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EC104 Term 1

Lecture 1 – Introductory stuff and ‘Summary’

• Economic performance measured in two ways: levels and rates.
- GDPpc= GDP (value of production in a year) / population → level – indicator of economic development.
Not a perfect measure and not the only measure
- (GDPpc1 – GDPpc0 / GDPpc0) → rate – indicator of economc growth
• Modern Economic Growth is sustained growth in GDP per capita, generally referring to rapid growth after the
18th century. Before this point GDP per capita growth was not sustained and was more or less stagnant for
1700 years since 0AD.
• Maddison (2001) – between 1000AD and 1998 population rose 22 times, per capita real income rose 13 times.
0AD to 1000AD population rose by 1/6 and per capita income fell slightly. Also, Maddison –world annual
growth rate (GDP) 0.01% 0-1000AD, 0.22% 1000-1820 and 2.21% 1820-1998. In per capita terms this is 0.00%,
0.05% and 1.21% respectively. Since 1820 world development much more dynamic.
• O’Rourke and Williamson (2002) said that trade alone was only necessary but not sufficient – price
convergence was also required, which is an indicator of how connected markets are. This same paper also
showed that since 1800s transport costs fell which led to less arbitrage (buying low in one market to sell high
in another) as the prices of goods in different places were more similar. The paper shows that despite falling
land labour rations 1600-1920, before 1820 Land-labour ratios positively correlated with w/r (wage rent) ratio.
After 1820 there was a negative correlation (in Britain). This inverse occurred due to the opening of the British
economy to trade after 1820, which meant that more people lead to higher wages in the global economy
(contrary to the Malthusian model).
o Maddison, A. The world economy: a millennial perspective. Development Centre Studies, OECD Publishing,
Paris.
o O’Rourke, K. and J. Williamson (2002) “When did globalization begin” European Review of Economic History
6 (1): 23-50.

Topic 1 – Pre-Modern Growth pre-1500

• 2 broad sources of growth (Szirmai 2005): ‘Proximate’ sources of growth (Labour and capital accumulation,
human capital and technological change) and ‘deep determinants’ of growth (Institutions, geography and
demography etc.)
- Growth of Output = Residual (TFP) Growth + Growth of K contribution + Growth of L Contribution
• Across countries today rich countries tend to have higher returns on capital(K) stock, human capital stock and
have more resources to invest in technology. However, over time deep determinants are more important for
the overall trend of development.
• North (1990): Institutions are man-made constraint that shape human interactions, these include formal
institutions (such as a legal system, a political system, an economic system, an education system and a health
care system) and informal institutions (such as cultural, morals, customs and norms).
• Sachs (2003): Latitude as a geographical factor is important as it affects soil fertility, evaporation rate (stability
of water sources), lack of long summer days for harvesting crops, more parasites, infectious disease (affects
ability to work) and transport costs. Easterly and Levine (2003: 116) find a positive correlation between
latitudinal distance from equator and log GDP per capita.
• Malthusian model gives simple mathematical framework explaining stagnant growth for centuries before 1820
– land supply is fixed, and labour has diminishing returns. Any increase in income per capita results in pop.
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Growth but population growth is limited by food growth. This creates the basic principle that population would
outpace food supply, self-correcting all variables. This changed due to changing assumptions under MEG:
o Industrial rev. (IR) gains in labour(L) productivity, increase in growth rate of resources above population.
o IR brings sustained growth instead of intermittent shocks.
o In time increased income shocks no longer lead to more children
• Becker’s Quantity-Quality trade off model of fertility (Becker 1973) – parents derive utility in both quantity and
quality of children. Low-income elasticity for quantity but high for quality (i.e., 9 months to make new person).
Increasing household income will increase demand for quality but decrease quantity demand – fewer kids
because decrease in quantity demand dominates (due to rising opp. Cost of childbearing, cost of raising
children etc. (Guinnane, 2011)
o Easterly, W. and R. Levine (2003) “Tropics, germs, and crops: how endowments influence economic
development,” Journal of Monetary Economics, 50: 3-39.
o Guinnane, T. W. (2011) “The Historical Fertility Transition: A Guide for Economists,” Journal of Economic
Literature 49 (3): 589–614
o Malthus, T. An Essay on the Principles of Population. 1798.
o North, D. C. Institutions, Institutional Change and Economic Performance. Cambridge: Cambridge University
Press, 1990.
o Sachs, J. D. (2003) “Institutions don’t rule: direct effects of geography on per capita income,” NBER Working
paper #9490.
o Szirmai, A. (2005) “Growth and stagnation: theories and experiences,” in The Dynamics of Socio-Economic
Development (2nd ed.), Chapter 3, pp. 67-116. Cambridge: Cambridge University Press.
o Becker, G. S., and H. G. Lewis (1973). “On the Interaction between the Quantity and Quality of Children.”
Journal of political Economy, 81 (2, Part 2): S279-S288.

• Focus on Islamic world, China and Europe. Islamic world saw production of science and culture under 3
caliphates – Rashidun 632-661AD, Umayyad 661-750 and Abbasid 750-1258. 7th – 13th c. Golden Age of Islam
• Chaney (2013) – link between economic crises and political instability, case study of Egypt 641-1517 where
agricultural yields influenced by Nile (record of Nile floods and droughts measured by Cairo Nilometer), could
have caused famines (high prices, hoarding, social unrest) social unrest led to rising religious leader power.
Measurement : data on annual floods 622-1437 and data on month and year of judge changes 641-1437
• China had two period of growth in early Northern Song (960-1127) and late Ming period (1405-33) after
Zheng He voyages. (Findlay and O’Rourke 2007) Song period saw increases in cultivated areas and a new high
yield rice variety, growth of industry and service sector.
• Bai and Kung (2011) look at how less rainfall brings more conflict. Drought led to crop failure – shortage in
fodder thus meat production, looting of settled ag neighbours to survive
• Shiue (2017) found a Q-Q trade-off in children 17th c. to 19th c. among educated but not after or before due to
changes in the civil service examination which affected the returns for human capital.
• Europe Findlay and O’Rourke (2007) – despite Malthusian trend the large shock (black death) caused changes
in demographics, specialisations and urbanisation and was arguably the beginning of the end of the
Malthusian trap West Europe – zero growth to very slow growth.
• Voigtländer and Voth (2013a) said the reason for change was the black death, Europe’s history and the
nature of its cities. Diagram below but I don’t really get it:
• Voigtländer and Voth (2013b) (same year but different paper “how the west invented fertility restriction”) –
new marriage pattern in Europe after BD – land abundance favoured land intensive activities (animal
husbandry more profitable than crop farming). Women had a comparative advantage in this as it required less
force. Working women -> delayed marriage and birthing -> lower fertility (fewer children per woman compared
to Asia) and so income is allowed to rise due to low pressure on resources.
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o Bai, Y. and K.-s. Kung (2011) “Climate Shocks and Sino-Nomadic Conflict,” Review of Economics and Statistics
93 (3):970-981.
o Chaney, E. (2016) “Religion and the Rise and Fall of Islamic Science,” Manuscript
o Shiue, C. H. (2017) “Human capital and fertility in Chinese clans before modern growth,” Journal of Economic
Growth 22 (4): 351-396.
o Voigtländer, N and H.-J. (2013a) “The Three Horsemen of Riches: Plague, War and Urbanization in Early
Modern Europe,” Review of Economic Studies 80: 774-811.
o Voigtländer, N and H.-J. (2013b) “How the West 'Invented' Fertility Restriction,” American Economic Review
103 (6): 2227-64.
o Findlay, R. and K. O’Rourke. Power and Plenty: trade, war, and the world economy in the second millennium.
Princeton University Press, 2007.

• One argument is institutions – S. Europe had state enterprises where private enterprise played a limited role,
whereas NW Europe there was state encouragement, but private investment led the way.
• FAFM dropped since boys and girls chose each other based off consensus rather than it being organised by
families. Higher FAFM allowed for higher possibilities of human capital formation.
• Mongol invasion of China led to a destruction of the institutional framework of the Song Dynasty, Japan barely
hit by the BD. Before 1600 Japan’s geographic situation insulated Japan and allowed dense areas of population
in certain areas. These populations were vulnerable to disease – which the Chinese often brought. Japan was
fragmented by Shogunates.

Topic 2 – Early Modern Period 1500-1750

• Great Divergence – differential economic performance China vs Europe. Around Song peak (1000AD) China
more developed than Europe, inventions of gunpowder, printing, compass and paper. Despite this Europe
industrialised first, creating a clear gap by 1800.
• Two views: late divergence and early divergence. Pomeranz (2000) backs late divergence – unexpected and
significant discontinuities in the 18th and especially in 19th c.s allowed breaking of energy and resource
constraints. General late view says divergence due to industrialisation and this was due to European coal
advantage, colonial policy and shocks that negatively affected China (Taiping/Nian rebellions in 19th c.).
Other view is early divergence. Allen (2011): low silver wages in East were not counterbalanced by lower
food prices so lower welfare ratios in East were as low as the backwards parts of Europe. Generally early
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divergence literature emphasises commerce, consumption, urbanisation and ag. productivity above resource
advantages.

• Allen (2009) adjusted real wages to PPP via ‘welfare ratios’ (as grain and silver wages have flaws), further
expanded in Allen (2011) – created bare bones basket (BBB) and European Respectability Basket (ERB) (some
comfort goods) based off of assumption of family of 4 and an annual subsistence of 3.15 baskets. A welfare
ratio of 1 means subsistence. He found that in both BBB and ERB terms welfare ratios diverged between
London/Amsterdam and Delhi/Beijing/Vienna by 16th/17th c.
• Divergence explained by demographics. European Marriage pattern with late FAFM compared to China and
India – Broadberry (2013: 29) av. FAFM 25.4 in England 1600-1849 vs 18.6 in China 1550-1931 and 13 (what
the fuck) in India 1911-31 (double what the fuck). This meant lower fertility (negative check) in Europe which
meant lower pressure on resources in China (lower mortality = positive check). Allen (2009) said low fertility
is important because it caused high wages which led to development of labour-saving technology in England
(L-saving tech spurred the IR).
• Institutional theory by Olson (1993) – roving bandit would loot a place of everything (i.e., 100% tax rate) and
over time nothing is produced as it is all looted. A bandit that monopolises looting in one place only takes a
certain % s.t. incentive exist and revenue is maximised. This is what an autocracy does. This incentivises ‘the
bandit’ to be stationary (so autocracies formed). Democracies formed where society itself acts as the
autocrat – generally leading to lower tax rates, and under a democracy leader are incentivised to sacrifice
revenue to win elections – this is how government forms. Europe fits Olson’s theory as candidate for
democracy due to decentralised governments with powerful aristocracy, merchants and churches whereas
China had stable autocratic regimes with no challenge from aristocracy, merchants or church etc. England
saw changes towards this democracy (do not overexaggerate how democratic) in Glorious revolution 1688
where these very groups supported parliament.
• GR created independent judiciary from monarchy and led to a functioning credit market (loans, govt. debt
and lower interest rates created) which allowed rising state capacity. GR also divided powers of legislative,
executive and judiciary government and created a credible threat for the monarchy of overthrowing if they
acted up.
o Allen, R. (2009) “How prosperous were the Romans? Evidence from Diocletian’s edict (AD301)” in A. Bowman
and A. Wilson (eds.) Quantifying the Roman economy: methods and problems, pp. 327-345. Oxford
University Press, 2009.
o Allen, R. (2011) “Why the industrial revolution was British: commerce induced invention, and the scientific
revolution,” Economic History Review 59: 2-31.
o Broadberry, S. (2013) “Accounting for the Great Divergence,” Economic History Working Paper no. 184, LSE. o
Olson, M. (1993) “Dictatorship, democracy, and development,” American Political Science Review 87 (3):
567576.
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o Pomerantz, K. The Great Divergence: China, Europe, and the making of the modern world economy.
Princeton University Press, 2000.
• Main two plagues to look at were Black death (1347-1352) which was global, and the Columbian Exchange
plagues 1492-1650 (many different diseases brought to Americas). BD killed 50m Europeans – 1/3 to 2/3 of
population of Europe. Mongol expansion spread the pandemic from Himalayas, first epidemic in China but
spread to Europe by 1348. The BD had 2 other waves in 17th c. and in 19th c. (this one is ongoing in poor
nations).
• Pamuk and Shatzmiller (2014) – major shock caused fall in population which reduces output less than
population, so GDP PC increases. Higher land labour ratio leads to high real wages and low land rents and
interest rates. Plagues can be beneficial to survivors’ standards of living in Malthusian world. Europe affected
more than Asia – changes to agriculture, surge in land labour ratio which may have reduced amount of
serfdom (North and Thomas 1971), also European marriage pattern (mentioned earlier), Little divergence
caused in Europe – South more affected.
• Plague may have affected Institutions (Dittmar and Meisenzahl 2020) – origins of the state as a provider of
public goods here. In Germany there were effects on education and health where protestant reformation
happened.
o Dittmar, J. E. and R. Meisenzahl (2020) “Public Goods Institutions, Human Capital, and Growth: Evidence from
German History,” Review of Economic Studies 87: 959-996.
o North, D. and R. Thomas (1971) “The Rise and Fall of the Manorial System: A Theoretical Model,” Journal of
Economic History 31 (4): 777-803 o Pamuk, S. and M. Shatzmiller (2014) “Plagues, Wages, and Economic
Change in the Islamic Middle East, 7001500,” Journal of Economic History 74 (1): 196-229.
• Acemoglu et al. (2005) found that geographically Europe luckier than Asian due to Atlantic traders growing
more. This benefitted NW more than SE Europe as it caused Smithian growth through specialisation. This
can’t explain everything though, institutions (measured using Polity IV index 1(bad)-7(good)) were important
also – England and Netherlands had more power constraints.
• De Long and Shleifer (1993) described Prince and Merchant societies (absolutism vs. limited authority).
Absolutist rulers extract rents while limited governments cannot. Generally, by 1650-1800 all of Europe was
‘prince’ but England and The Netherlands.
• Slave trade also important to transatlantic trade, after Columbian exchange plagues there was American
labour scarcity post 1492 – demand for slaves. Nunn (2008) found negative correlation between historical
slave exports and development today, paper goes on to find this correlation significant and causal.
o Acemoglu, D., S. Johnson and J. Robinson (2005) “The rise of Europe: Atlantic trade, institutional change, and
economic growth,” American Economic Review 95 (3): 546-579.
o De Long, B. and A. Shleifer (1993) “Princes and Merchants: European city growth before the industrial
revolution,” Journal of Law and Economics 36: 671-702.
o Nunn, N. (2008) “Long-term effects of Africa’s slave trades,” Quarterly Journal of Economics 123 (1): 139-176.
Acemoglu et al. (2001) looked at settler and non-settler colonies in the Americas. Settler colonies were
‘neoEuropes’ with replication of European institutions, non-settlers had extractive states – exploitation of
resources to transfer to Europe. Areas that developed these better property rights protections saw higher
development, areas with high settler mortality had lower GDP. Acemoglu argued that settler mortality rates
determined settlement type which determined early institutions and therefore later institutions, which
affects long run economic performance.
• Valencia Caicedo (2019) looked at Latin America (I’ll be referring to Latin America as LATAM). Areas with
Jesuit missions had more educational emphasis. By 1767 Jesuits kicked out of LATAM, they came in 1609.
Areas far away from missions have lower incomes and literacy rates. Areas with missions saw occupational
specialisation as they received training (artisan class established) and new technologies introduced (i.e., soy
seeds).
• Dell et al. (2018) looked at Vietnam as experiment as to how historical states affects development. North was
very centralised before colonialism while South was patron-client state. They found that there was
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persistence through colonial and post-colonial institutions even when both regimes were gone. History
matters due to persistent historical local norms that matter to development.
o Acemoglu, D., S. Johnson and J. Robinson (2001) “Colonial origins of comparative development: an empirical
investigation,” American Economic Review 91 (5): 1369-1401.
o Dell, M., N. Lane and P. Querubin (2018) “The Historical State, Local Collective Action, and Economic
Development in Vietnam,” Econometrica 86 (6): 2083-2121.
o Valencia Caicedo, F. (2019) “The Mission: economic persistence, human capital transmission and culture in
South America,” Quarterly Journal of Economics 134 (1): 507-556.
• Spain and Portugal didn’t see the same sustained MEG due to American colonialism while England and the
Netherlands dud since Spain and Portugal could not produce the same tax revenues that they could. This was
important since these tax revenues were important for securing property rights.
• Italy and Spain’s PC GDP stayed level mostly 1280-1850. Italy led in the early modern period due to the early
development of broader political participation in Venice, which incentivised entrepreneurs and inventors to
succeed. Military success and population density alongside high urbanisation were also factors helping Italy.
Venice developed early joint capital stock firms while Tuscany started to develop banking, which spread to
the rest of Italy. Decline was due to frequent wars with Spain and France and political fractionalisation, which
reduced ability to fend off invasion (weakening property rights). Venice would go on to become an
aristocratic oligarchy where rich families excluded entrepreneurs.
• Early modern period was good for central Europe due to high ag. Productivity and skilled Jewish migration to
Poland. Poland’s parliament also restricted the monarchy. However, 17th century onwards the government
became extractive rent-seekers. The second serfdom caused large landowners to increase labour days and
nutrition/health declined as food was exported for industrial goods that only helped the landowners.
• At this point Africa was poor due to many factors – expansion of output in Africa was constrained by labour
supply, soils were thin and easily eroded and extreme seasonality all made for low ag. Productivity. 15001650
Africa was split into regional and disconnected economies, but Islam did unite much of the Sahara, creating
trust among traders. Slave trade incentivised war, since slaves were often captives of such wars, this made
peaceful trade dangerous. Atlantic trade brought new crops however, and brought new currency (before
barter economy), however slavery took around 13 million people.
• 1600-1720 Japan’s arable land area increased 40% and its production increased 60%. No growth in GDP per
capita but growth in urbanisation. Primary sector declined 1600-1721 from 70% to 61% while tertiary sector
rose (not secondary).
• China’s influx of Latin American silver led to monetisation of public finance in 16th c. and allowed more
commerce, maize and potatoes from new world allowed Chinese population to triple under the Qing.
Unusually high level of Chinese human capital at this point.

