Posted by: Dirk | January 4, 2010

(Book review) Globalization and the Poor Periphery before 1950

Jeffrey G. Williamson’s book from 2006 revisits the Third world globalization of the 19th and early 20th century. It revisits the development of the terms of trade of global regions and connects it to theory, mostly Heckscher-Ohlin but also other explanations.

After highlighting the transportation revolution that led to global market integration in the late 19th century, the question that is addressed is that of what the consequences were of industrialization in the core. This section heavily employs the Heckscher-Ohlin model of comparative advantage and its extensions (like the Stolper-Samuelson theorem).

The second part deals with the dark side of globalization – de-industrialization, underdevelopment, worsening of the terms of trade and tariffs. Jeffrey Williamson’s finding is that in the 19th century tariffs were high because developing countries relied on tariffs as a source of income. When export prices rose, the need to use taxes to fill government coffers decreased and tariffs came down. Tariffs were raised or lowered based more on strategic considerations based on the trade policy of the trade partners.

There is also an interesting part in the book (p.126) trying to shed light on the predictions of the Heckscher-Ohlin model on how factor owners would try to protect their rents by protectionism. This part on political economy is recommended for those interested in the economics of Latin America. It would be nice to see an expansion of that part.

Overall, the book is nicely structured and covers an interesting subject. How did industrialization work out in the 19th century? How did core and periphery evolve, and what were the reasons? Jeffrey Williamson concludes that the terms of trade asymmetry between core and periphery has vanished because by now the developing countries produce a huge share of manufactures. Personally, I think it would be interesting to see which countries produce those manufactures since I reckon that apart from China and some other East Asian countries the rest of the developing world still has not caught up.

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