Human Development in the Age of Globalisation

Leandro Prados de La Escosura is a professor
at the University of Charles III in Madrid

In a new EHES working paper, Leandro Prados de la Escosura (Universidad Carlos III and CEPR) analyses wellbeing which is widely seen as a multi-dimensional phenomenon affected not only by material goods, but also health, education, agency and freedom, environment, and security (Fleurbaey, 2009; Stiglitz et al., 2009). Among the multidimensional approaches to well-being human development has been defined as “a process of enlarging people’s choices” (UNDP, 1990; 10; 1993:105). The working paper is available here. This post has appeared in Vox.eu and it is reproduced here.

In a new paper, I approach long-term well-being with an augmented historical human development index (AHHDI) that combines new measures of achievements in health and education, material living standards, and political freedom (Prados de la Escosura, 2019). The AHHDI shows that world human development steadily improved over the last one-and-a-half centuries raising its level 5.3-fold since 1870. Still, the world average level remained below 0.5, on a 0-1 scale, in 2015.

Figure 1 Augmented Human Development* and Real Per Capita GDP Growth (%)          (excluding the income dimension)

Human development (excluding the income dimension) exhibits similar but slightly slower long-run growth than GDP per person (1.4% and 1.6%, respectively), throughout 1870-2015. A closer look reveals, however, that the pace at which human development progressed did not match that of real per capita GDP, with substantial discrepancies over 1913-1970 and since 2000 (Figure 1). During the phase of globalisation backlash (1914-1950), real per capita GDP growth slowed down across the board as commodity and factor markets disintegrated, while human development thrived, particularly in less developed regions. Conversely, in the post-1950 era, human development has advanced significantly less than real GDP per head.

These discrepancies derived from the fact that non-income dimensions have driven world human development gains over time (Figure 2). Life expectancy was the main contributor to human development progress over the 150 years, although its main contribution took place during 1914-1950 and the 1960s when it contributed half the human development gains. Education led the late nineteenth century advance and was a steady contributor to human development over the entire time span considered (but for the 1940s) and political freedom made substantial contributions in the 1900s and 1950s, and during 1980-2000.

Figure 2. Drivers of Augmented Human Development in the World, 1870-2015 (%)

Advances in Human Development were unevenly distributed across world regions. An absolute gap between the OECD and the Rest broadened throughout 1870-2010. In relative terms, however, the gap waned since the beginnings of the twentieth century, especially in its central decades and, again, from 1990 onwards so, by 2015, human development in the Rest represented over half that of the OECD, doubling its share a century earlier. The evolution of the Rest vis-à-vis the OECD in terms of human development is at odds with that in terms of per capita income, that presents a sustained deterioration, from nearly one-third of the OECD level in 1870 to less than 15 per cent in 2000.

Catching up to the OECD in terms of human development has taken place in the Rest since 1900 and, especially, in the 1930s, the Golden Age (1950-70), and during the last two decades of the twentieth century, with education making the single most important contribution over the long run (Figure 3). Longevity emerges as the main dimension behind catching up in the early twentieth century, the 1920s particular, when a large proportion of the Rest was under colonial rule, and especially, in the 1960s, at the time of active public policies across the board and China’s recovery from the Great Leap Forward debacle. Lastly, political freedom was the leading force behind catching up prior to World War I, in the 1930s and 1950s, and over 1980-2000.

Figure 3. Augmented Human Development Catching-up in The Rest 1870–2015 (%)

Why was the contribution of longevity to enhancing human development largely concentrated in 1920-1970? Health improvements can be depicted in terms of a health function (Preston, 1975; Easterlin, 1999). Movements along the function represent gains attributable to economic growth and result in improving nutrition -which strengthen the immune system and reduce morbidity (Fogel, 2004)- and increasing the public provision of health (Cutler and Miller, 2005). Outward shifts in the health function represent improvements in medical knowledge (Riley, 2005; Cutler et al., 2006). The advancement in medical knowledge originated in the discovery of the germ theory of disease (Preston, 1975) that led to the epidemiological or health transition in which persistent gains in lower mortality and higher survival were achieved as infectious disease gave way to chronic disease as the main cause of death (Omran, 1971). The germ theory of disease led to the introduction of new vaccines (since the 1890s) and drugs to cure infectious diseases (sulphonamides since the late 1930s and antibiotics since the 1950s), along chemicals such as DDT, instrumental in battling malaria (Easterlin, 1999; Jayachandran et al., 2010; Lindgren, 2016). However, the germ theory of disease had another far from negligible effect: the diffusion of preventive methods of disease transmission and knowledge dissemination which through schooling and low cost improvements in public health had a profound impact in less developed regions where low incomes precluded the purchase of the new drugs. As a result, mortality declined throughout the life course with special impact on infant mortality and maternal death (Riley, 2001). The epidemiological transition spread beyond the most advanced regions, namely, Western Europe, the European offshoots, and Japan (OECD hereafter), since the 1920s, a finding at odds with the view that dates health improvements outside the West only since the 1940s as the absence of drugs and the lack of concern of colonial rulers prevented it (Acemoglu and Johnson, 2007). By 1970, the epidemiological transition was largely exhausted helping to explain life expectancy’s declining contribution to human development thereafter.

