New study suggests Globalisation wasn't always positive.Friday 4 Nov 2016
CAGE Research Associate, Luigi Pascali has recently had a paper accepted for publication in the American Economic Review; ‘The Wind of Change: Maritime Technology, Trade and Economic Development’ which shows that only a few countries benefited from the international trade made possible by the steamship, with many ending up worse-off.
The paper aimed to address two key questions, ‘what factors drove globalisation in the nineteenth century’ and ‘how did the rise in international trade affect economic development?’, using new data and a novel identification strategy.
Until the mid-1800s, the distribution of goods around the world was determined by sailing vessels, which relied on global wind patterns, so the adoption of the steam engine not only reduced shipping times, but it did in in a disproportionate manner across countries and trade routes.
This study found that the adoption of the steamship had a major impact on patterns of international trade worldwide, with only a small number of countries actually benefiting from the trade integration. It also found that globalisation was the major driver of the economic divergence between the rich and poor portions of the world in the years 1850-1905.
The results of this study are really important for both researchers and policy makers, because it presents the first empirical study to identify the effects of the steamship on trade and development. Moreover, researchers will be able to exploit a new source of variation in international trade that is exogenous with respect to economic development, for studying the impact of trade on other economic/social outcomes, such as technology diffusion or conflicts.
Luigi concluded that inclusive political institutions are vital to ensuring globalisation results in prosperity and history presents a warning to modern day policy-makers that economic development should not be taken for granted.