforms that were poured onto conquered territories had
lasting impacts in German and Prussia regions that experienced longer periods of French occupation experienced
faster economic development measured by urbanization rates.
Expulsions and forced population movements
The most dramatic example of forced population movements is the export of African slaves. Slaves were captured
through kidnapping, raids and warfare. There is evidence that this had effects on state formation, group co=operation and
institutional, social and economic development in those countries. A study finds that the parts of Africa from which the
largest number of slaves were taken are the poorest today. (however it can also be that the most poorly functioning
societies had the biggest change of being selected into slave trade).
Furthermore, slave trade adversely affected levels of trust in Africa.
For Europe: the mass movement and murder of the Jewish population in Russia led to slower population growth which
was still detectable after 50 years.
religious historical events
E.g. the protestant reformation of 1517. A study finds that the protestant religion is associated with higher literacy
higher education higher income. Protestantism has also positive impacts on other various measures of economic
development. Furthermore the protestants are more pro-women which increase female education participation
compared to Catholics. This now leads to a smaller gender gap in education for protestants compared to Catholics.
technological innovation in history
There is a link between innovative activities in the past and economic growth now. This is because there are increasing
returns to technology adoption: a higher level of technology lowers the cost of discovering new technologies. The printing
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