Topic 3 - The Industrial Revolution 1750-1850

• An Industrial revolution is a rapid and significant technological change which involves to new innovations
which replace labour with capital (lands, 1969).
• Britain was first rather than Italy, France and NL due to factor prices (Allen, 2009a), inventions were more
cost effective in Britain. Mokyr (2009) emphasises institutions and says that British science education was
more applied and more connected to business, physical and intellectual property rights more protected after
1688 GR.
• The rapid shift from agriculture to industry led to structural change, capital replaced labour, the
concentration of industry near inputs led to regional specialisation (Smithian growth), high investment led to
K accumulation and general-purpose technologies such as steam developed. Social and institutional change
around inequality and the nature of work also had an effect, and rapid tech change led to TFP growth. (no
reference on this but all possible points to use). Innovation was centred around metallurgy, steam and
textiles. Some changes:
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• Allen (2009b) says ‘macro-inventions’ (term coined by Mokyr 1990) only affordable in Britain due to Britain’s
low factor prices and large market size. Micro-inventions were Hicks neutral (didn’t affect structure of
economy) and diffused to rest of world so caused less divergence.
• Another view of IR from Mokyr (2009) is that it happened in Britain due to Britain’s scientific institutions
where the IR was the result of scientific knowledge and good incentives. Royal societies of disciplines
connected sciences to business and encouraged research based on experimentation and the scientific
method. This scientific ideology reduced rent-seeking and led to competition.
o R. Allen. The Industrial revolution in miniature: The spinning jenny in Britain, France and India. Journal of
Economic History, 69(4):901-921, 2009a o R. Allen. The British Industrial Revolution in Global
Perspective. New Approaches to Economic and Social
History. Cambridge: Cambridge University Press, 2009b o J. Mokyr. The Lever of Riches: technological
creativity and economic progress. Oxford University Press, 1990.
o J. Mokyr. The Enlightened Economy: An Economic History of Britain, 1700-1850. The New economic history of
Britain. Connecticut: Yale University Press, 2009. o D.S. Landes. Prometheus Unbound: technological change
and industrial development in Western Europe from 1750 to the present. Cambridge University Press, 1969.
• Three stages of agricultural revolution (Allen 2009) – 1500-1730 changes by farmers, 1740-1800 changes by
landlords, 1800-1850 changes by machinery. First stage saw new crop selection, selective breeding of cattle
and the heavier use of manure along with better irrigation systems – all of this increased yield significantly.
The second stage saw the consolidation of estates where land was turned into pastures to save on labour
costs. Small peasant cultivation replaced by large scale farming. The Enclosure Acts of 1750 privatised
common pastures and fields. Final stage saw introduction of rakes, harrows, ploughs and scrapers being
attached to tractors, seeders and rollers (machines). Other machines such as fanning mills and mowers also.
This caused massive increase in yields.
• Rising ag. Productivity led to fewer inputs needed to make same amount of food. Crafts (1980) made
argument that since farmers couldn’t just convert to factory workers/inventors instantly, in the short run the
AR increased land productivity instead of labour productivity. This means that in the short run the absolute
number of ag. Workers rose despite the proportion of workers in ag. Falling. This suggests structural change
but also that higher yields allowed to higher populations in the Malthusian world (population tripled while
farm output less than doubled according to Clark 2007:249).
• Mokyr (2007) Britain’s population surged before 1750 even without IR. Break from Malthusian trap started
before MEG due to weaker mortality response to wages after 1640 (weak positive check) and Fertility
response disappeared after 1740 (stronger preventative check). Initially migration was negligible. Age of
FAFM fell after IR started due to more economic opportunities (I don’t really understand this but it’s in the
lecture notes). According to Mokyr mortality was also falling after 1800 (higher life expectancies) due to
public cleanliness and hygiene. Late and slow mortality decline with ^F led to higher population. Rural-Urban
migration started before IR due to enclosure act, little international migration.
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• Mokyr (2007) also talks about causality of Pop. Growth and economic growth vs. vice versa., the timing of the
economic growth doesn’t necessarily justify population growth as growth was mainly in a few sectors with
small labour share. While economic growth facilitated increasing population (Malthusian) there is some
research on the opposite: as more people = more ideas (Kremer 1993) and an increased value of Human
capital (Galor and Weil, 2000). Mokyr says this isn’t fitting of 18th c. Britain because real wages only rose after
1830s.
o Allen, R. The British Industrial Revolution in global perspective. Cambridge: Cambridge University Press, 2009
o Crafts, N. F. R. (1980) “Income elasticities of demand and the release of labour by agriculture during the
British industrial revolution,” Journal of European Economic History 9: 153-168.
o Mokyr, J. The Enlightened Economy: an economic history of Britain 1700-1850. New Haven CT and London:
Yale University Press, 2007.
• Britain was fairly minor player in 1700, global power by 1820. Britain gained overseas territories in 18th c after
international disputes (treaty of Utrecht 1713 gave Gibraltar, Menorca and Newfoundland among others,
Treaty of Paris gave more parts of Caribbean).
• Empires did not cause MEG in other countries, but the timing works in Britain. Rise of empire coincides with
start of economic growth. Thomas (1968) estimated rate of return on capital in West Indies to be <2%, the
riskless rate of return in England was 3.5%. He concludes that IR would have been faster without colonies.
Coelho (1973) says that the British West Indies were the most profitable of the colonies. He found that
Britain was still making losses from them though. They were kept around for tariffs – the overall cost was
ultimately paid by consumers, while the benefits went to producers. The loss to consumers was individually
small but the gain to producers was higher, and they could lobby the government.
• Williams Thesis (Williams 1944) was that profits from slavery made a large contribution to Britain’s industrial
development. He made 2 theses: strong thesis (slave trade caused IR in Britain), weak thesis (slave trade
contributed notably). He used historical evidence about the importance of slave trade to Bristol and
Liverpool and links to specific manufacturing industries with triangular trade (i.e., plantations).
• This paper was critiqued heavily. Eltis and Engerman (2000): slavery a small part of economy and sugar
colonies were not profitable. Thomas and Bean (1974) found transatlantic led of British slave trade to be
highly competitive – free entry drove profits to zero. However, Inikori (1981) said that Thomas and Bean
(1974) had underestimated the prices and number of slaves – estimated returns to be 50%. However,
Anderson and Richardson (1983) criticised this by highlighting that Inikori’s data was limited to 24 very
successful voyages and ignored the uncertainty around the slave trade, the risk, the varying voyage costs as
well as the demographic composition of the slaves. Solow (1985) estimated returns to be 8-10%.
• Engerman (1972) found slavery to be resultant of 2.8-10.8% of investment in key years of IR, not enough to
be a major factor.
• Inikori (2002) talks about other effects of the slave trade – export economies in Americas depended on slave
labour; Atlantic trade stimulated intra-Europe trade and the slave trade was central to Atlantic trade
(promoting English shipping; English financial institutions of banking, stock exchanging and insurance;
allowed import of raw materials for IR for British industrialisation and connected Britain’s manufacturers to
the Atlantic).
o Coelho, P. (1973) “The profitability of imperialism: the British experience in the West Indies 1768-1772,”
Explorations in Economic History 10 (3): 253-280.
o Eltis, D. and S. L. Engerman (2000) “The Importance of Slavery and the Slave Trade to Industrializing Britain,”
Journal of Economic History 60 (1): 123-144.
o Williams, E. Capitalism and Slavery. Chapel Hill, NC, 1944.
o Solow, B. (1985) “Caribbean slavery and British growth: the Eric Williams hypothesis,” Journal of
Development Economics 17: 99-115.
o Inikori, J. (1981), “Market Structure and the Profits of the British African Trade in the Late Eighteenth
Century,” Journal of Economic History 41 (4): 745-776.
o Inikori, J. Africans and the Industrial Revolution in England: a study in international trade and economic
development, Cambridge: Cambridge University Press, 2002.
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o Anderson, B. L. and D. Richardson (1983) “Market Structure and Profits of the British African Trade in the Late
Eighteenth Century: A Comment,” Journal of Economic History 43 (3): 713-721.
o Thomas, R. P. and R. N. Bean (1974) “The Fishers of Men: The Profits of the Slave Trade,” Journal of Economic
History 34 (4): 885-914.
• Ideas of a demand-side industrial revolution led to a new set of theories on the Consumer and Industrious
Revolutions. DeVries (1994) described the industrious revolution where household-based resource allocation
changed, increasing the supply of marketed commodities/labour and the demand for market supplied goods.
It was essentially a household-based phenomenon where labour supply moved from home production to
factory production. This was accompanied by L shift from agriculture and proto industry to factories
(structural change).
• McKendrick (1982) talks about a consumer revolution where family households created demand for
manufactures while generating income to pay for them. Beforehand mothers would make their own clothes
and clothes for their children, making their own food etc. the consumer revolution led to people spending for
necessities rather than producing them for themselves. This is the consumption side of the industrious
revolution.
• Drivers of these revolutions were the ‘Great discoveries’ which led to larger bundles of consumption being
opened to consumers due to the discovery of new goods such as potatoes, tomatoes, maize, sweet and hot
peppers, turkeys, chocolate, tea, silks, china and sugar. Rise of manufacturing replaced home production with
market production.
• DeVries (1994) argued that family labour per year increased in response to market changes – new
consumption possibilities led to increased market labour and households chose to adjust extra hours into the
market and specialise.
• Voth (1998:39) clearly shows that working hours increased after 1750 until 1800 (early IR). Monday used to
be a holiday in 1750 but no longer by 1800. This supports the idea of an industrious revolution.
• Some critics of this work though: Muldrew (2011), Allen & Weisdorf (2011) – hours worked but not due to
consumerism, real wages were falling so the supply response was due to sticky consumption patterns or the
poverty threshold. This implied an industrious revolution but not a consumer revolution.
• Clark & Van Der Werf (1998): no significant increase in hours worked, hours were already high at this point.
Women were already active in labour market as early as 14th c. due to black death. Implies no industrious
revolution at all.
o R. Allen and J Weisdorf. Was there an ‘industrious revolution’ before the industrial revolution? An empirical
exercise for England, c. 1300-1830. Economic History Review, 64(3):715-729, 2011.
o G. Clark and V. der Werf. Work in Progress? The industrious revolution. The Journal of Economic History,
54(2):249-270, 1994. o J. De Vries. The Industrial revolution and the industrious revolution. The Journal of
Economic History, 54(2):249-270, 1994.
o N. McKendrick. The consumer revolution in eighteenth century England. In N. McKendrick, J. Brewer, and J.H.
Plumb, editors, The Birth of a consumer society: the commercialisation of eighteenth-century England.
Bloomington: Indiana University Press, 1982.
o H. Voth. Time and work in eighteenth-century London. The Journal of Economic History, 58(1): 29-58, 1998.
• Almost no growth in Europe 1500-1800 but this trend ended suddenly in 1810. The IR spread from
England to Belgium first, then spread to France and Germany etc. where coal was available.
• Latin America faced decline since its independence until 1870, followed by upward trend 1870-1980
and then another period of decline after the 80s. Continued divergence between the West and Latin
America. 1820-1870 decline was due to conflicts and political instability but by 1870 Chile and
Argentine pulled ahead of the rest of the region. After 1870 there was rapid growth due to export
boom, however LATAM did not convert to 2nd and 3rd sector economies. European labourers came
over at this point which led to innovation, exports grew as liberalism did.
• By 1800 Tokugawa Japan had very low GDP per capita compared to the west, but its growth rate was
very high for the time (0.24%) – at this time there was decline in Indo-China and South Europe.
Despite steady growth there was no structural change – in Japan’s closed economy there was no
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option to import primary goods, so secondary sector growth had to be accompanied by primary
sector growth within Japan rather than a decline in primary sector growth, explaining the lack of
structural change. These simultaneous growths occurred by region, leading to regional specialisation
and Smithian growth. This growth was accompanied by de-urbanisation since the growth was rural
centred. Literacy and numeracy in Tokugawa Japan was very high at this point also.