Since 1990 a second health transition with result of better treatment of respiratory and cardiovascular disease and vision problems, has led to mortality falling among the elderly, helped by better health and nutrition in their childhood (Eggleston and Fuchs, 2012; Deaton, 2013). The diffusion of new medical technologies has resulted in longer and healthier life years (Mathers et al., 2001; Hay et al., 2017). This second health transition has been so far restricted to the OECD. The AIDS-HIV pandemic in Sub Saharan Africa and the collapse of socialism, plus the lack of public policies, help to explain life expectancy’s negative contribution to catching up in the Rest since 1990.

References:
Acemoglu, D. and Johnson, S. (2007), ‘Disease and Development: The Effects of Life Expectancy on Economic Growth’, Journal of Political Economy, 115: 925–985.
Cutler, D. and Miller, G. (2005), ‘The Role of Public Health Improvements in Health Advance: The Twentieth Century United States’, Demography, 42 (1): 1¬22.
Cutler, D., Deaton, A. and Lleras-Muney, A. (2006), ‘The Determinants of Mortality’, Journal of Economic Perspectives, 20 (1): 97¬–120
Deaton, A. (2013), The Great Escape. Health, Wealth and the Origins of Inequality (Princeton, NJ: Princeton University Press)
Easterlin, R.A. (1999), ‘How Beneficient is the Market? A Look at the Modern History of Mortality’, European Review of Economic History, 3: 257-294.
Eggleston, K.N. and Fuchs, V. (2012), ‘The New Demographic Transition: Most Gains in Life Expectancy Now Realized Late in Life’, Journal of Economic Perspectives, 26 (1): 137-156.
Fleurbaey, M. (2009), ‘Beyond GDP: The Quest for a Measure of Social Welfare’, Journal of Economic Literature, 47: 1029–1075.
Fogel, R.W. (2004), The Escape from Hunger and Premature Death, 1700–2010. Europe, American and the Third World (New York: Cambridge University Press).
Hay (2017), “Global, Regional, and National Disability-adjusted Life-years (DALYs) for 333 Diseases and Injuries and Healthy Life Expectancy (HALE) for 195 Countries and Territories, 1990–2016: a Systematic Analysis for the Global Burden of Disease Study 2016”, Lancet 390: 1260-1344.
Jayachandran, S., Lleras-Muney, A. and Smith, K.V. (2010), ‘Modern Medicine and the Twentieth Century Decline in Mortality: Evidence on the Impact of Sulfa Drugs’, American Economic Journal: Applied Economics, 2 (1): 118–146.
Lindgren, B. (2016), The Rise in Life Expectancy, Health Trends among the Elderly, and the Demand for Care. A Selected Literature Review, NBER Working Paper 22521
Mathers, C.D., Sadana, R., Salomon, J.A., Murray, C.J.L. and Lopez, A.D. (2001), ‘Healthy Life Expectancy in 191 Countries’, Lancet, 357: 1685–1691
Omran, A.R. (1971), “The Epidemiological Transition: A Theory of Epidemiology of Population Change,” Milbank Memorial Fund Quarterly, 49: 509-538.
Prados de la Escosura (2019), Human Development in the Age of Globalisation, CEPR Discussion Paper 13744.
Preston, S.H., (1975), ‘Mortality and Level of Development’, Population Studies, 29: 231–248
Riley, J.C. (2001), Rising Life Expectancy: A Global History (New York: Cambridge University Press).
Riley, J.C. (2005), Poverty and Life Expectancy: The Jamaica Paradox (New York: Cambridge University Press).
Stiglitz, J.E., Sen, A.K and Fitoussi, J.P (2009), The Measurement of Economic Performance and Social Progress Revisited: Reflections and Overview, http://www.stiglitz-sen-fitoussi.fr/en/documents.htm.
United Nations Development Programme [UNDP] (1990–2016), Human Development Report, New York: Oxford University Press. 

Money and modernization in early modern England

Nuno Palma is an Assistant Professor
 at the University of Manchester

New EHES Working Paper by Nuno Palma (Manchester University) is available here.

Classic accounts of the English industrial revolution present a long period of stagnation followed by a fast take-off. However, recent findings of slow but steady per capita economic growth suggest that this is a historically inaccurate portrait of early modern England. This growth pattern was in part driven by specialization and structural change accompanied by an increase in market participation at both the intensive and extensive levels. These, I argue, were supported by the gradual increase in money supply made possible by the importation of precious metals from America. They allowed for a substantial increase in the monetization and liquidity levels of the economy, hence decreasing transaction costs, increasing market thickness, changing the relative incentive for participating in the market, and allowing agglomeration economies to arise. By making trade with Asia possible, precious metals also induced demand for new desirable goods, which in turn encouraged market participation. Finally, the increased monetization and market participation made tax collection easier. This helped the government to build up fiscal capacity and as a consequence to provide for public goods. The structural change and increased market participation that ensued paved the way to modernization. 

