Globalization's Impact in the Third World Before 1940

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The PI's previous research on the Atlantic economy during the century up to 1940 has confirmed that globalization debates today can be better understood if history is taken seriously and if, as trade theory suggests, we look at factor and commodity prices, rather than simply at trade flows and GDP aggregates. The current proposal will exploit a very-nearly-established data base of factor and commodity prices from 26 regions in the Third World -some starting as early as 1820, to explore the determinants of long run economic change in Latin America, the Mediterranean and Asia prior to the industrialization boom in the second half of the 20' century. The agenda will be to take a new look at the theses of W. Arthur Lewis and other economists writing in the 1940s and 1950s, now guided by the improved theory of the 1990s as well as by a vastly augmented, extended and improved historical data base.The project will explore the extent of global commodity market integration between the Third World and the industrial leaders in Europe and North America from about 1870 to 1940. It will decompose the sources of terms of trade changes in the pre-1940 Third World into that accounted for by the spectacular decline in transport costs between center and periphery and that accounted for by demand and supply in "world" markets. The 20th century debate over the evolution of the terms of trade facing primary product producers goes back almost fifty years when economists used poor commodity price evidence to establish a case for industrial protection in the Third World. The project should raise the quality of this terms of trade debate by the construction of a commodity price data base quoted in home markets using a set of country-specific trade weights for all 26 countries in the sample. Also, by using econometrics and general equilibrium models to explore the impact of the price shocks on these Third World countries -- including on their factor income distributions and thus on attitudes towards various policy options - additional light will be shed on the terms of trade debate. The project will also include the estimation Third World factor supply responses -- especially that of labor and land - and a comparative assessment essential to any understanding of long run economic performance in the Third World. This part of the project will decompose the long run labor supply into local demographic responses and across-border migration from labor "surplus" to labor scarce areas in the Third World -- flows that were at least as big as the mass migrations from Europe to the New World. It will also include tests of the global integration of financial capital markets distant from the Atlantic economy, the only place where such tests have been performed prior to this proposal.Finally, the project will use new evidence to explore the evolution of living standard gaps between center and periphery within Europe since the 14th century, between India and Europe since the late 16th century, and between China and Europe since the early 18th century. This part of the project will make it possible to develop a much sharper understanding of the determinants of economic change in the very long run.