Topic 4 – Industrialisation and Living Standards 1750-1850

• Two views on British IR for living standards. Pessimistic view of Mill (1848) says that mechanisation has led to
more people living the same life of misery for manufacturers that make fortunes.
• Optimistic view of Hartwell (1959) is that national income/wealth, production, wages and prices and
consumption trends all suggest an unambiguous increase in average standard of living.
• Lindert and Williamson (1983) gather info from earlier studies, creating three occupational groups of farmers,
blue collar workers and white-collar workers. They suggest that costs of living rose 1785-1820, then began
falling. Their estimates were refined versions of Feinstein’s (1998) estimates and suggested that real earnings
rose more than Feinstein estimated. Clark (2001) and Clark (2005) also built on this same data and found
similar results to Lindert and Williamson’s re-estimates. Allen (2007) did the same with Feinstein’s data and
found that Feinstein’s pessimist data was still viable. Overall, pessimism seems to be the preserved view –
real wages rose slowly in IR and only after 1830, Feinstein’s (1998) follow up paper further adjusted wages
even further downwards. Allen (2009) named the phenomenon of real wages growing slower than output
per worker as ‘Engel’s Pause’ (between 1790 and 1840).
• Allen (2009) suggests rising inequality as factor chares in the production function is more capital skewed (so
owners of capital made more than owners of labour).
o Allen, R. (2009) “Engel’s pause: Technical change, capital accumulation, and inequality in the British industrial
revolution,” Explorations in Economic History 46(4): 418-435
o Clark, G. (2007) “The Condition of the Working Class in England 1209-2004” Journal of Political Economy
113(6): 1307-1340 o Feinstein, C. (1998) “Pessimism Perpetuated: real wages and the standard of living in
Britain during and after the industrial revolution,” Journal of Economic History 58(3): 625-658.
o Hartwell, R. M. (1959) “Interpretations of the Industrial Revolution in England: a methodological inquiry,”
Journal of Economic History 19(2): 229-249.
o Lindert, P. and J. G. Williamson (1983) “English Workers’ Living Standards During the Industrial Revolution: a
new look,” Economic History Review 36(1): 1-25
o Mill, J. S. Principles of Political Economy with some of their Applications to Social Philosophy. Ashley, ed. 1848.
• Other Standards of living indicators include health, anthropometrics, child labour and literacy/numeracy.
• Anthropometrics (Baten 2016) is study of human body measurements. Average height partly reveals
economic conditions at birth. Correlates positively with longevity and GDP per capita as these allow for more
nutritional intake. Genetic deviations from the mean cancel out on average. Diseases, pollution, poor
sanitation early in life stunts growth.
• Floud et al. (1990:136) used data from military recruits and found that mean height rose 1750 to 1850,
dropped 1850 to 1900 and then rose again. Cinnirella (2008:339) revised these figures and found a more
constant decline in height 1740-1870.
• Horrell and Humphries (1995) and Humphries (2013) look at child labour and find that participation rates
increased notably as factories opened – child labour was concentrated in key IR industries (2/3 children in
textiles, 25% overall labour share was children). Britain had more child labour than other countries going
through the same.
• Basu and Tzannatos (2003) found that this was due to children being a complement to partially mechanised
technology (doing small tedious tasks requiring little force), fatherless families (due to wars in 50 years of the
18th c.) and due to inadequate earnings (due to Engels’ pause and the rising cost of living).
• Declining child labour after 1830s due to end of Engels’ pause (Horrell and Humphries 1995) and the Factory
Acts of 1833 and 1844 banning young children from factories.
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• Humphries (2013) found that families were forced to send kids to work due to poverty – children not working
was a luxury. If family income was below subsistence level, then children had to work.
• Whipple score used to report numeracy (clumping of ages around multiples of 5 by people that couldn’t
count) (Baten, 2016). Basically, literacy and numeracy increased over this period.
o Basu, K. and Z. Tzannatos (2003) “The global child labor problem: what do we know and what can we do?”
World Bank Economic Review 17: 147-173.
o Baten, J. (2016) “Southern, eastern and central Europe” in A History of the Global Economy: 1500 to the
present. Joerg Baten (ed.). Introduction and Chapter 2. Cambridge: Cambridge University Press
o Cinnirella, F. (2008) “Optimists or pessimists? A reconsideration of nutritional status in Britain 1740-1865,”
European Review of Economic History 12 (3): 325-354.
o Floud, R., A. Gregory, and K. Wachter. Height, Health and History: Nutritional Status in the United Kingdom,
1750-1980. Cambridge: Cambridge University Press, 2011.
o Horrell, S. and J. Humphries (1995) “The exploitation of little children: child labor and the family economy in
the industrial revolution,” Explorations in Economic History 32: 485-516
o Humphries, J. (2013) “Childhood and child labour in the British Industrial Revolution,” Economic History
Review 66 (2): 395-418.
• Inequality is important to economic historians because it may be an indicator of market failure or poor access
to institutions.
• Kuznets (1955) developed Kuznets’ curve, where inequality fell in developed countries (observed) and he
assumed it had risen beforehand (this was a hypothesis, he did not have data for this). He thought initial rise
due to concentration of savings at top end of income earners, and these people could invest in capital. This
meant that as capital had a higher factor share, capital owners earned much more. Falling inequality later
due to rising education levels which increase income opportunities.
• Lindert (1986) supports Kuznets’ view, IR had concentrated benefits for merchants and persons of landed
title benefitting the most. Inequality stayed constant or worsened in late 1800s due to little change in land
concentration, but massive declines in 20th c.
• Clark and Cummins (2014) found that IR led to new occupations – people moved away from agriculture.
Using surnames (rare surnames = rich generally) and data of people that went to University of Oxford or
Cambridge they found that not much social mobility. The IR did not change social mobility in England much.
o Clark, G. and N. Cummins. “Inequality and social mobility in the era of the industrial revolution,” in The
Cambridge Economic History of Modern Britain: Industrialization 1700-1870. Vol. 1, 2nd edition, edited by
Roderick Floud, Jane Humphries and Paul Johnson. Cambridge University Press, 2014.
o Kuznets, S. (1955) “Economic Growth and Income Inequality,” American Economic Review 45 (1): 1-28 o
Lindert, P. H. (1986) “Unequal English Wealth since 1670,” Journal of Economic History 94 (6): 1127-1162.

Topic 5 The Second Industrial Revolution and the Rise of the United States: 1850-
1900
• This industrial revolution was faster than the last, generally occurring around the US and continental NW
Europe. This revolution was less coal intensive and more gas and oil intensive.
• De Long (1992) attributed rising labour productivity to the success in manufacturing. K-deepening in the
second IR was higher than in Britain – investment in large scale factories and heavy machinery. This level of K-
intensity required previous advances in management, marketing and research. In America specialisation and
the division of labour were important, along with the use of interchangeable parts and the mass production
of standardised goods (this is known as the American System of Manufacturing). Hounshell (1985) lists the
Colt revolver, Singer sewing machines and the Ford model-T as examples of these.
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• LaFeber (1993) gave some stats:

• LaFeber talks about the new organisation of markets – MNCs emerged. These new large companies were
better at gathering and targeting investment, better at pushing for political help and had a rising market
share both at home and abroad. Thomas Edison’s lab 1870s became general electric by 1901. This was
facilitated by the 1890 Sherman Antitrust Act which pushed firms into mergers to avoid anti-competitive
measures – large vertically integrated corporations formed. The 1879 adoption of the gold standard reduced
currency risk in international trade, which led to more trade. The availability of labour facilitated corporation
success – a sequence of recessions 1873-96 led to falling wheat and cotton prices. Workers moved to more
efficient sectors and only the most efficient firms survived.
• LaFeber also talks about protectionism – 1870 tariffs protecting iron and steel producers, producers gave
generously to protectionist politicians. At this point US was more protective than other countries then.
• Williams (2008) talks about the American Civil War (1861-65) between Confederacy (south) and Union
(North) where slave owning states seceded to preserve slavery. This was the first modern war, involving
technology and organisation innovation of mass armies, railroads, telegraphs and new weapons.
• According to LaFeber (1993) (again) the South was poorer per capita in 1880 than 1860, by 1900 the south
was at half the US average in terms of per capita income. The South at this point was dependent on the
North for capital and dependent on Asia and LATAM for exports.
• Rostow (1956) In late 19th century and into the 1950s the railroad was the most important initiator for
American rapid industrialisation. Fogel (1964 and 1967) found that without railroads, growth would be 3%
lower, which is far from essential. Atack (2018) says that there were productivity gains due to the falling
transport costs (falling 60% for passengers and 90% for freight). The spread of the telegraph, signalling, steel
improvements etc. also helped the railroad sector.
o Atack, J. (2018) “Railroads,” in Handbook of Cliometrics, edited by C. Diebolt and M. Haupert, pp. 1-29.
Springer-Verlag.
o De Long, B. (1992) “Productivity Growth and Machinery Investment: a long-run look, 1870-1980,” Journal of
Economic History 52 (2): 307-324.
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o Donaldson D and R. Hornbeck (2016) “Railroads and American economic growth: a ‘market access’
approach,” Quarterly Journal of Economics 131 (2): 799–858.
o Fogel R.W. Railroads and American economic growth: essays in econometric history. Baltimore, MD: Johns
Hopkins Press, 1964.
o Fogel, R.W. (1967) “The specification problem in economic history,” Journal of Economic History 27 (3): 283–
308.
o Hounshell, D. From the American system to Mass Production, 1800-1932: the development of manufacturing
technology in the United States, Johns Hopkins University Press, 1985.
o LaFeber, W. (1993) “The Second Industrial Revolution at Home and Abroad,” The Cambridge Economic
History of American Foreign Relations, Chapter 2, pp. 20-42. Cambridge: Cambridge University Press.
o Rostow, W. W. (1956) “The take-off into self-sustained growth,” Economic Journal 66 (261): 25-48.
o Williams, T. H. (2008) “The American Civil War,” The New Cambridge Modern History, edited by J. P. T. Bury,
Chapter XXIV, pp. 631-658. Cambridge: Cambridge University Press.
• Ferrie (2005) defines American exceptionalism as the unusual historical path relative to other nations.
• In terms of education Goldin and Katz (2001) found earlier establishment of mass secondary and higher
education helped early expansion of education, this grew as restrictions on women, black people etc. were
lifted. There was a high rate of return on education before WW1 which led to expansion in large scale
industry since this would require clerical, managerial and other white-collar workers. By mid-20th c. large
difference in US educational stock and other countries despite high migration rate into US of less educated
immigrants and slavery legacy in South.
• Sacerdotal (2005) talks about intergenerational transmission of human capital. An example is slavery, where
there were explicit laws against teaching slaves to read. In 1920 whites had higher average income and were
more spread out in income score while blacks were clumped at a lower score.
• Miller (2011) wartime order aimed to give land to former slaved families, this never actually happened. So
even after emancipation there was a large wealth gap between blacks and whites, this has persisted until
today. This was due to discriminatory policies in credit/labour markets, education and other institutions and
due to lower initial levels of black wealth.
• Ferrie (2005) looked at social mobility and found that absolute mobility (movement from one occupation to
another) increased while relative mobility (chances sons getting different occupation than parents’)
decreased.
o Ferrie, J. (2005) “History Lessons: The End of American Exceptionalism? Mobility in the United States since
1850.” Journal of Economic Perspectives 19: 199-215.
o Goldin, C. (2016) “Human Capital,” in Handbook of Cliometrics, C. Diebolt and M. Haupert (eds.),
SpringerVerlag, pp. 55-86.
o Goldin, C. and L. Katz (2001) “The Legacy of U.S. Educational Leadership: Notes on Distribution and Economic
Growth in the Twentieth Century,” American Economic Review Papers & Proceedings 91 (2): 18-23.
o Miller, M. (2011) “Land and Racial Wealth Inequality,” American Economic Review: Papers & Proceedings 101
(3): 371–376.
o Sacerdote, B. (2005) “Slavery and the Intergenerational Transmission of Human Capital,” Review of
Economics and Statistics 87 (2): 217-234.
• USA constitution set out strong property rights, patents, copyrights, free speech, freedom of the press,
freedom of religion, contracts without government interference, representative democracy, trial by jury, right
to collect taxes, foreign policy and interstate trade. States could not establish their own currency or interfere
with other countries’ policies. Gradually US constitution improved with amendments – slavery abolished
1860s but Jim Crow laws only dismantled 1960s. Women got the vote in late 1800s.
• In 1790 north America was mostly farming (80% employed in farming) and very basic manufacturing (lumber
mills). Eli Whitney credited for pioneering manufacturing by replaceable parts. This, alongside large coal and
oil in Pennsylvania were factors helping America industrialise.
• Immigrants from Europe helped cause population growth – growth rates flowed from 3-3.5% in colonial era
to 2% p.a. in 1900. However, death rates also declined due to better diets and basic hygiene. Civil war ended
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1865 and saw new wave of migrants due to high wages. These European immigrants taught manufacturing to
Americans and often became entrepreneurs.
• Railroad stocks and bonds accounted for a large share of the financial instruments of the USA at the time,
and investments in railroads was cyclical to the business cycle. These stocks and bonds helped to strengthen
USA financial institutions.
• Average size of firms grew around 1900 with mergers but monopoly fears led to break ups in 1911.
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EC104 Term 2