Economic consequences of state failure; legal capacity, regulatory activity, and market integration in Poland, 1505-1772

Mikołaj Malinowski is a Postdoctoral Research Fellow
at Utrecht University and Lund University

New EHES Working Paper by Mikołaj Malinowski (Lund University - Utrecht University) is available here.

What factors allowed certain regions of Europe to develop their market economies early on and what were the reasons for the relative stagnation of the less successful areas? Specifically, what was the role of the early-modern transition from feudalism to semi-centralised and relatively powerful territorial states in setting the stage for modern economic growth? Political institutions are argued to be crucial determinants of prosperity (e.g. Acemoglu and Robinson 2012). Many scholars identify the parliamentary form of governance and the rule-of-law as preconditions for the market economy (e.g. North and Weingast 1989). The ‘Little Divergence’ in pre-1800 economic development between England/Britain, the Netherlands, and the rest of Europe is often linked to the formation of territorial parliamentary regimes in the two successful countries (e.g. Van Zanden et al. 2012; Broadberry and Wallis 2017). The available GDP evidence suggests that both the British Glorious Revolution of 1688 and the Dutch Act of Abjuration of 1581 were followed by long periods of sustained economic growth. However, not all parliamentary regimes prospered. For example, the available GDP evidence shows that both the transition of Poland into a parliamentary republic in the 16^th century as well as the change from absolutism to a parliamentary form of government in Sweden in 1718, were followed by protracted economic decline (Bolt and Van Zanden 2014; Malinowski and Van Zanden 2017, Figure 1). The fact that not all preindustrial parliamentary regimes succeeded economically demonstrates that the consolidation of power around a parliament is an insufficient condition for sustained economic growth.

Figure 1: GDP per capita in 1990$PPP in all Northern-European early-modern parliamentary regimes.

Why did some pre-industrial parliamentary regimes prosper while others did not? According to Besley and Persson (2011), a state can promote prosperity only if it possesses (1) legal capacity denoting the authority and infrastructure to create and enforce the law and (2) fiscal capacity representing the means to finance its operations. Figure 2 presents a convenient summery of the core links between state capacity, parliamentary activity, and Smithian economic growth that are explored in this paper.

Figure 2: Conceptual framework based on the core theoretical relationships in the literature.

With this study, I contribute to the growing literature on the role of centralisation and state capacity in promoting economic growth and market development before 1800 (Bonney 1995; O’Brien 2011; Chilosi et al. 2018; Dincecco and Katz 2016; Dimitruk 2018; Epstein 2001; Johnson and Koyama 2017). I complement the earlier studies that predominantly focused on fiscal capacity with an original study of the impact of legal capacity. Specifically, I analyse the role that the Polish Diet played in developing an integrated domestic commodity market. Early modern Poland is uniquely suited to study the economic impact of the parliamentary regime. In the 16^th century, Poland both limited the authority of the king and experienced, in relative terms, a golden age of political centralisation under a strong parliament, the Seym. At the time, the Polish(-Lithuanian) Commonwealth became the biggest state in Europe covering the territories of present-day Poland, Lithuania, Ukraine, Latvia, Estonia, and Belarus. The Seym issued numerous regulations that began to change and unify the dissimilar, historical, regional, economic institutions across this vast country. In the mid-17^th century, a constitutional conflict over the mode of royal election led to the introduction of the liberum veto - the right of a single delegate to discontinue the Seym’s proceedings and nullify its decisions. The veto was used to prevent any further constitutional change. Moreover, by bribing the delegates to the parliament, Prussia, Austria, and Russia made frequent use of the veto to abort the Seym’s sessions and weaken the Polish state. This led to a lack of effective law-making at the central level of the state. This ‘historical experiment’ offers a rare opportunity to test if legal capacity and regulatory output of central institutions of governance stimulated pre-1800 market integration. Relying on the research of successful historical England/Britain and the Dutch Republic is insufficient to falsify the hypothesis that strong parliamentary regimes promoted markets.

Figure 3: Number of days a year Polish Seym and British Parliament were in session, 1505-1772.

Van Zanden et al. (2012) proposed to proxy the involvement of an early modern parliament by counting how many days it was in session each year. I present new data on the number of days the Polish Diet was in session each year (Figure 3). I complement this measure of legal capacity with an innovative new index of the Seym’s regulatory output based on an original study of its acts. I show that the right of individual delegates to abort the Seym’s sessions led to a lack of effective law-making. I demonstrate, that the use of vetoes was not driven by the market conditions but linked to the conflict over the mode of royal election. I discuss via which historical mechanisms, when active, the Diet and its regulations promoted market integration and how its inactivity rose the exchange costs. With the use of regression analysis, I identify that both (1) the number of days the Seym was in session and (2) its regulatory output stimulated price convergence. Moreover, I study the individual impact of various types of regulation. I provide evidence that the Seym, when active, lowered the exchange costs (rye price gaps) on the market by harmonising taxes and measures. Conversely, I identify that lack of parliamentary activity induced market disintegration. Figure 4 provides a convenient demonstration of some of the main results.

Figure 4: Standard confidence intervals of the impact of regulating each of the eight individual areas of regulation, analysis based on the three independent Polish price-gap series with Equation 4.

Two Worlds of Female Labour: Gender Wage Inequality in Western Europe, 1300-1800

New EHES working paper by Alexandra M. de Pleijt (University of Oxford) and  Jan Luiten van Zanden (Utrecht University). The paper can be accessed here.

Jan Luiten van Zanden is a Full Professor
of Global Economic History at Utrecht University

Sandra de Pleijt is a post-doctoral
research fellow at Oxford University

It is generally acknowledged that the degree to which women participate in labour markets and how they are remunerated are important determinants of female autonomy that may also affect their demographic behaviour. Such links have been discussed in the literature about the “European Marriage Pattern” (EMP) (e.g. de Moor and van Zanden 2010). In order to bring about the conditions for female autonomy of the EMP (in which women have a large say in the decision when and with whom they marry), women should have had access to the labour market and have earned a decent wage. This is clearly affected by the gender wage gap and the possibility that women earn their own living and have the option to remain single.

In this paper we determine to what extent this was made possible by the earnings of women in the labour market. So far several have tried to document women’s wages in different times and places (e.g. Van Nederveen Meerkerk 2010, Van Zanden 2011, Burnette 2008), but Humphries and Weisdorf (2015) were the first to attempt to match Clark’s (2007) evidence on the long-run evolution of male wages with comparable series for unskilled English workers between 1260 and 1850. We supplement the work by Humphries and Weisdorf (2015) with evidence on women’s wages for six European countries between 1300 and 1800: Belgium (Antwerp), Spain (Navarra, Aragon and Sevilla), Germany (Augsburg and Wurzburg), Italy (Piedmont and Napoli), Sweden (Stockholm) and Austria (Weyer).

            Having derived the evidence for unskilled female wages for this set of European countries allows us first of all to study the trends in the gender wage gap across countries and over time. Our evidence shows that there were two worlds of female labour. In the South of Europe women earned about 50% of the wage of unskilled male labourers. In the North-Western part of Europe this gap was much smaller during the Medieval Period, but it increased dramatically between about 1500 and 1800. Our findings therefore seem to suggest that women were more marginal in the labour market in Southern Europe than in the Northern and Western parts of Europe. In addition, we hypothesise that the rise of the gender wage gap in North-Western Europe over the course of the early modern period was the result of slack labour markets: periods of economic growth saw a decreasing wage gap, whereas in periods of declining real wags for men often also witnessed an increase in the gender wage gap. The implication of this finding is that women seem to have suffered more than men in times of economic hardship. In that sense they were truly marginal – a point also made by Langdon (2010) and Mate (1998) – and arguably became increasingly marginal.

We also estimate if single women were able to generate enough income to maintain a single household. In doing so, we have calculated how many days of work were needed for women to earn the barebones basket (i.e. minimum subsistence package for one person) (Allen 2001, Allen and Weisdorf 2011). The picture that emerges from this is that there was a “golden age of labour” in Western Europe. In the countries bordering the North Sea ca. 75 days of work were required for the barebones basket before the Black Death, whereas this had declined to ca. 25 to 40 days of work in the first half of the 15^th century. After 1500, when the population level climbed back to pre-plague levels, there was a tendency to increase again. These numbers suggest however that it was possible for a woman with access to the labour market to earn an income that allowed her to remain single.

References

Allen, Robert C. (2001). “The Great Divergence in European Wages and Prices from the Middle Ages to the First World War.” Explorations in Economic History 38(4): 411-47.

Allen, Robert C., and Jacob L. Weisdorf (2011). “Was There an Industrious Revolution Before the Industrial Revolution? An empirical exercise for England, ca. 1300-1830.” Economic History Review 64: 715-29.

Burnette, J. (2008). Gender, Work and Wages in Industrial Revolution Britain. Cambridge: Cambridge University Press.

Clark, G. (2007). “The long march of history: Farm wages, population and economic growth, England 1209-1869.” Economic History Review 60(1): 97-136.

De Moor, Tine, and Jan Luiten van Zanden (2010). “Girl Power: The European Marriage Pattern and Labour Markets in the North Sea Region in the Late Medieval and Early Modern Period.” Economic History Review 63(1): 1-33.

Humphries, Jane, and Jacob L. Weisdorf (2015). “The Wages of Women in England, 1260-1850.” The Journal of Economic History 72(2): 405-47.

Mate, Mavis (1998). Daughters, Wives and Widows after the Black Death. Women in Sussex, 1350-1535. Woodbridge: Boydell Press.