Topic 6 – Globalisation and Colonisation 1870-1914

Lecture 1
• Protectionist policies may seem like a bad thing at first- preventing countries from utilizing their comparative
advantages. However seeing by learning can be a powerful spillover effect in increasing the growth in other
countries. (Lehman and O’Rourke, 2011).
• Before 1914, the gold standard was a framework for monetary relations. Currencies were pegged against
gold at a fixed rate, that means every other currency was exchangeable to each other against gold at a
certain fixed rate (Eichengreen, 1995). This required credibility and cooperation. The Hume price specie flow
mechanism: Theory for self-equilibrium in the economy. If there is a balance of payments surplus, more
pounds are demanded, means more gold enters the money supply in the UK. Without sterilization inflation
would occur, thus making UK goods less attractive to foreign buyers, therefore re-stabilizing the current
account balance of payments
• (Lopez-Cordova and Meissner, 2003) found that countries who were both on a certain standard albeit gold or
silver, traded 30% more between them compared to if they weren’t.
• The advantages of the gold standard in the context of trade were that they reduce exchange rate movements
and hedging costs and reduce the broker’s costs for moving precious metals. It created NETWORK
EXTERNALITIES. More safety, less money needed to spend on protection. (Meissner, 2005)
• Debate over whether Victorian Britain could’ve done better. McCloskey (1970): The rate of growth in Britain
slowed from the first half of the period compared to the second half. But argues that the growth in capital
and labor needed to sustain the same rate of growth would have been impossible. Interest rates at the time
were high to mitigate against risk, so relocating projects from abroad back to the UK would not have raised
national income by very much. Crafts (1979) argues that the economy should've instead, grown by 12%. Had
Britain saved more domestically.
o Lehmann, S. H., and O’Rourke, K. H. (2011). The structure of protection and growth in the late nineteenth
century. Review of Economics and Statistics, 93(2), 606-616.
o Eichengreen, B. J. (1995). Golden fetters: the gold standard and the Great Depression, 1919-1939. Oxford
University Press.
o Lopez-Cordova, J.E. and Meissner, C. M. (2003). Exchange-rate regimes and international trade: Evidence
from the classical gold standard era. American Economic Review, 93(1), 344-353.
o Meissner, C. M. (2005). A new world order: explaining the international diffusion of the gold standard, 1870–
1913. Journal of International Economics, 66(2), 385-406 o McCloskey, D. N. (1970). Did
Victorian Britain Fail?. The Economic History Review, 23(3), 446-459.
o Crafts, N. F. (1979). Victorian Britain did fail. The Economic History Review, 32(4), 533-537.
• Meiji government wanted centralised govt. to defend against feudal lords and to westernise their society (i.e.
create UK style government) Male literacy was 43% and female 10% by 1868. Traders and ex samurai
invested heavily into railroads, power companies, etc. Which accelerated the economic divergence between
Japan and its Asian Neighbours. Introduced compulsory schooling, abolished the Shino-Kosho system to
promote labor mobility, construction of postal and telegraph systems, purchasing foreign machines and
hiring foreign advisors (Hoshi and Ito, 2020).
• Bernhofen and Brown (2005) estimated that the gains from trade were 8-9% of GDP. It is also important to
note that the gains from Japanese comparative advantage did not emerge in the first decade or so of free
trade.
• Prior to 1800 China and Europe exchanged silk for silver. This changed to Opium which British produced in
India. After Chinese gov noticed worsening of trade balance, banned Opium import. British started war.
British won. Treaty of Nanqing born. Initiate's treaty port system. Gave British HK and free trade. New tech
introduced like silk weaving machines- silk weavers revolted in Guangdong (creative destruction). New
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institutions emerged like stock exchange, banks and holdings companies. Increased trade by 75%. (Brandt et.
al., 2014). Self-strengthening movement (1860-94) regional bureaucrats increased military power, developed
capital intensive manufacturing. Unlike Japan, didn’t modernize the rest of their society like parliamentary
system and supply side policies.
• 1895 loss to Japan made China modernize its ministries of commerce, finance and education and got rid of
Confucian civil service exam (Bai and Jia, 2016), ironically brought down the Qing dynasty. Confucian exams
were bad because they reduced economic prospects and caused low motivation, which led to more incentive
to rebel.
• From 1595 to 1874 silver wages increased but the average person was able to afford half as much wheat per
day- outlining the problems with using only one good and one currency to decide living standards in India
(Broadberry and Gupta, 2015). Indian real wages higher in 1600 than 1871... from 1871 onwards, both real
wages and GDP per capita STAGNATED until after the mid-20th century.
• British didn’t invest much in education, only about 1 rupee per child for education. Social divide too- elite
Brahmans did not want their children mixing with the poor, the existence of schools therefore was skewed
toward those places- where the poor did not live (Chaudhary, 2015).
• British didn’t help with famines. They had a Laissez-Faire attitude that the market would solve it and the
government needn’t intervene. Malthusian beliefs also convinced them that helping the famine now would
only make the NEXT famine even worse. They also had concerns over their own budget and whether they
could afford to help a foreign country (Davis, 2002). Railroads moderated the link between drought and
famine. They found that more droughts mean more famine, but more railroads reduced the probability of
famine despite drought.
o Ito, T., and Hoshi, T. (2020). The Japanese Economy. MIT press.
o Bernhofen, D. M., and Brown, J. C. (2005). An empirical assessment of the comparative advantage gains from
trade: evidence from Japan. American Economic Review, 95(1), 208-225.
o Bai, Y., and Jia, R. (2016). Elite recruitment and political stability: the impact of the abolition of China’s civil
service exam. Econometrica, 84(2), 677-733.
o Brandt, L., Ma, D., and Rawski, T. G. (2014). From divergence to convergence: re-evaluating the history behind
China’s economic boom. Journal of Economic Literature, 52(1), 45-123.
o Broadberry, S., Custodis, J., and Gupta, B. (2015). India and the great divergence: An Anglo-Indian
comparison of GDP per capita, 1600–1871. Explorations in Economic History, 55, 58-75.
o Chaudhary, L. (2015). Caste, Colonialism and Schooling: Education in British India. A New Economic History of
Colonial India, pp. 161–178.
o Davis, M. (2002). Late Victorian holocausts: El Nino famines and the making of the third world. Verso Books.

• Voting eligibility was toughened in the USA after 13th amendment banning slavery. People had to pass things
like literacy tests to vote. Jim Crow Laws: Established in 1870 and abolished in 1965, prohibiting and limiting
Black political participation.
• There was a correlation between lynching and patenting among the black population. Therefore, between
1870 and 1914, investment and thus, patenting by black investors declined (Cook, 2014). Aside from
lynching, there were also race riots. Cook estimated that this intimidation reduced investment by blacks by
60%.
• Share of foreign population rose to 14% until 1920s where restrictions were put in place in the
USA. Migration positively correlated with business cycle. By early 20th century, immigrants were Italians and
eastern Europeans. Before, there were Brits and Germans (Abramitzky and Boustan, 2017).
• Goldin (1994) found that a 1% increase in the share of foreigners led to a 1-1.5% decrease in wages.
However, this were only the case in industries that had an exporting nature. For example, this did not happen
to businesses like bakeries because since they were not exported/ were consumed in the same place, the
foreigners contributed to demand as well.
• LATAM: Between 1870 and 1929, population and exports grew faster than the rest of the world. Exports grew
from 12 to 16 percent of the economy in Latin economy. However, this therefore shows most of the output
was consumed domestically (Bertola and Ocampo, 2012). Industrialization came from rising incomes; they
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were resource exporters. Costs were high but they couldn’t compete with cheaper foreign competition. Their
economies were heavily protected. They didn’t know enough about their population to properly introduce
taxes and to therefore know how much to tax each person.
• Prebish-Singer Hypothesis: Essentially, as a country becomes more developed their demand for
manufactured goods increase relative to primary goods. Therefore, prices increase thus constraining their
growth. However, not always true as (Blattman et. al, 2007) finds.
o Cook, L. D. (2014). Violence and economic activity: evidence from African American patents, 1870–1940.
Journal of Economic Growth, 19(2), 221-257.
o Abramitzky, R., and Boustan, L. (2017). Immigration in American economic history. Journal of Economic
Literature, 55(4), 1311-45.
o Goldin, C. (1994) The Political Economy of Immigration Restriction in the United States, 1890 to 1921, in
Goldin, C. and Libecap, G. (eds.) The Regulated Economy: A Historical Approach to Political Economy.
University of Chicago Press, pp. 223–258.
o Bertola, L., and Ocampo, J. A. (2012). The economic development of Latin America since independence.
Oxford University Press o Blattman, C., Hwang, J., and Williamson, J. G. (2007). Winners and losers in
the commodity lottery: The impact of terms of trade growth and volatility in the Periphery 1870–1939.
Journal of Development economics, 82(1), 156-179.