Van Nederveen Meerkerk, Elise (2010). “Market Wage or Discrimination? The Remuneration of Male and Female Wool Spinners in the Seventeenth-century Dutch Republic.” Economic History Review 62(1): 165-86.

Van Zanden, Jan Luiten (2011). “The Malthusian Intermezzo: Women’s Wages and Human Capital Formation between the late Middle Ages and the Demographic Transition of the 19^th Century.” The History of the Family, 16: 331-42. 

Well-being Inequality in the Long Run

Leandro Prados de la Escosura 

(Universidad Carlos III, Groningen, and CEPR)

Abstract of the new EHES working paper by Leandro Prados de la Escosura. The paper is available here. 

In the last one and a half centuries, substantial gains are observed for well-being dimensions beyond per capita GDP (including health, education, political voice, civil liberties, and personal security) (Bourguignon and Morrisson, 2002; Morrisson and Murtin, 2009; Prados de la Escosura, 2015; Pinker, 2018). How have these gains been distributed? Do inequality trends in well-being dimensions concur? In a recent research I have tried to answer these questions presenting a long-run view of well-being inequality at world scale based on a new historical dataset (Prados de la Escosura, 2018).

How to measure well-being?

Most studies address inequality in well-being social dimensions using their original values (Becker et al., 2005; Bourguignon and Morrisson, 2002; Morrisson and Murtin, 2013) but as non-income well-being indicators have asymptotic limits that reflect biological or physical maxima, the range of variation is very narrow, forcing smaller gains (both absolute and relative) as their levels get higher (Sen, 1981; Dasgupta, 1990). The shortcomings of using original values (or, for the same token, its linear transformation) become more evident when quality is taken into account. Life expectancy at birth or years of schooling are just crude proxies for a long and healthy life and for access to knowledge. These objections are particularly relevant when the distribution of social dimensions of well-being is measured across countries and over time, as the use of original values unavoidably leads towards convergence. A way of mitigating such a spurious tendency is employing Kakwani (1993) non-linear transformation of health and education dimensions which for achievements of the same absolute size, imply that the higher the starting level, the larger its impact.

Inequality Trends

Initial high levels of inequality in education -well above those for per capita income and life expectancy at birth- are observed in the late nineteenth and early twentieth century, prior to the diffusion of mass primary education (Benavot and Riddle, 1988). Thereafter, inequality experienced steady decline throughout most of the twentieth century in terms of literacy and years of schooling, and in gross enrolment terms fell to the early 1980s, but suffered a reversal in the 1990s. Nonetheless, inequality was still high in the third quarter of the twentieth century. Globalisation of primary education has steered the inequality decline.

Figure 1. Population-weighted Inequality in Years of Schooling 1870-2015 (Kakwani Index)

 The diffusion of the health transitions has driven life expectancy inequality. During the epidemiological (or first health) transition that derives from the diffusion of the germ theory of disease, persistent gains in lower mortality and higher survival were achieved, since infectious disease gave way to chronic disease as the main cause of death (Omran, 1971). Thus, substantial achievements in longevity were attained. However, these gains were not shared equally within societies and across countries. Lack of economic means and basic scientific knowledge prevented it. The increase in life expectancy inequality in the late nineteenth and early twentieth century can be associated to the uneven distribution of first health transition initially restricted to advanced western countries (Figure 2).

  

Figure 2. Population-weighted Inequality in Life Expectancy, 1870-2015 (Kakwani Index)

The gradual international diffusion of the health transition between the 1920s and the 1970s helps to explain the reduction in life expectancy inequality. Its contraction was particularly intense during the globalisation backlash (1914-1950), at a time of stagnant or declining average incomes in many countries and increasing international income inequality (Riley, 2005; van Zanden et al. 2014)). Improvements in public health –often at low cost, as low incomes prevented the purchase of the new drugs- and the diffusion of preventive methods of disease transmission and knowledge dissemination through school education contributed to reducing infant mortality and maternal death, two major determinants of the increase in life expectancy at birth in developing regions (Riley, 2001). At the turn of the 20^th century, a new health transition emerged. In this new transition, mortality and morbidity have fallen among the elderly as a result of new medical knowledge that has permitted a better treatment of respiratory and cardiovascular disease and vision problems (Chernew et al., 2016). The rise in longevity has also been helped by better nutrition in early years of life. The result is people living not just longer life but longer healthy life years (Mathers et al., 2001; Salomon et al., 2012). Thus, the increase in life expectancy inequality after 1990 may be associated, not just to the impact of HIV-AIDS in Sub Saharan Africa or to the effects of the demise of socialism in Eastern Europe, but also to a second health transition so far restricted to the developed world.

Figure 3. Life expectancy: Population-weighted Inequality (Gini) versus Level (Kakwani indices) 

An association could be suggested between the level of longevity and its international distribution. The observed inverted U shape curve relationship between inequality and the level of life expectancy at birth could be deemed a Health Kuznets Curve (Figure 3). The driving force of the Health Kuznets Curve (HKC) would be the spread of the health transitions across countries. The uneven diffusion of the epidemiological or first transition would account for its rise, while its gradual diffusion across the globe would explain its decline. Moreover, it could be insinuated that the closing of the Health Kuznets Curve gave way to a new one. The new HKC appears to have been short-lived as longevity differences across countries resulting from the uneven diffusion of the second health transition (Cutler et al. 2006) have been offset, at least temporarily, by the recovery of life expectancy in Sub Saharan Africa and former socialist Europe.

 Figure 4. Population-weighted Inequality in Human Development and Real Per Capita GDP, 1870-2015 (MLD)

These findings are at odds with the view on long run inequality derived from real per capita GDP. While population-weighted income inequality increased until the third quarter of the twentieth century, inequality in social dimensions declined since World War I. Furthermore, the contrast between inequality in terms of income and human development (Figure 4) is striking and challenges the idea that per capita income provides a good predictor of welfare trends.

Pressing questions emerge demanding new research. Why inequality declined in terms of social dimensions, but not of GDP per head? Was it due to public policy, or to the public good properties of medical technology? Why has there been no second health transition in the Rest? Is it the outcome of inequalising new medical technologies, or of lack of public policies? As the new medical technologies become accessible, is it foreseeable a decline in life expectancy inequality in the twentieth-first century?

References

 Becker, G. S., T. J. Philipson, and R.R. Soares (2005), The Quantity and Quality of Life and the evolution of world inequality, American Economic Review 95 (1): 277–291

Benavot, A. and P. Riddle (1988), “The Expansion of Primary Education, 1870-1940: Trends and Issues,” Sociology of Education 61: 191-210.

Bourguignon, F. and C. Morrisson (2002), “Inequality among World Citizens”, American Economic Review 92, 4: 727-744.

Chernew, M., D.M. Cutler, K. Gosh, and M.B. Landrum (2016), Understanding the Improvement in Disability Free Life Expectancy in the U.S. Elderly Population, NBER Working Paper Series 22306.

Cutler, D.M., A. Deaton and A. Lleras-Muney (2006), “The Determinants of Mortality”, Journal of Economic Perspectives 20: 97-120.

Dasgupta, P. (1990), “Well-Being and the Extent of its Realization in Poor Countries”, Economic Journal 100 (400): 1-32.

Kakwani, N. (1993), “Performance in Living Standards. An International Comparison”, Journal of Development Economics 41: 307-336.

Mathers, C. D., R. Sadana, J.A. Salomon, C.J.L. Murray, and A.D. Lopez (2001), “Healthy Life Expectancy in 191 Countries”, Lancet 357: 1685–1691.

Morrison, C. and F. Murtin (2009), “The Century of Education”, Journal of Human Capital 3 (1): 1-42

Morrisson, C. and F. Murtin (2013), “The Kuznets Curve of Human Capital Inequality: 1870–2010”, Journal of Income Inequality 11, 3: 283-301.

Omran, A.R. (1971), “The Epidemiological Transition: A Theory of Epidemiology of Population Change,” Milbank Memorial Fund Quarterly 49 (4): 509-538.

Pinker, S. (2018), Enlightenment Now. The Case for Reason, Science, Humanism and Progress, London and New York: Allen Lane.

Prados de la Escosura, L. (2015), “World Human Development: 1870-2007”, Review of Income and Wealth 61, 2: 220-247.

Prados de la Escosura, L. (2018), Well-being Inequality in the Long Run, EHES Working Paper 131.

Riley, J.C. (2001), Rising Life Expectancy. A Global History, New York: Cambridge University Press.

Riley, J.C. (2005), Poverty and Life Expectancy. The Jamaica Paradox, Cambridge University Press, New York

Salomon, J.A., H. Wang, M.K. Freeman, T. Vos, A.D. Flaxman, A.D. Lopez, and C.J.L. Murray (2012), “Healthy Life Expectancy for 187 Countries, 1990–2010: A Systematic Analysis for the Global Burden Disease Study 2010,” Lancet 380: 2144-2162

Sen, A.K. (1981), “Public Action and the Quality of Life in Developing Countries,” Oxford Bulletin of Economics and Statistics 43: 287-319.

Zanden, J.L. van, J. Baten, P. Foldvári, and B. van Leeuwen (2014), “The Changing Shape of Global Inequality 1820-2000; Exploring a New Dataset”, Review of Income and Wealth 60 (2): 279-297

Unreal wages? Real income and economic growth in England, 1260-1850

Abstract of the new EHES working paper:

Jacob Weisdorf, University of Southern Denmark.