• In the late 19th century Africa was partitioned into European zones and the Berlin Conference took place to
decide how the partition would take place, thus starting the scramble for Africa.
• Economic motivation wasn’t the only factor. Britain’s main objective for control in Africa was to maintain
occupancy of the Suez Canal, which led them to the REAL prize- trade with Asia. One argument is Africa
wasn’t big enough to warrant military conquests- hence scramble. (Robinson and Gallagher, 1966)
• Ethnic conflicts: Countries with 50% of each ethnic group is a huge indicator for forthcoming conflict.
(Montalvo and Reynal-Querol, 2005)
• Gladstonian finance in Africa was basically laissez faire – govt. spent to keep order and investment in
infrastructure, but little else. (Gardner, 2012). Little spending on education and healthcare
• Overland travel was initially expensive in Africa. Animal aided transport would die too due to the flies and
pests in the African plains. (Jedwab and Moradi, 2016). Railroads created in Africa were not maintained, in
1980 African railways had fallen 80% from their peak. Cocoa farms were there reason for railroads, however
these cocoa plants can’t be replanted on the same soil. So when cities formed around the railways the
original reason for the city/railway could no longer sustain itself.
• Research was done on the Nigerian correlation between economic prosperity and the building of railroads.
We know that prosperity came to the cities that railroads LINKED, but what about the cities in between these
links that just so happen to be on the path of least cause? Well, they found a positive correlation in
NORTHERN Nigeria, where railroads actually decreased cost of transportation, but they found this WAS NOT
the case in SOUTHERN Nigeria, due to its inherent geography which made transportation costs much more
expensive. (Jedwab and Moradi, 2017)
o Robinson, R. E., and Gallagher, J. (1966). Africa and the Victorians: The official mind of imperialism.
Macmillan.
o Montalvo, J. G., and Reynal-Querol, M. (2005). Ethnic polarization, potential conflict, and civil wars. American
Economic Review, 95(3), 796-816.
o Gardner, L. (2012). Taxing colonial Africa: the political economy of British imperialism. Oxford University Press
o Jedwab, R., and Moradi, A. (2016). The permanent effects of transportation revolutions in poor countries:
evidence from Africa. Review of Economics and Statistics, 98(2), 268-284.
o Jedwab, R., Kerby, E., and Moradi, A. (2017). History, path dependence and development: Evidence from
colonial railways, settlers and cities in Kenya. The Economic Journal, 127(603), 1467-1494.
• NOTE: no power and plenty for this section because most of the stuff in this section was handled in another
topic section.
• Same with Baten Book
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Topic 7 – The Interwar Period: 1914-45
• 4 big cases of hyperinflation in Europe 20th c. are Germany, Hungary, Poland and Austria. Sargant (1982)
argues that these could’ve been stopped immediately with right monetary regime. Post war reparations
needed to be paid. In addition to printing lots of money they didn’t have to pay off debts, many such
countries abandoned the gold standard, so, their currency wasn’t backed by anything- hence the devaluation
of their currency. Only WHEN they promised a monetary backing such as gold will the hyperinflation stop.
• Between 1919 and 1924 price level in Germany rose by 100 BILLION times (Ten to the third power to ten to
the fourteenth power). By 1923 foreign currency circulating in Germany was worth more in total than the
mark. New currency and new bank Retenbank created to solve this issue putting limits on amount of
Retenmarks it could issue. Government stopped borrowing from Central bank and bringing budget closer to
balance, making cuts on spending, getting a deal on their reparations and laying off 25% of government
employees.
• Eichengreen (1995): What caused money creation? Budget deficits. What caused budget deficits? A 1922
report by Keynes and others proposed that a reparations moratorium + stable prices would balance the
deficit. Eichengreen’s mechanism: nominal revenues less sensitive than nominal expenditures to changes in
inflation, so inflation increases the deficit. Monetization fuels inflation, aggravating this, and widening the
deficit.
• After the war two conferences held in Genoa and Brussels to sort out currency devaluation (Eichengreen,
1995). Countries which held onto at least half their pre-war value could use aggressive monetary policies to
restore value. Countries who lost more value could only aim for a PARTIAL recovery. But countries like
Germany had to switch to a new currency.
• The Gold standard was back in action in 1928 but this led to deflation. Many countries like France ran a
balance of payments surplus, with more Gold coming in than currency leaving. Instead of sanitizing the
situation by raising prices to the new equilibrium, France and many countries alike kept prices stable.
(Bernanke and James, 1991)
• France and the US held onto their gold supplies whilst they enjoyed a balance of payments surplus. There
was no penalty for doing so but that meant gold supply elsewhere was drying up. Many countries feared
inflation- setting up security limits on their gold reserves, not wanting to engage in monetary shifting
activities like bond trading. This stagnation was arguably what set up (in addition to the stock market crash of
1929) the great depression in the following decade.
• Inappropriate monetary policy was what accelerated to Great Depression. The stock market crash was
merely a symptom of decline. Deflationary bias to national policies. The Stockholm syndrome-like senseless
loyalty of governments to defend the gold standard no matter what by tightening policies was what caused
the depression. Deflation two effects: Keynes effect which increases real value of debt, and Mundell effect,
which is a dynamic effect that delays spending. Temin (1991)
• (Bernanke and James, 1991) Globally, central banks scrambled for Gold reserves. They did so by trying to
seem credible so not to be victim to speculative attacks which could’ve led to Gold outflows. 2 Factors
affecting gold reserve vulnerability were banking structure (held unit banks or branch banks, the diversity of
their portfolios and magnitude of their securities – long term securities were very vulnerable to stock market
crashes), and past experiences (i.e. Germany and Austria did worse than Japan or Sweden).
• Most countries abandoned the gold standard after the 1930s, most not by choice but because they lacked
capital to back up the standard’s value. Low currency value led to equally low interest rates, stimulating
investment, increased asset prices (Tobin's Q). Countries that left the Gold standard earlier and devalued
their currencies more experienced GREATER recovery. Eichengreen & Sachs (1985)
• Baines (1994a) begins not in 1929, but in 1919: many writers treat the entire interwar period as one long
depression for Britain. During the war, Industrial production outside Europe and North America grew; infant
industries created during the war in countries like India were protected after the war – this “import
substitution” hurt British markets. The summer of 1931 was hard on Britain: some investors had assets
frozen in Austria or Germany, the exchange rate was overvalued, investments in primary-producing countries
had lost value because of low commodity prices. Short-term debts could not be easily recovered, and a run
began on the pound.
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• Baines (1994b) depression was milder in Britain due to lack of financial crash there, and the run on the
pound was stopped by floating the pound. Moreover, the mildness of the situation prevented radicalism as a
political solution.
o Sargent, T. J. (1982). The ends of four big inflations. In Inflation: Causes and effects (pp. 41-98). University of
Chicago Press o Eichengreen, B. J. (1995). Golden fetters: the gold standard and the Great Depression,
1919-1939. Oxford University Press.
o Bernanke, B., & James, H. (1991). The gold standard, deflation, and financial crisis in the Great Depression:
An international comparison. In Financial markets and financial crises (pp. 33-68). University of Chicago
Press.
o Eichengreen, B. J. (1995). Golden fetters: the gold standard and the Great Depression, 1919-1939. Oxford
University Press o Temin, P. (1991). Lessons from the great
depression. MIT Press.
o Bernanke, B., & James, H. (1991). The gold standard, deflation, and financial crisis in the Great Depression:
An international comparison. In Financial markets and financial crises (pp. 33-68). University of Chicago
Press.
o Eichengreen, B., & Sachs, J. (1985). Exchange Rates and Economic Recovery in the 1930s. The Journal of
Economic History, 45(4), 925-946.
o Baines, D. (1994a). The onset of depression. Twentieth Century Britain: Economic, Social and Cultural
Change, 169-187.
o Baines, D. (1994b). Recovery from Depression. Twentieth Century Britain: Economic, Social and Cultural
Change, 188-202
• Chandra et al. (2012): It is widely known that India was the country affected most by the influenza pandemic
of 1918-19.
• Donaldson and Keniston (2016) use district-level data on India from the censuses and sanitary reports. In
districts that had experienced greater death rates: Agricultural output did not fall after the end of the
pandemic, despite the loss of population. Women married earlier after the pandemic. Fertility increased after
the pandemic. Children born after the pandemic were taller and better educated. Consistent with Malthusian
Model.
• Brandt et al. (2014): Despite political instability 1912-1927, China experienced a major wave of
industrialization. Output of modern industry grew > 10% per year 1912-36, clustered in the lower Yangzi and
Manchuria. The sector was dominated at first by foreign investors, but by 1933 73% of Chinese factory
output came from Chinese-owned companies.
• Ma (2008): China’s growth was concentrated in the lower Yangzi (i.e. Jiangsu and Zhejiang), particularly in
Shanghai. Per capita incomes in the lower Yangzi were 74% higher in 1933 than in China as a whole.
• Liu (2020): The First World War disrupted world trade. Most areas in China were not involved in the war, and
trade disruption was an exogenous shock. Yarn imports fell by half, and the price of yarn doubled. These
developments presented an opportunity for more profitable yarn production in China. Chinese firms couldn’t
secure the machinery for this expansion fast enough however due to war causing high machinery prices.
• Clingingsmith and Williamson (2008, p. 224): Starting in the early 1700s, India experienced
deindustrialization – a decline in the share of the labor force in industry. Between 1760 and 1860, India went
from being a net exporter of textiles to a net importer. This was because of Mughal collapse leading to higher
land revenue demands, increasing the relative prices of grain and raw cotton, and making cotton textiles less
competitive. While the period 1650-1744 saw a historically low rate of drought (and coincided with Mughal
expansion and overextension), droughts became more common 1775-1824, raising relative grain prices.
• Gupta (2015): factory-based production began to spread in nineteenth century India. Managing Agencies,
management companies that invested in and managed firms in multiple industries, overcame constraints on
information and capital. Bombay and Calcutta emerged as industrial centres: firms in Calcutta received British
investment and produced tea, jute, and coal for export; firms in Bombay received Indian investment and
produced cotton textiles for the domestic market. Reason for difference is because of information – British
knew about export markets while Indians knew local markets. After WW1 new industries formed in iron,
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steel, chems and paper grew. Management was not important in these sectors so no need for British
expertise, Indian firms formed (i.e. Tata).
• Britain pursed deflation during great depression in India. They wanted to increase value of the rupee by
melting silver to remove them from circulation. This increased real value of debt, so Indians had to sell off
their Gold (Rothermund, 2002). Britain controlled Chinese ports and offices. China had chaotic money system
with notes issued by individual banks, backed by silver. Finance minister Kung Hsiang-Hsi nationalized the
Bank of China, demonetizing Silver, forcing the Chinese Bank to buy government debt. Banks forced to
surrender silver to government with a new paper currency issued and printed to pay off debts.
• Depression was mild in Japan (Nanto and Takagi, 1985), GDP growth dropped to 0.4-1.1% p.a. but after 1931
growth was consistently 5.8%ish for 9 years. Japan abandoned gold standard, devalued yen, created
exchange controls to reduce import substitution, decreased interest rates and pursued deficit spending.
o Chandra, S., Kuljanin, G., and Wray, J. (2012). Mortality from the influenza pandemic of 1918–1919: the case
of India. Demography, 49(3), 857-865.
o Donaldson, D., and Keniston, D. (2016). Dynamics of a Malthusian Economy: India in the Aftermath of the
1918 Influenza. Unpublished Manuscript o Brandt, L., Ma, D., and Rawski, T. G. (2014). From divergence to
convergence: re-evaluating the history behind China’s economic boom. Journal of Economic Literature, 52(1), 45-
123.
o Liu, C. (2020). The Effects of World War I on the Chinese Textile Industry: Was the World’s Trouble China’s
Opportunity?. The Journal of Economic History, 80(1), 246-285.
o Ma, D. (2008). Economic growth in the lower Yangzi region of China in 1911-1937: A quantitative and
historical analysis. The Journal of Economic History, 355-392.
o Clingingsmith, D., and Williamson, J. G. (2008). Deindustrialization in 18th and 19th century India: Mughal
decline, climate shocks and British industrial ascent. Explorations in Economic History, 45(3), 209-234.
o Gupta, B. (2015). The rise of modern industry in colonial India. A New Economic History of Colonial India, 67-
83 o Rothermund, D. (2002). The global impact of the Great Depression 1929-1939.
Routledge
o Nanto, D. K., and Takagi, S. (1985). Korekiyo Takahashi and Japan’s recovery from the Great Depression. The
American Economic Review, 75(2), 369-374.
• Correia et al. (2020): During the epidemic, cities pursued “nonpharmaceutical public health interventions” or
NPIs, including: Closing schools, theatres and churches, banning mass gatherings, mandated mask wearing,
case isolation, mandatory reporting, public disinfection/hygiene. Staggered business hours to avoid crowding
public transport. Mortality is lower in high NPI cities, and the economic disruption is no worse since
‘flattening the curve’ reduced disruption to production.
• From 1930 to 1970, the “Old South” became the “New South” in America (Wright, 1986): Sharecropping and
regional labor markets broke down. Black workers migrated out of the region, farms grew larger and
agriculture became more capital-intensive and mechanization increased.
• Here’s the Great Depression in America summarised Friedman and Schwartz (1963):
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• Banks failed because bank runs were self-justifying, since depositors’ demands could only met with dumping
of assets there was falling bond prices which lowed the value of banks’ assets. This led to the loss of money
for owners of banks and depositors and there was a decline in the money stock as there were a lack of
depositors, reducing the money multiplier and creating a cycle.
• Bertola and Ocampo (2012): The Great Depression and Second World War ended export-led growth in Latin
America, paving the way for later state-led industrialization. Commodity prices dropped, countries outside
LATAM became protectionist and they abandoned the gold standard. Purchasing power of LATAM fell 40%
and more money flowed out than in. In 1935, 97.7% of dollar-denominated bonds issued by Latin American
countries (except Argentina) were in default. Latin American countries generally pursued a similar set of
adjustment measures: devaluations, tariff increases, import restrictions, exchange controls, and external
defaults, helped with deficit.
• Bertola and Ocampo (2012): During the Second World War, commodity prices increased, but so did import
prices – the terms of trade did not improve for Latin America. Export earnings were in foreign currency
(much of it sterling). Central banks sterilized these inflows (e.g. raised interest rates to offset them) to
prevent inflation, building up substantial reserves. Reserves used to repurchase foreign infrastructure firms
(i.e. nationalisation).
o Correia, S., Luck, S., and Verner, E. (2020). Pandemics depress the economy, public health interventions do
not: Evidence from the 1918 flu. Available at SSRN: https://ssrn.com/abstract=3561560 or
http://dx.doi.org/10.2139/ssrn.3561560
o Wright, G. (1986). Old South, new South: Revolutions in the southern economy since the Civil War. Basic
Books o Friedman, M., and Schwartz, A. J. (1963). A Monetary History of the United States, 1867–1960.
Princeton University Press.
o Bertola, L., and Ocampo, J. A. (2012). The economic development of Latin America since independence. OUP
Oxford.
• Acemoglu et al (2014) use a Herfindahl index (H) to measure the concentration of power in Africa over this
time period. Chieftaincies with lower concentration of power have positive present day outcomes such as
higher literacy, education, people working outside of agriculture, asset wealth and housing capacity.
• Common Law was thought to be more flexible than civil law, the French who used civil law wrote everything
down in a code book in black and white and therefore sacrificed law flexibility and spontaneous (hopefully
appropriate) changes. (Anderson, 2018) Until the British reformed in 1960, common law gave women less
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control over marriage agreements and did not guarantee the women would get anything when divorced.
This was not the case in France where they used civil law.
After WW1, German colony of Togo split into British and French parts, and British Togo were 24 percentage
points more likely to be literate and 22 percentage points more likely to be Christian than French Togo. (same
cohort) (Dupraz, 2019). A similar experiment was conducted in Cameroon when a part of it broke off to join
(British) Nigeria for a while, until 1961. Those that came back saw higher levels of education too. A part of
this could be down to the French education system’s tradition of making people re-do grades more often
than British systems. The thought of re-doing a grade often led to people simply dropping out.
• Because there was minimal GDP data available and because a mean calculation would be skewed by elites, a
basket of goods was used by deflating nominal wages to see how many welfare baskets the typical African
could afford (Frankema and van Waijenberg, 2012). Real wages rose through the colonial period 1.14 to
1.42% per year in West and East Africa. West Africa was richer at the start of the colonial period (not
because of the colonial period), the earlier transition from slave trade to legitimate trade. There were
existing trade roots ready from precious slave trades that jump-started trade.
• Falling commodity prices saw Nigeria suffer like the rest of the world. (Ochonu, 2006). Govt. tried fixing this
with debt financing, putting off less important projects, reducing staff, enforcing tax collection more
(beforehand indirect rules didn’t have much authority to enforce them (Falola and Heaton, 2008)), and
protectionism. Essentially, Nigerian trade exports reduced a lot in the following decade but the British
continued to make profits because of the use of Collusion, which led to a Boycott from Nigerian cocoa
farmers after realizing prices were artificially suppressed.
• During the war period (second), British tried to export all resources from Nigeria to fund the war effort at
lower than equilibrium prices (Falola and Heaton, 2008). Soldiers were taken also which reduced labour
supply and led to higher food prices. Strike in 1945 for 37 days, leader of strike later became president after
independence.
o Acemoglu, D., Reed, T., and Robinson, J. A. (2014). Chiefs: Economic development and elite control of civil
society in Sierra Leone. Journal of Political Economy, 122(2), 319-368.
o Anderson, S. (2018). Legal origins and female HIV. American Economic Review, 108(6), 1407-39.
o Frankema, E., and Van Waijenburg, M. (2012). Structural impediments to African growth? New evidence
from real wages in British Africa, 1880-1965. The Journal of Economic History, 895-926.
o Falola, T., and Heaton, M. M. (2008). A history of Nigeria. Cambridge University Press.
o Ochonu, M. (2006). Conjoined to empire: The great depression and Nigeria. African Economic History, (34),
103-145.
• Belgium and France worst affected by WW1, Britain lost many men and physical capital. Scandi and
Netherlands were neutral so enjoyed new boom for raw materials and food after the war. After 1918 there
was a global boom in world markets but this burst in 1919.
• UK left gold standard in 1931, followed by Scandi countries which gave them an advantage over the other
countries.
• Despite two wars labour productivity was accelerating due to the spread of technology and electricity
became more important due to the spread of the electric engine. At this point radio and telephone were
invented.
• In the UK women got the vote in 1928 also, signalling an improvement to democracy.
• During 20th c. human capital greatly affected industrialisation rate and growth, central Europe grew faster
than Eastern Europe, Southern Europe was much slower during this period. Central Europe had high human
capital at this point.
• Central banks set up in London, Zurich and Geneva. World war 1 ended development and growth in
central/southern/eastern Europe.
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• October revolution led to socialism in Russia, heavy and rapid industrialisation followed at the expense to
consumer products and food. Collectivisation caused famine but education improved rapidly.
• Average size of firms started to grow in the US around 1900 due to mergers but monopoly fears broke them
up 1911. In 1929 Banks failed due to American banks being small independents rather than branch banks.
Canada did not have such an issue so the financial crisis in USA was worse than Canada.
• 1929-73 LATAM saw rapid growth in the ‘golden age of capitalism’.
• World conflicts disintegrated markets – countries were more hostile to each other in terms of trade.
Insurance rates increased globally during war, peaking in 1942 but fell as fewer ships were being sunk after
1942.
• 1918-39 most oil was from Iran and Egypt, only in 1940s did Iraq join. In 1940 the middle east were very
minor players in the oil market (5% of oil production globally) but by 1960 they were 26% of the market and
45% in 1970.
• In Japan up until 1935 there was fast growth due to military investment, but this cooled off quickly. By 1950
Japan had recovered from WW2.
• China was defeated in 1894-5 Sino-Japanese war, which damaged China’s economy. China responded by
allowing foreign factories to be made in treaty ports in 1896, this legitimised China’s modern industries. (not
from this time period but kind of important for context).
• Factory production grew and by 1935 Chinese factories were 8% of cotton yarn global production. Despite
the FDI from the treaty port factories 73% of China’s factory output was Chinese owned. This led to growing
experience in industry and with machinery, which led to vertical integration and new more high tech
industries. Despite the great depression ‘modern oriental’ fixed investment grew at 8.1% p.a. 1903-36.
Transport development was an important part of Chinese growth, growing from 364km of railway in 1894 to
21,000km in 1937. The
China’s private banks grew at this point, issuing paper notes which greatly reduced the cost of doing
business. This currency was backed by silver. By 1929 there was GD and severance from Manchuria (NE China) in
1932, which was bad. Moreover, the price of silver rose rapidly as Britain went off gold and USA pursued silver
repurchase act of 1934. Inflation crippled China’s financial sector at this point. Topic 8 – Post-war
Recovery and Decolonisation 1945-79
• The Geary-Khamis Dollar is a hypothetic unit of currency that has the same purchasing power parity as the
United States at a given time. 1990 or 2000 are typical years used as benchmarks for the Geary-Khamis
Dollar. In 1913 Europe had an average GKD of 3500, 1950 it was 4600 and in 1973 was 11,500 GKD. (Crafts
and Toniolo, 2010)
• Britain: Agriculture declined from 5.3% in 1950 to 1.3% in 2005. Industry from 49% in 1950 to 22% in 2005.
Germany: 23% to 2% in agriculture; 43% to 31% in industry during the same years. (Crafts and Toniolo, 2010)
• Eichengreen (1996): Countries that invested more grew faster. High rates of investment entailed a tradeoff
between capital and labor- one would fare better than the other. An atypical case was that of the Dutch;
from 1947 to 1954, prices and wages rose at the same time and investment rose by 50% from 50’ to 54’
alone. Correlation between investment rate and wages.
• Eichengreen looked at integration within Europe and found that firms had to be able to invest without
worrying about the size of the domestic market. This could only be achieved using multilateral institutions:
the European Payments Union and the European Coal and Steel Community helped with this.
• Broadberry (1998): Germany overtook Britain’s GDP pc. Reason not because of improved manufacturing
efficiency, but because resources MOVED OUT OF agriculture. output per worker in Germany and the US
converged on or surpassed British output per worker not because of increasing productivity within sectors,
but mostly because these countries moved workers to higher-productivity sectors.
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• Temin (2002): Untapped potential: Countries had too much labor in agriculture for their respective income
levels and stages of development- could've afforded to undergo mass sectoral shift earlier to capitalize on
higher productivity gains. Germany (DEU) lagged because of later industrialization, irrational farmer
protection and the second thirty years war (umbrella name for wars in Europe 1914-1945), workers departed
agricultural sector faster after the war.
• Atlee Act: Introduced NHS, National insurance act and national assistance act in replacement of poor law
with means-tested benefits for the few remaining uninsured) (Lowe, 1994). Welfare spending as a % of GDP
grew from 16% in 1951 to 26% in 1976. In the 60s social security exceeded defence as most expensive public
expenditure sector.
• Before 1973: British economy stop and go. Economic growth leads to worsening of trade balance, leading to
government intervention to dampen demand. (Hatton and Chrystal, 1991)
• Primary objective of British trade policy to preserve balance of payments on the current account.
(ForemanPeck, 1991). The Atlee government nationalised bank of England, coal, gas and electricity, transport
civil aviation, telecoms and iron/steel. (Dunkerley and Hare, 1991) Tories undid some of this.
o Crafts and Toniolo 2010 “Aggregate growth, 1950–2005” in The Cambridge Economic History of Modern
Europe. Cambridge University Press, 296-332.
o Eichengreen (1996) “Institutions and economic growth: Europe after World War II,” in Economic Growth in
Europe since 1945. Cambridge University Press, 38-72.
o Broadberry, S. (1998). How Did the United States and Germany Overtake Britain? A Sectoral Analysis of
Comparative Productivity Levels, 1870-1990. The Journal of Economic History, 58(2), 375-407 o Temin, P.
(2002). The golden age of European growth reconsidered. European Review of Economic History, 6(1), 3-22.
o Dunkerley and Hare (1991), “Nationalized Industries,” in The British Economy since 1945. Oxford University
Press, 381-416.
o Foreman-Peck (1991) “Trade and the balance of payments” The British economy since 1945 Oxford
University Press.
o Hatton and Chrystal (1991) “The budget and fiscal policy,” in The British Economy Since 1945. Oxford
University Press, 52-88.
o Lowe (1994) Post-war Welfare. Twentieth Century Britain: Economic, Social, and Cultural Change. Longman.
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• India created some 5 year plans. FIRST PLAN (1951-1956): 31Bn rupees spent. Private sector invested in
consumption goods. High tariffs and import bans. 18% growth exceeded target by 11, moderately successful.
SECOND PLAN (1956-1961): 46Bn rupees. Third gone to public investment goods. Remainder to cottage
industry and others. THIRD PLAN (1961-1966): Public sector investment 86Bn rupees. Transport and
communications mostly (modest agricultural investment). The government started deficit spending, overall
in long run led to forced industrial growth which led to recession when there was too much spare capital in
India. Rothermund (1993)
• Green revolution in 1970s due to high yielding crops (first introduced late 50s). India became self sufficient
for grain. Foster and Rosenzweig (1996): Higher returns for primary schooled farmers, so primary school
investment rose. Spillover effect of changed economy structure which increased standards of living. Rural
inequality due to rising grain prices which helped rich peasants but made it more expensive for the poor.
(Kotwal et al 2011)
• China under Mao (Lardy 1987) – CCP took power in 1949, centralising finance, fiscal system and expanded
tax base to stabilise prices. Govt. revenues grew from 6% GDP in 1930s to 30% in 1957. Land reform made
40-50% of land change hands, investment increased 20%.
• The Great Leap Forward was a 1958 irrigation campaign to double irrigated agriculture. Private farming was
eliminated and communes set up. Payment was equal for all labour inputs so there was no incentive in
agriculture. 16.5m-30m deaths according to Li and Yang (2005). Disproportionate rationing. Cadres (activists
in communist party) suppressed reports of food shortages if they contradicted previous reports.
Interregional food transfers curtailed instead of being used to help poor areas. (Lardy, 1987)
• Cultural Revolution: 1966-1976 (Bai and Wu, 2020) closed universities and schooling shortened from 12 years
to 9. Youth moved from urban areas to rural ones and class background used for assessment rather than
academic merit. Torture and murder against class enemies such as landlords and intellectuals/rich peasants.
All private license traders’ licenses were revoked and in 1967 GDP fell 9.6% but recovered 2 years later.
Cohorts born 1950-65 had fewer schooling years and were less likely to have professional occupations, less
likely to be entrepreneurs and had lower levels of trust.
• Japanese Economic miracle (Kosai, 1997): reforms against a background of democratisation and American
occupation. 37.5% agricultural land changes hands. Farmer’s incentive rise, disputes and political instability
decline. Anti-monopoly law introduced to promote competition, though some Zaibatsu (essentially,
monopolies) survive, like Mitsubishi. Collective bargaining and strikes were allowed which led to growth of
trade unions. Dodge plan 1949 established government policies such as balancing budget, reduced
government intervention in economy, fixed exchange rate of 360 Yen to 1 USD and international trade
conducted through private channels. 1955 activity returned to pre-war levels. 12 years later, Japan at full
employment where openings exceed seekers. New mass production techniques introduced. Technological
upgrading in automobiles, reliance on foreign technology. Large firms were joint stock companies or part of
enterprise groups (keiretsu) to precent outside takeover.
• Japan liberalised later than Europe as infant industry protection was seen as important. 1955-75 heavy
industry replaced light industry and the automobile industry grew. Growth slows in 1970s with energy price
increasing. Ministry of finance recognizes repurchase market in 70s, allows debt to be sold in an unregulated
secondary market. Foreign Exchange and Trade control act (1980) made foreign exchange transactions free,
unless prohibited (contrary to the previous rule which was prohibited unless free). This might have even
increased trade.
• Korea had state capitalism (Heo and Roehrig, 2010) – 1950s Korea devastated by Japanese rule and required
US aid. Park Chung Lee (president) oversaw the development of economy to 13th largest in 2010 with 10%
annual growth 1962-73. Even during shocks growth remained 4-6%.
Infrastructure accounted for 30% of GDI (gross domestic investment) in 60s and 70s and high savings and
investment over this period, notably in education. Once competitiveness was achieved exports rose through
tax breaks, credit and trade policy. Currency was kept devalued at times but inflation kept at bay using
balanced budgets and regulatory suppression of wages.
• Korean savings grew massively too from 10% to 15% 60s-80s. In 1965 the deposit ceiling rate rose from 15%
to 30%. Korea’s small land mass to population ratio meant that there was a lot of focus on education, its
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student performance was consistently in the top 4 globally 2003-6 and private financing of education was 9x
more than France and Germany despite similar rates in public spending on education as a % of GDP. Similar
stories for the other Asian tigers.
o Kotwal, A., Ramaswami, B., and Wadhwa, W. (2011). Economic liberalization and Indian economic growth:
What’s the evidence?. Journal of Economic Literature, 49(4), 1152-99.
o Rothermund (1993) “An Economic History of India” Routledge
o Bai, L., and Wu, L. (2020). Political movement and trust formation: Evidence from the Cultural Revolution
(1966–76). European Economic Review, 122, 103331. Bai and Wu (2018) “Political Conflict and Development
Dynamics: Economic Legacy o Lardy (1987) “Economic recovery and the 1st Five-Year Plan” and “The
Chinese economy under stress, 1958 —1965” in The Cambridge History of China. Cambridge University Press.
o Li, W., and Yang, D. T. (2005). The great leap forward: Anatomy of a central planning disaster. Journal of
Political Economy, 113(4), 840-877.
o Kosai (1997) The postwar Japanese economy, 1945–1973. In The Economic Emergence of Modern Japan.
Cambridge University Press, 159-202.
o Heo and Roehrig (2010) South Korea Since 1980. Cambridge University Press.
• The US economy since WW2 (Fishback, 2016): Military spending as a percentage of GDP was 10% in 1950s
and dropped by about 2% each decade after until it was 4% of GDP after the 1990s. Two periods of growth in
productivity: 1950s to late 70s; and late 80s to mid-2000s. Key factors to growth were engineering advances,
improved consumer electronics, medical innovations. Human capital improved since in 1940 only 50% of
Americans finished high school, rising to 88% in 2015.
• Downturn in late 70s and early 80s and the 2008 crisis, stagflation in late 70s. OPEC raised oil prices in 1973
and 1979. Employment Act of 1946: Stated that government was to continue its responsibility of promoting
free enterprise, general welfare, employment, and production and purchasing power.
• 1900-1950: Federal government’s role expands in response to crises like wars and depression. Ratchet effect:
Government stays at same size even after crises ends. (btw up until here everything still Fishback 2016)
• Legal changes (Doepke et. Al, 2012): Civil rights act of 1946 mandated equal treatment in the labor market.
Before, women were barred after marriage in jobs such as being in the clergy or teaching.
• Fernandez (2013): Labor participation of married white women was 2% in 1880. Grew 4.9 percentage points
per year from 1920-1950 then to 12.9 pp from 1950 to 1990.
• FLFP (female labour force participation) geographically concentrated. Higher FLFP in countries where men
were disproportionately drafted for war (so women had to fill in the gaps) (Fogli and Veldcamp, 2011)
• Gender wage gap (Goldin, 2014) - Studies use regressions to decompose male-female wage discrepancy into
explainable and unexplainable factors. The explained factors have fallen out of relevancy as women have
converged with men in education, fields of study and experience. Popular explanations include
discrimination, competitiveness, bargaining ability.
• The Bretton Woods system (Battilossi et. Al, 2010) Established to overcome economic volatility experienced
after war and depression periods. IMF established to approve or disapprove changes in parity and declare
members ineligible to use its resources and even expel them. Bretton Woods to 1958: Bilateral arrangements
with licenses and quotas for trade, Dollar shortage alleviated partly by Marshall aid in 1948, Sterling declines
as a reserve currency replaced by USD.
• Bordo (1993): The Bretton woods system was a period of capital control. The gold standard was a period of
capital mobility. The system was in fact, a de-facto dollar standard. US inflation accelerated from 64’ due to
expansionary monetary policy. Price stability was sacrificed in preference of full employment, and deficits
arose due to Vietnam war and social programs.
State led industrialization in LATAM countries (Bertola and Ocampo, 2012). After Korean war commodity
prices fell and this caused balance of payments constraints. Regulations on credit allocation, tax incentives,
multiple exchange rates were all tools that helped to fix this. There were efforts to liberalize trade but this
did not really come into fruition. However, there was some FDI, which the govt. directed more towards
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industry than infrastructure. GDP pc grew 2.7 percentage points per year from 45’ to 80’. Although growing
fast, was still behind the west and slower than the Asian tigers.
• Macroeconomic imbalances: Trade and fiscal deficits. Negative trade balance, overvalued currency, high
inflation, and fiscal imbalances meant high debt-to-GDP ratios (those were confined to Brazil and the
southern cone in countries like Chile, Argentina and Uruguay).
o Fishback, Price (2016). The United States and Canada. In A History of the Global Economy: 1500 to the
Present. Cambridge University Press, 83-109.
o Doepke, M., Tertilt, M., and Voena, A. (2012). The economics and politics of women’s rights. Annual Review
of Economics, 4(1), 339-372.
o Fernandez, R. (2013). Cultural change as learning: The evolution of female labor force participation over a
century. American Economic Review, 103(1), 472-500.
o Fogli, A., and Veldkamp, L. (2011). Nature or nurture? Learning and the geography of female labor force
participation. Econometrica, 79(4), 1103-1138.
o Goldin, C. (2014). A grand gender convergence: Its last chapter. American Economic Review, 104(4),
10911119.
o Battilossi et al. (2010) Business cycles and economic policy, 1945 - 2007. In The Cambridge Economic History
of Modern Europe. Cambridge University Press, 360-89.
o Bordo, M. D. (1993). The Bretton Woods international monetary system: a historical overview. In A
retrospective on the Bretton Woods system: Lessons for international monetary reform. University of
Chicago Press, 3-108.
o Bertola, L., and Ocampo, J. A. (2012). The economic development of Latin America since independence.
Oxford University Press.
• Africa is geographically limited in terms of its agricultural and therefore export ability. Hot climates, old and
nutrient less soil, disease prone lands mean agriculture and the general habitat is unsuitable for a variety of
cash crops, which is why many African nations tend to only have few major exports such as Groundnuts in
one country and cocoa in another. (Bloom and Sachs, 1998)
• Average rainfall low, lots of droughts compared to other continents. Tight correlation between rainfall and
GDP pc in sub–Saharan African countries. (Barrios et. Al, 2010)
• Studies have found that countries where the Tsetse flies were most prominent saw the greatest hindrance to
economic development because livestock and cattle couldn’t be reared, ploughs couldn’t be pulled, slash
and burn techniques of agriculture had to be used instead of re-using land after a harvest, means permanent
societies were impossible, and instead nomad societies grew with no states and little geographical and by
extension social mobility as even basic forms of transport like horses were impossible to rear. Makes it hard
to have a state with strong fiscal capacity. People couldn’t focus on one thing and specialize. (Alsan, 2015)
• Polity IV database gives a score from –10 to 10 according to how democratic it is. As a reference to scale how
democratic countries are, N. Korea scored –10, UK scored 8, China scored –7, India and South Korea scored 9.
Compare all these to African nations where Nigeria scored 7, Ethiopia 1, Botswana 8.
• Much of Africa were not democratic by the end of the 60s. The democratization of Africa really only began in
the early 90s, started by Benin (Sachs and Warner, 1995). Many countries during the interwar period did not
identify as purely capitalist or communist. They pursued state-led industrialization, protectionist policies and
were often reluctant to trade Mainly due to export pessimism, intellectual beliefs (i.e. loss of capitalism’s
credibility after 2 world wars and nationalizations in Britain and France), and due to the political economy
(state-led industrialization was a way to foster governmental power).
• Bates (1983): Africa had monopsonies on exports of ag. Goods, the government had full control over how
the goods were sold since they were the sole customer. Price paid to farmers was below world price and
when world price declined, government reduced wages by disproportional amount.
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IMF prioritized correcting overvalued currencies, removing foreign exchange controls, interest rate controls,
tariffs/quotas, high budget deficits and trade deficits while also privatizing state enterprises that survived off
of subsidies. (Easterly, 2009)
• Natural Resource Curse (S-I-M and S, 1997): negative correlation between economic growth and dependence
on exports of resources. Dutch disease where price of the resource increases so exchange rate increases
which reduces competitiveness of other sectors.
• Nigeria’s GDP pc and PPP remained pretty much the same in 1970 and 2000 despite high oil revenues due to
rapid accumulation of physical capital, declining private sector share, and declining capacity utilization, they
invested too much in quantity rather than quality – productivity saw little growth.
• BCG (1999): 60s saw price of Nigerian exports decline. First national development plan focused on
infrastructure but was inefficiently located due to politicians wanting to secure votes. From 1974 to 1981,
there was a windfall from rising oil prices, leading to double annual GDP compared to before the oil price
boom. More than entire amount of windfall allocated to extra public sector investment. 31% to public
consumption, and private investment ends up seeing a decline prior to boom. Cash crop production
nosedives (evidence of Dutch Disease). Investment concentrated in capital formation. For example, Ajaokuta
and Delta steel mills cost several billion USD but produced little steel and thus operated at a loss. More
resources allocated to industry but food production declines and prices rise.
• Apartheid (Feinstein, 2005), meant no recognition of black unions, skilled jobs were reserved for white
people, limited provision of education to black people also. New discoveries of minerals and gold raised
value sterling prices of gold. African migrant labor costs low. From 48’ to 71’, manufacturing employment
triples and average establishment sizes increase from 52 to 82. Value added also rises 7% per year and
capital per worker more than doubles.
• From 73’ to 94’, GDPpc declines, fixed capital formation stagnates and unemployment and inflation rises,
exchange rate depreciates, and there continued to be persistent balance of payment problems. Gold lost its
position as the world reserve currency, rising production costs and price collapse from the 70s ensued.
• By 86’, economic aspects of the apartheid were mostly gone. However, economic stagnation remains. Turns
out, what the oppressors thought of as cheap labor weren’t really cheap. They ended up having to pay for
their wrong doings in the form of low skilled labor, inadequate nutrition, bad housing, social instability, lack
of national security, weak motivation, denial of industrial and political rights, all contributed to a tattered
society.
o Bates (1983) Markets and States in Tropical Africa. University of California Press. o Easterly, W. (2009). Can
the west save Africa? Journal of economic literature, 47(2), 373-447.
o Sachs, J. D., and Warner, A. (1995). Economic reform and the process of global integration. Brookings papers
on economic activity, 1995(1), 1-118
o Bevan Collier and Gunning (1999) The Political Economy of Poverty, Equity and Growth: Nigeria and
Indonesia. World Bank. Chapters 2-6.
o Sala-i-Martin, X., and Subramanian, A. (2013). Addressing the natural resource curse: An illustration from
Nigeria. Journal of African Economies, 22(4), 570-615 o Sachs, J. D., and Warner, A. M. (2001). The curse
of natural resources. European Economic Review, 45(4-6), 827-838.
o Feinstein (2005) “An Economic History of South Africa”. Cambridge University Press.