Jane Humphries, University of Oxford

Historical estimates of workers’ earnings suffer from the fundamental problem that annual incomes are inferred from day wages without knowing the length of the working year. This uncertainty raises doubts about core growth theories that rely on existing income estimates to explain the origins of the wealth of nations. We circumvent the problem by building an income series of workers employed on annual rather than casual contracts. Our data suggests that existing annual income estimates based on day wages are badly off target, because they overestimate the medieval working year but underestimate the working year during the industrial revolution. Our revised annual income estimates (see Figure) indicate that modern economic growth began almost two centuries earlier than commonly thought and was driven by an ‘Industrious Revolution’.

Figure: Estimated real annual incomes in England from day rates (grey) and annual rates (black), 1260-1850

The working paper can be downloaded here: http://www.ehes.org/EHES_121.pdf

How Extractive Was Colonial Trade?

Federico Tadei is Profesor Visitante
at Universitat de Barcelona

Extractive colonial institutions have been considered one of the main causes of current African underdevelopment (Acemoglu, Johnson, and Robinson, 2001; Nunn, 2007). Yet, since colonial extraction is hard to quantify and its precise mechanisms are not well understood, a paucity of research has examined exactly how successful the colonizers were in extracting wealth from Africans. 

In a new paper, I tackle this issue by focusing on colonial trade in French Africa. The French colonizers, in fact, made great use of trade monopsonies and compulsory harvest quotas to obtain agricultural commodities from African producers at very low prices and resell them in Europe for large profits (Coquery-Vidrovitch, 1972; Suret-Canale, 1971). Given this specific feature of French trade, I argue that it is possible to measure colonial extraction by looking at the gap between the prices that the African producers received and the prices that they should have obtained if colonial trade had been competitive. 

I examine this hypothesis as follows:

1) First, by using a variety of colonial publications, I reconstruct yearly estimates of prices at the French port, African producer prices, and trading costs (including shipping, insurance, inland transportation, port charges, and export taxes) for the main exported commodities between 1900 and 1960.

2) Then, I compute what producer prices should have been in a competitive market as the difference between prices at the French port and trading costs.

3) Finally, I compare actual and competitive producer prices to measure the level of colonial extraction related to export trade.

The figure below summarizes the main result of the paper, by showing the average gap between actual and competitive producer prices over time: on average prices to African producers were less than two thirds of what they would have been in a competitive market.

The figure shows the trend of average colonial extraction, defined as one minus the ratio between 

actual and competitive producer price.

In addition, I employ a two-fold approach to check the robustness of these results. First, I verify that price differentials in French Africa were much larger than the ones that we can observe in other markets not subject to colonial extraction, such as the trade between the United States and the United Kingdom and the trade of commodities produced in Africa by European settlers. Second, I use a regression analysis to take into account unobservable trading costs, such as risk compensation and productivity differences, and to demonstrate that an increase in the world price for a commodity did not generate a proportional increase in the African producer price.

Together, the evidence suggests that colonial trade dynamics were characterized by a considerable amount of extraction. Future research aimed at examining whether this had long-lasting consequences on current economic development is warranted.

This blog post was written by Federico Tadei, visiting professor at University of Barcelona.

The full paper is available at http://www.ehes.org/EHES_109.pdf.

References

D. Acemoglu, S. Johnson, and J. Robinson. The colonial origins of comparative development: An empirical investigation. American Economic Review, 91:1369-1401, 2001.

C. Coquery-Vidrovitch. Le Congo au temps des grandes compagnies concessionnaires, 1898-1930. Mouton De Gruyter, 1972.

N. Nunn. Historical legacies: A model linking Africa's past to its current underdevelopment. Journal of Development Economics, 83:157-175, 2007.

J. Suret-Canale. French colonialism in tropical Africa, 1900-1945. Pica Press, 1971.

Alleged Currency Manipulations and Retaliatory Tariffs. Some lessons from the 1930s

Thilo Albers is PhD student in Economic History
at London School of Economics (LSE)

How forceful can retaliations to alleged currency manipulations be? What are the effects on trade? The following research seeks answers to these questions in the interwar period.

The evidence for China still deliberately undervaluing her currency is at best weak (see Cheung et al 2016). Yet, with the new US president in office, import surcharges for alleged currency manipulation against her and other countries have become more likely. Indeed, even before he had come into office, important public figures across the political spectrum had called for an import surcharge (e.g. Krugman 2010). At the heart of such debates is the argument that the country undervaluing her currency significantly gains at the expense of others. A lower real exchange rate stimulates exports, which in turn creates current account problems abroad (Goldstein and Lardy, 2006). It is frequently invoked that a retaliatory tariff could be used to force the alleged currency manipulator to re-align her currency. According to the standard narrative (e.g. Krugman 2010), this worked smoothly towards the end of Bretton Woods, when the United States forced other countries to re-align their currencies with an import surcharge. However, this was a very particular case in a very particular setting and the final realignment might have well been reached without the surcharge (Irwin 2013). Neither does this case answer the most important question. What are the potential political and economic costs of retaliatory tariff policies?