Topic 9 – Economic Reform 1971-2001

• 1950-1973 Golden Age followed by the slow down as post-war reconstruction ended, diminishing returns to
investment, slow of TFP growth and capital deepening (Crafts and Toniolo 2010).
• Two global recessions: oil and food price shock 1974-5 and second oil shock and austerity 1980-2 (Battilossi
et al. 2010).
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Manufacturing moved to Asia and the west becomes more service dominated. Wage moderation and high
investment (Eichengreen 1996) is replaced by union militancy, capital mobility and floating exchange rates
after turbulent 70s (C and T).
• ICT adopted more quickly in US than Europe (helped accelerate US growth after 1995). US believed too much
reg. and tax in Europe that retarded growth.
• From 1980s social expenditure growth slows as does GDP growth (Baines et al 2010).
• Little correlation between welfare state and GDP per capita (Lindert 1996).
• (slide 22) poverty has risen coinciding with slowdown of growth welfare state and gaps in inequality across
countries has risen for Europe (Baines has five main inequality lessons).
• Antibiotics has continued to reduce adult mortality, since 60s fertility has fallen in Europe due to higher
opportunity cost of children (more opportunity for females in labour force and expensive child care) (part 3
more detail on why higher FLFP) (Jaumotte 2003)
• In response to stagflation and global recessions British economy adopted more market friendly policies
(deregulation, privitisation) aimed at offsetting long-term relative economic decline (Card et al. 2004) o
Battilossi et al. (2010) Business cycles and economic policy, 1945 - 2007. In The Cambridge Economic History of
Modern Europe. Cambridge University Press, 360-89.
o Crafts and Toniolo (2010) Aggregate growth, 1950–2005. In The Cambridge Economic History of Modern
Europe. Cambridge University Press, 296-332.
o Eichengreen, (1996) “Institutions and economic growth: Europe after World War II,” in Economic Growth in
Europe since 1945. Cambridge University Press, 38-72.
o Baines et al. (2010) Population and living standards: 1945-2005. In the Cambridge Economic History of
Modern Europe. Cambridge University Press, 390-419.
o Lindert, P. H. (1996). What limits social spending?. Explorations in Economic History, 33(1), 1-34 o Jaumotte,
F. (2003), Female Labour Force Participation: Past Trends and Main Determinants in OECD
Countries, OECD Economics Department Working Papers, No. 376, OECD Publishing o Card, D., and
Freeman, R. B. (2004). What have two decades of British economic reform delivered? In Seeking a Premier
Economy: The Economic Effects of British Economic Reforms, 1980-2000. University of Chicago Press, 9-62.
• In 1991 past poor Indian economic required a conditional (important condition – trade liberalization) IMF
loan to face the foreign exchange crisis. Privitisation, tariff cuts, access to K and tech, greater comp. which
put pressure on improving production. Manufacturing has continued to grow slowly, green revolution
expansion pushed down food prices and rapid services growth since 1991, by 2011 the dominant sector
(Kotwal et al. 2011).
• From (beginning of Chinese reforms) 1980s gradual process of movement to free market economy: special
economic zones expanded, openness to trade, FDI encouragement, export led growth (joins WTO 2001),
competition…(more reasons for success slide 20) (Storesletten and Zilibouti 2014)
• In Japan liberalization in the 80s allowed riskier investments and the growing asset bubble burst in 1990
creating the “lost decade” – stagnant growth since 1991 due to misguided government policy after real
estate bubble (Cargill and Sakamoto 2008). This problem was exacerbated by the Asian financial crisis where
financial liberalization in East Asia was not matched by regulation and supervision (more in-depth
explanation slide 32) (Radelet and Sachs 1998).
• Missing women in India attributable to cardiovascular disease and ‘injuries’, whereas in China many missing
before birth due to preference for a son (Anderson and Ray 2010). Economic incentives e.g. in India in
regions with need for heavy agri work, worse sex imbalances (Carranza 2014) (genetic evaluation point on
last slide). o Kotwal, A., Ramaswami, B., and Wadhwa, W. (2011). Economic liberalization and Indian
economic growth: What’s the evidence?. Journal of Economic Literature, 49(4), 1152-99.
o Storesletten, K., and Zilibotti, F. (2014). China’s great convergence and beyond. Annual Review of Economics,
6(1), 333-362.
o Cargill, T. F., and Sakamoto, T. (2008). Japan since 1980. Cambridge University Press
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Radelet, S. and Sachs, J. D. (1998). The East Asian financial crisis: diagnosis, remedies, prospects. Brookings
papers on Economic activity, 1998(1), 1-90.
o Anderson, S., and Ray, D. (2010). Missing women: age and disease. The Review of Economic Studies, 77(4),
1262-1300 o Carranza, E. (2014). Soil endowments, female labor force participation, and the
demographic deficit of women in India. American Economic Journal: Applied Economics, 6(4), 197-225.
• Acemoglu and Autor (2011) throughout 80s and early 90s wages of 10th percentile and 50th fall and stagnate
whereas the 90th grows. Technology has substituted some routine jobs (lower wage for lower skilled workers)
but has complemented high skilled jobs helping to improve productivity. In the US the 99% percentile’s
income share is rising (likewise in AUS, UK, CAN slide 12 not in the rest of Western Europe).
• In the 1990s the welfare state has expanded in the US (similar in CAN & UK), rising minimum wage, spending
targeted on supporting working families (Blank 2002).
• In Latin America the IMF and World Bank offered loans in response to debt crisis (slide 28) in return for
structural reforms: market liberalization, privitisation, reduction in protectionism and stablisation policies to
control public spending (Bertola and Ocampo 2012).
• “Lost decade” – Brazil’s 86b USD 1980s surplus spent entirely on foreign debt interest (Luna and Klein 2014).
High inflation rates in 80s throughout South America especially Mexico and Brazil as a result of oil price
vulnerability, crippling debt and uncontrollable government spending (Haber et al. 2008).
• Latin America is the most unequal place in the world, despite extreme poverty falling dramatically in 70s,
inequality rose in 80s and didn’t improve in 90s despite growth. WHY? unequally distributed income-earning
assets (education and land), fewer assets meant less opportunities to generate income. South Korea
comparison. (Szekely and Montes 2006).
o Acemoglu, Daron, and David Autor. Skills, tasks and technologies: Implications for employment and earnings.
Handbook of Labor Economics. Vol. 4. Elsevier, 2011. 1043-1171.
o Blank, R. M. (2002). Evaluating welfare reform in the United States. Journal of Economic Literature, 40(4),
1105-1166.
o Bertola, L., and Ocampo, J. A. (2012). The economic development of Latin America since independence.
Oxford University Press.
o Haber, S., Mauer, N., and Middlebrook, K. J. (2008). Mexico since 1980: a second revolution in economics,
politics, and society. Cambridge University Press.
o Luna, F. V., and Klein, H. S. (2014). The economic and social history of Brazil since 1889. Cambridge University
Press o Szekely, M., and Montes, A. (2006). Poverty and inequality. The Cambridge Economic
History of Latin America, 2, 585-645.
• Oil prices collapse in 1985-6 caused capital leakages (debt service payments > FDI and new loans) in Nigeria.
Refused to take 1985 IMF loan as didn’t want structural reforms, poor gov. policy (devaluations) resulted in
rapid inflation, large gov. spending, mass corruption forced and rises in unemployment (Falola and Heaton
2009). Mean private consumption lower in 1985 than in the early 1950s (BCG 1999).
• Ethiopia had lack of capital and industrial raw materials, wanted a command economy but this rhetoric
scared off foreign investment. State firms didn’t adopt HYV crops (unwilling to modernize) and farmers had
little incentive to produce high yields due to government, combined with bad weather resulted in 1984
famine (Marcus 2002). Half a million deaths (Dercon and Porter 2014), conflict and debt service constrict gov.
spending and agri production falls annually from 1975. In 2003 a worse drought only resulted in 300 deaths
as government now more alert (Gill 2010).
• AJR believe institutions are most important economic development drivers. Botswana had highest global
GDPpc (7.7%) 1965-1998, why: prudent fiscal policy, investment in ed., health, infrastructure. Supported by
‘good’ institutions – provided secure property rights and investment opportunities for many society
members (contrast to South America).
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• Miguel et al. (2004) conclude growth in rainfall (arguably increases economic growth) reduces conflict risk in
Africa. Not unique to Africa, Dube and Vargas (2013) show when coffee prices rise violence falls in coffee
producing municipalities in Columbia.
Falola, T., and Heaton, M. M. (2008). A history of Nigeria. Cambridge University Press o Bevan, D., Collier,
P., and Gunning, J. W. (1999). The political economy of poverty, equity and growth: Nigeria and Indonesia.
World Bank.
o Dercon, S., and Porter, C. (2014). Live aid revisited: long-term impacts of the 1984 Ethiopian famine on
children. Journal of the European Economic Association, 12(4), 927-948.
o Gill, P. (2010). Famine and foreigners: Ethiopia since live aid. Oxford University Press.
o Marcus, H. G. (2002). A history of Ethiopia. University of California Press. Chapters 12-16
o Miguel, E., Satyanath, S., and Sergenti, E. (2004). Economic shocks and civil conflict: An instrumental
variables approach. Journal of political Economy, 112(4), 725-753.
o Dube, O., and Vargas, J. F. (2013). Commodity price shocks and civil conflict: Evidence from Colombia. The
review of economic studies, 80(4), 1384-1421.

Topic 10 – The Contemporary World Economy 2001-Present Day

• Starts with history of Europe economic integration, single market established in 1993 – allowed movement of
goods, people, capital and services. 19 EMU members – adoption of common currency and single monetary
policy controlled by ECB (helped remove exchange rate uncertainty aimed to boost trade). No single fiscal
policy – made it difficult to help different countries respond to shocks whilst trying to keep to budget deficit
limits (The Maastricht Treaty 1992) (Lane 2006), different inflation rates and language barriers were issues
(Eichengreen and Bolitho 2010).
• Credit boom as countries joining euro saw relative interest falls, this in turn fueled house prices. The rise in
demand for mortgages and house price rises until the 2008 crash when the housing market crashed, banks
failed and huge debt levels constricted countries’ responses. Arguably world organisations (Troika) failed in
providing support, as they only offered loans with conditions on strict austerity which many struggling
countries couldn’t commit too. Poor emergency funds as Germany and ECB feared inflation and that the
German taxpayer would finance the bailouts (Eichengreen 2014). Eurozone problem is no fiscal union and no
independent monetary policy makes it difficult for countries to adjust to shocks through internal devaluation
(damaging costs on unemployment and growth) (O’Rourke and Taylor 2013). Also slide on six lessons of
interwar gold standard.
• Growth in British productivity mainly from electrical machinery and communication, with ICT and human
capital becoming more important for labour productivity growth (Corry et al. 2011).
• Labour policy – competition act (1998), enterprise act (2002), R and D tax credit (2001). After Great
Recession (2009) ‘light touch’ policy reconsidered – where before fiscal not used for short term management
and supply side only to improve workings of market or to correct market failure (Corry et al. 2011). Coalition
aimed to be more restrictive on immigration. Austerity against international consensus, aim to eliminate
deficit by (2010-2015) 80% of deficit reduction through spending cuts, 20% through tax increases. Why? Fear
of eurozone debt crisis spreading (Wren-Lewis 2015).
• Brexit – best predictors of leave vote – share of population above age of 60; share with few qualifications;
high unemployment; low pay; growth in migration from the 12 EU countries that joined in 2004 and 2007;
cuts during recent austerity; poorer quality NHS (Fetzer 2019). Brexit caused 10% overnight pound
depreciation (future expectations of UK relationships with other countries changed) – WPIDEC – weak pound
imports dear exports cheap. Increase in inflation causing (real income to fall). Brexit has caused uncertainty -
> reduced investment and falling productivity as firm allocate more time to Brexit prep. (Bloom et al 2019
survey).
o Eichengreen, B., and Boltho, A. (2010). The economic impact of European integration. Cambridge Economic
History of Modern Europe, 267-295.
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o Lane, P. R. (2006). The real effects of European monetary union. Journal of Economic Perspectives, 20(4),
4766.
o Eichengreen, Barry. Hall of mirrors: The great depression, the great recession, and the uses-and misuses-of
history. Oxford University Press, 2014.
o O’Rourke, K. H., and Taylor, A. M. (2013). Cross of euros. Journal of Economic Perspectives, 27(3), 167-92.
Corry, D., Valero, A., and Van Reenen, J. (2011). UK economic performance since 1997: growth, productivity
and jobs. Centre for Economic Performance Special Paper No. 24.
o Wren-Lewis, S. (2015). The macroeconomic record of the coalition government. National Institute Economic
Review, 231(1), R5-R16.
o Fetzer, T. (2019). Did austerity cause Brexit?. American Economic Review, 109(11), 3849-86.
o Bloom, N., Bunn, P., Chen, S., Mizen, P., Smietanka, P., and Thwaites, G. (2019). The impact of Brexit on UK
firms. National Bureau of Economic Research Working Paper No. w26218
• Great Recession/ housing crash in America triggered by CDOs filled with bad mortgages marketed as good.
So, when ‘good’ mortgages started defaulting the real value of these mortgages was realized and the housing
market collapsed (Adrian and Shin 2010). Late 2007-2008 runs on financial institutions and banks with large
amounts of subprime mortgages and insufficient liquidity collapsed (1st Phase – Subprime mortgage crisis).
Followed by phase two the financial crisis, US treasury and Federal reserve feared moral hazard and let
Lehman fail. Triggered uncertainty, drying up of credit, interest rates faced by households and businesses
rising, assets fall in value (reducing ability to obtain credit) (Mishkin 2011). Poverty increased, unemployment
rose, cyclical sectors like construction and manufacturing saw high unemployment relative. Impacts largest
for men, black and Hispanic workers, youth, and low-education workers (Hoynes et al. 2012).
• China’s rise has caused a large global supply shock for manufacturing and demand shock for raw materials
(Autor et al. 2016). US industries vary widely in exposure to Chinese competition, Tennessee heavily exposed
because of its concentration of furniture producers; Alabama more insulated because of concentration of
heavy industry. Employment-to-population rates fall at least one-for-one with declining manufacturing
employment. (Autor er al 2013). Autor et al. 2019 sees on average, trade shocks reduce employment and
earnings more for men than for women. In presidential elections (including pre-2016): more trade-exposed
counties shifted Republican.
• Since 2007, violence in Mexico has increased, leading to 60-70,000 additional homicides. Why –
democratisation model - Traffickers, no longer confident in their immunity, resorted to violence in order to
deal with competitors. Or because of the Kingpin model - Starting in 2006, President Calderon launched a
campaign against drug trafficking that included military incursions, incapacitation of cartel leaders, and asset
seizures. These may have led to violence as cartels seek to take over each other’s territory, or rival claimants
seek to succeed an incapacitated kingpin (Shirk and Wallman 2015). Despite falling inequality since the
mid1990s but some regions have seen increased (correlation to violent crime increased) (Enamorado et al.
2016). Slide on China and Mexico drug link.
• In Peru in areas where, 1573-1812: The mita, an extensive system of forced mining labor, was in effect in
Peru and Bolivia, occurred. In the present, consumption is 25% lower and child stunting 6 p.p. higher in
affected districts (Dell 2020). ES (2001) argument: initial conditions, or factor endowments, “have had
profound and enduring impacts on long-run paths of institutional and economic development in the New
World.” Rest of slides on colonial summary.
o Adrian, T., and Shin, H. S. (2010). The changing nature of financial intermediation and the financial crisis of
2007–2009. Annual Review of Economics, 2(1), 603-618.
o Mishkin, F. S. (2011). Over the cliff: From the subprime to the global financial crisis. Journal of Economic
Perspectives, 25(1), 49-70.
o Hoynes, H., Miller, D. L., and Schaller, J. (2012). Who suffers during recessions?. Journal of Economic
perspectives, 26(3), 27-48.
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o Autor, D. H., Dorn, D., and Hanson, G. H. (2016). The China shock: Learning from labor-market adjustment to
large changes in trade.
o Annual Review of Economics, 8, 205-240. Autor, D., David, H., Dorn, D., and Hanson, G. H. (2013). The China
syndrome: Local labor market effects of import competition in the United States.
o American Economic Review, 103(6), 2121-68. Autor, D., Dorn, D., and Hanson, G. (2019). When work
disappears: Manufacturing decline and the falling marriage market value of young men.
o American Economic Review: Insights, 1(2), 161-78.
o Enamorado, T., Lopez-Calva, L. F., Rodriguez-Castelan, C., and Winkler, H. (2016). Income inequality and
violent crime: Evidence from Mexico’s drug war. Journal of Development Economics, 120, 128-143.
o Shirk, D., and Wallman, J. (2015). Understanding Mexico’s drug violence. Journal of Conflict Resolution, 59(8),
13481376.
o Dell, M. (2010). The persistent effects of Peru’s mining mita. Econometrica, 78(6), 1863-1903
• Chinese government has direct or indirect control of 38% of GDP in 2015. Net government assets are 141% of
GDP, v. 34% in US. Controls 85% of banking sector assets, all of telecommunications and transport, public media,
and several upstream sectors (e.g. oil and gas) that generate monopoly rents. Bureaucratic incentives that
reward officials for growth targets: unique in the world, and local bureaucrats receive cash awards and higher
chance of promotion. Inequality has widened. Not a welfare state: education budget 3.6% of GDP, health 1.6%,
public housing 0.8%; low by international standards (Naughton 2017). Slide 8 good history of 20th c. China.
Despite being relaxed in early 1990s Hukou system has restricted movement of labour and population (Li et al.
2017). Storesletten and Zilibotti (2014): Chinese foreign reserves rose from 5% of GDP in 1992 to 40% in 2013 –
as the result of being an export giant. SZ do not agree this is currency manipulation; an artificially low exchange
rate would fuel domestic inflation. Savings so high (35% or higher since 1980s)? Explanations include high
individual burden of health and education expenditures; end of iron rice bowl; privatization of residential
houses; one child policy.
• Heavy focus on infrastructure, which Western aid has largely abandoned for social sectors, China gives little cash
aid. China numbers for 2009: 600m USD in official aid, 1501m in Concessional loans, and 375m in debt relief. So:
still small compared with other donors. (e.g. 1.4b USD in 2007, v. 4.9b for France). China pursuing
deindustrialisation in Africa by flooding it with cheap imports (Brautigam 2009).
• De Michelis and Iacoviello (2016): Since the 1990s, Japan has experienced low economic growth, mild deflation,
high public debt, and an aging population. A common view among economists (e.g. Krugman (1998), Bernanke et
al.(2004)) is that the Bank of Japan (BOJ) did not act quickly or aggressively enough to prevent inflation from
turning negative. Dell’Ariccia et al. (2018): The 2008-09 recession was the worst of Japan’s post-war history:
output falls 8.5%. Harari (2013): After the 2011 tsunami, GDP fell 2.6% in the first half of 2011. Since 2012 Japan
has pursued expansionary monetary and fiscal policy and structural reforms (Abeism). Despite the policy change
the monetary easing has not helped stimulate consumption and there has been weak exports and rising real
imports, overall growth effects of Abeism exist but have been small (Hausman and Wieland 2015).
• “Path dependence is the dependence of economic outcomes on the path of previous outcomes, rather than
simply on current conditions.” Path dependence is, more simply, when history matters. (Doug Puffert’s 2003).
o Li, H., Loyalka, P., Rozelle, S., and Wu, B. (2017). Human capital and China’s future growth. Journal of Economic
Perspectives, 31(1), 25-48.
o Naughton, B. (2017). Is China Socialist? Journal of Economic Perspectives, 31(1), 3-24. Storesletten, K., and
Zilibotti, F. (2014). China’s great convergence and beyond. Annual Review of Economics, 6(1), 333-362. o
Brautigam, D. (2009). The dragon’s gift: the real story of China in Africa. Oxford University Press.
o De Michelis, A., and Iacoviello, M. (2016). Raising an inflation target: The Japanese experience with Abenomics.
European Economic Review, 88, 67-87.
o Krugman, P. R., Dominquez, K. M., and Rogoff, K. (1998). It’s baaack: Japan’s slump and the return of the liquidity
trap. Brookings Papers on Economic Activity, 1998(2), 137-205.
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o Dell’Ariccia, G., Rabanal, P., and Sandri, D. (2018). Unconventional monetary policies in the euro area, Japan, and
the United Kingdom. Journal of Economic Perspectives, 32(4), 147-72.
o Krugman, P. R., Dominquez, K. M., and Rogoff, K. (1998). It’s baaack: Japan’s slump and the return of the liquidity
trap. Brookings Papers on Economic Activity, 1998(2), 137-205.
o Harari, D. (2013). Japan’s Economy: from the “Lost Decade” to Abenomics. House of Commons Library, Standard
Note SN06629. London: Oct, 24.
o Hausman, J. K., and Wieland, J. F. (2015). Overcoming the Lost Decades?: Abenomics after Three Years. Brookings
Papers on Economic Activity, 2015(2), 385-431.
• Nigeria since 1999, Okonjo-Iweala (2014) discusses the major reforms during her term as Obasanjo’s finance
minister. Results: Accumulation of savings, reduced volatility of government expenditures, reduced foreign debt,
reduced inflation and prime lending rates, growth rates of 8.1% per year. Has been privatisation, deregulation,
liberalisation, corruption and conflict.
The 2013 National Development Plan in South Africa identified insufficient infrastructure, too few jobs, poor
education quality, poor public services, corruptions and deep societal divisions as major societal concerns (Fourie
2017). But South Africa has seen growth since the great recession whereas other haven’t.
• African growth miracle - this trend of falling poverty is general: it is not driven only by one country, nor by
countries defined by some characteristic. In particular, poverty fell for both landlocked and coastal, mineral rich
and mineral poor, with and without environments favourable to agriculture, countries of all colonizers, and high
slave-export and low slave-export countries (Pinkovskiy and Martin 2014)
o Okonjo-Iweala, N. (2014). Reforming the unreformable: Lessons from Nigeria. MIT Press
o Fourie, J. (2017). The long walk to economic freedom after apartheid, and the road ahead. Journal for
Contemporary History, 42(1), 59-80.
o Pinkovskiy, M., and Sala-i-Martin, X. (2014). Africa is on time. Journal of Economic Growth, 19(3), 311-338
• 1970s-1990s- saw big transformations of economic structures of the European mainland. Services began to
dominate and employment in agriculture fell massively.
• 1990s- ICT revolution (followed by dot-com bubble) and City of London became the largest financial centre
outside of the US.
• 2007-2008- showed weakness of the approach of market dominated regulation due to the financial crisis.
• After oil price shock of 1973 there was a period of stagflation. Low energy prices benefitted Europe during 50s
and 60s- Crafts and Toniolo (1996) argue that slowing economic growth rates was an adjustment to extremely
high growth before- gap between North American technology had been closed. Skepticism of unlimited industrial
growth grew- green parties and sustainability policies adopted in rich countries.
• Global financial crisis highlighted lack of prudence by bankers. Supervision made harder as national banks
protect their information from foreign banks and due to globalization this hard- strong rationale for a form of
multilateral oversight. Regulation in postwar period meant banks focused on the balance of payments- as banks
became more integrated it was clear City of London was lightly regulated compared to New York. This resulted in
a flood of American banks into London. This left the system vulnerable to a series of shocks
• Basel Committee has tried to create a robust international banking regulation system since 1975 but this has not
happened- protection of national sovereignty
• Two rapid eras of productivity growth: 1950-70 and late 1980s to mid-2000s in the US. Largely attributed to
technological inventions/ innovations in 20th and 21st century, e.g., radio, photography, computers, the internet,
smartphones etc.
• Human capital has an important role to play – both US and Canada focused on widespread education: led the
world in numeracy until 1840, using age-heaping measures (fig 3.5 p 100). College graduates rose from 5% in
1900 to 30% in 1980 (p101)
• In the early 80s, Fed Chairman Paul Volcker reduced inflation expectations by tightening monetary policy -> large
rise in unemployment in short run, but successful in long-run when combined with tax cuts/ deregulation and
privitisation to boost AS
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• Despite some setbacks, such as the dotcom bust in the early 2000s, economic growth was high between the late
80s and the Great Recession
• Policy makers became overconfident following the dotcom recovery: Fed Chairman Alan Greenspan drove
interest rates down, and people started investing in housing markets
• Investors combined mortgages (backed by the value of their home) into Mortgage Backed Securities (MBS) in
order to reduce risk  MBS were combined into Collateralized Debt Organizations (CDOs) in order to further
diversify the risk  investors could buy credit default swaps (CDSs) as insurance on CDOs. These methods
protected against risk on specific investments, but not on wholesale declines in a wider range of assets
• House prices started declining in 2006 and in 2007 was in a recession. In 2008, the US government bailed out
financial institutions by merging failing investment banks into other financial groups and taking over insurance
firm AIG
• The crisis in the US spilled over to the rest of the world, which experienced a deep recession
• Recovery from crisis was slow: unemployment remained at 9% or higher from 2009-September 2011, despite
Obama creating a stimulus package that doubled deficit from 5% to 10% of GDP (p104)
Because many financial institutions still held troubled mortgages, credit availability remained low as of 2014 and
sovereign debt crisis in EU further contributed to slow recovery
• Role of Federal government in economy has greatly increased since 1900. Despite phases of deregulation in
1970s/ 80s, government intervention has increased overall. Programs such as Medicaid have increased transfers
to the poor/ role of welfare state. Public spending on healthcare is much lower in US as most of it is done
through private insurance with employers. However, total social welfare spending is relatively high compared to
the rest of the world.
• Expansions in social security have come from Medicare program for elderly healthcare in 1964: workers and
employers put taxes into a trust fund that is invested into government bonds, which is essentially a promise that
the government will collect enough taxes from future taxpayers to provide pensions for current taxpayers
• However, this does not work if number of retirees increases compared to number of workers: baby boom means
that a large fraction of the population is currently retiring and improvements in healthcare resulted in ageing
population. In the long-run, governments will face budget problems and will have to increase tax rates/ reduce
benefits on pensions
• Over the last few decades, Latin America has made economic and political changes that have allowed it to come
to a middle-income status. However, they are still reliant on natural resources, due to their pattern of trade-
specialisation and their cyclical access to capital markets
• On the other hand, countries like the US/ Canada and NW Europe were able to use their natural resource
endowments to boost their development  gap between Latin America and Europe has widened
• Latin America went from an average of 1.5 years of schooling at the start of the 20th century to 7.1 years in
2000; however, the most developed countries had 12.5 years in 2000 (p. 147)
• 1970 oil price increase led to mixed blessings o Curse of resources (did not know how to distribute wealth) o
Anything could be imported - poison for industrialisation o High income expectations became unrealistic

• Government tried reinvesting oil revenues into firms that would generate income after oil income ended. State
owned firms tended to be highly inefficient, problems of competitiveness were solved with tariffs rather than
improvements
• Israel saw increases to human capital and developed, Iran saw GDP explosion in 70s followed by decline in 80s,
Iraq saw substantial decline in 90s. Lebanon became banking hub for middle east, saw substantial development
despite lack of oil.
• India saw growth after 1950 higher than previous 90 years. Green Revolution in 70s caused productivity-led
growth due to high-yield seed varieties, fertilisers and more intensive use of water irrigation systems. Colonial
period had seen expansion of labour intense sectors, financed by private capital. 1950-85 manufacturing was
more capital intensive, financed by foreign aid and partly by state-owned firms.
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• GDP growth post-1950 achieved at greater cost => Post-colonialism reindustrialization and green revolution
largely funded by taxpayers’ money and foreign aid. This involved restraining private investment. Long term
constraint on Indian development lies in agricultural productivity.
• Many countries in SE Asia/Oceania have transformed societies, overthrown colonialism, endured wars and
invasions and undergone extensive economic change – and others have developed in comparative peace
• This region is distinguished by rapid growth of Asian Tigers in 2nd half of 20th c.. By 1960s Singapore
emerging as one of Asian Tigers. Between 1965-95 the 4 AT averaged around 6% growth per year
transforming SoL. Also in group of High Performing Asian Economies (HPAE) were Indonesia, Malaysia,
Thailand
• Researchers identified several factors incl.: trade openness; financial stability, technology; increased physical
and human capital per worker; improved health and education; demographic changes increasing labour
supply + demand for consumer goods; shift towards manufacturing; cheap energy; interventionist
governments. Countries able to attract investment to with plentiful, cheap and increasingly educated labour
+ embrace trade openness were able to grow
1997-98 Asian financial crisis a check to both growth rates of many SE Asian countries and populations’ SoL.
Caused by combo of excess borrowing, declining returns and overheating economics – saw growth rates
crash dramatically. Indonesia had many companies unable to repay foreign borrowing and several banks
collapsed => Events helped precipitate fall of gov and shift in econ policy with cuts to gov funded projects
plus many import tariffs. Malaysia responded via market intervention, fixing exchange rates and expanding
gov expenditure – refusing IMF aid. In contrast Thailand restricted capital outflow and quickly sought IMF
assistance
• Crisis seen as turning point with slowing of Japan and emergence of China and lesser extent India. Crisis led
to economic pressure for SE Asia and Oceania to integrate with bilateral trade agreements, regional capital
markets and currency integration.
• Acemoglu and Robinson (2012) (Why Nations Fail - book) emphasise inclusive ‘institutions of private
property’ encourage investment whilst ‘extractive institutions’ poison econ development o Inclusive
institutions ensures a broad-cross section of population can benefit from investment
• 1973/75-1995 aggregate story was slow or negative growth in Sub-Saharan Africa. Forms of Dutch
disease: oil fuelled appreciation of currency diverted resources away from alternative exports
• Econ growth has never been as widespread in SSA as in the last 18 years if you believe problematic nat.
income stats. Liberalists argue post-1995 boom would not have been as large nor sustained through 2008
crisis were it not for Structural Adjustment in 1980s. Africa now better placed for manufacturing investment
thanks to cheaper & better educated labour force.
• Growth of population accelerated after 1945 – final phase of demographic transition had begun by 80s with
fall in mortality followed by downturn in birth rates but HIV-AIDS in 1990s reduced labour force growth

• Late 20th c. and start of 21st saw further transition from abundance to scarcity of cultivatable land. Created
new pressures towards intensification (raising land-labour ratios or capital applied per area of cultivated
land)
• Since 1995 despite violent conflicts overall economic trend has been positive.