The 1930s provide a blueprint to assess such costs. Some countries had left the gold standard and floated their currencies. Other countries alleged them of deliberately undervaluing their currencies and imposed retaliatory tariffs. In a new study focusing on French commercial policy (Albers 2017), I show that moving towards discretionary tariff policies can have high political and economic costs. The study is a first attempt to quantify the relative importance of retaliatory as opposed to general tariff increases for this commercial policy episode. The retaliatory motive for French protectionism turns out to have been at least as important as factors driving the general tariff level. The effects of retaliation on trade were comparable to those of modern trade treaties – just with the opposite sign. The analysis of historical newspapers demonstrates that leniency vanished from the public discourse and nationalist agitation took over.

Alleged currency manipulation back then

When Britain had unilaterally left the gold standard in the autumn of 1931 and other countries followed suit soon after, policymakers in these countries did not intended to manipulate their currencies. The imminent threat of further deflation and the drain of gold reserves had effectively pushed countries off the gold standard, especially Great Britain (Accominotti 2012). However, many policymakers abroad perceived this devaluation as currency manipulation. At the forefront of them, the French government retaliated by raising tariffs and introducing quotas specifically aimed at those countries that had left the gold standard.

From the villain to the victim of exchange rate policies

It is not without irony that French commercial policymakers perceived their country (and other countries on the gold standard) as the victim of currency depreciations abroad. When France stabilised her currency at 20 % of its pre-war value in 1928 while many countries such as Britain returned to their pre-war parities, this led to a massive gold influx in France. Some have argued that this played a part in causing the Great Depression, because it led to further deflation abroad (Johnson 1997, Irwin 2010). The paper shows that contemporary commentators abroad likewise argued that the Franc was undervalued. In this sense, France was the villain of exchange rate policies in the late 1920s.

After the first wave of currency depreciations had hit in the autumn of 1931, tables turned. The real value of the Franc doubled against the pound in the following two years. French policymakers now felt victimised by exchange rate policies abroad. A qualitative analysis of contemporary newspapers focusing on the Anglo-French commercial policy relationship suggests that the rhetoric shifted from leniency before the devaluations to agitation afterwards. Numbers can indeed mirror this debate as Figure 1 shows. It plots the number of articles in the Guardian per year containing keywords that identify protectionism and tariffs in general and those that contain additional references to tariff wars or retaliation. The retaliatory sentiment first peaked in 1930, when the discussion about the Smoot-Hawley tariff in the United States got heated. This local peak was far exceeded by the discussions about the devaluations two years later. These numbers and the discussion of the articles behind them lead to the conclusion that the political costs of the devaluations and the following retaliation were indeed high.

Figure 1: The Rhetoric of Retaliation

Identifying the retaliatory motive in commercial policy

Tariffs had been increasing across all countries during this episode, and mostly so in countries adhering to the gold standard (Eichengreen and Irwin 2010). The new retaliatory protectionism, however, had a new quality and severe political economy implications. Retaliation was directed at certain trading partners and thus different from the previous general increases in tariffs to either balance trade and budgets or protect the home industries. Irwin (1993) coined this bilateralism “pernicious,” but so far, we know little about its magnitude relative to the general increase of protectionism and its effects on trade.

While most studies on protectionism make use of aggregate tariff data, this study employs a novel dataset of bilateral tariff rates of France against her trading partners. This so-far widely neglected dimension of tariff data allows me to separate general tariff increases from those with a retaliatory motive by using a difference-in-differences setup. Figure 1 shows that the “tariff treatment” for those leaving the gold standard was indeed very large.

Figure 2: The "tariff treatment" for leaving the gold standard

The most conservative estimate suggests that, while the general increase (against all trading partners) amounted to 5 %, the retaliatory component of the increase in French protectionism amounted to about 7.5 %. This is very close to the average tariff reduction reached by NAFTA (Burfisher et al. 2001). Hence, retaliation was important for the increase of French protectionism, but did it matter for trade, too? A back-of-the-envelope calculation and an econometric estimate suggest that the reduction in trade implied by these tariff increases was about 20 %. This magnitude, albeit being a bit smaller, is comparable to the one of trade-creating effects of Regional Trade Agreements (see median estimate by Head and Mayer 2014). In sum, the economic costs of retaliation were large.

What do we learn?

It is almost needless to say that French policymakers did not change minds abroad with their actions, especially as the abandonment of the gold standard abroad was clearly a prerequisite for recovery (Eichengreen 2013). The chaotic manner and the absence of any coordination of the devaluations, however, led to more protectionism in those countries that decided to stay on the gold standard. The quality of this protectionism was markedly different as it targeted certain trading partners. This discretion could thus lead to tit-for-tat tariff escalations, for which the interwar period has become so infamous for. The political and economic costs of retaliatory tariffs were large by modern standards.

We should be skeptical when commentators refer to the successful case of 1971, in which the United States had employed an import surcharge to force countries to re-align their currencies. There is no guarantee for retaliatory tariffs to solve currency disputes. On the contrary, the attempt to use them as a bargaining chip might fail and instead provoke ever more protectionism. After all economic policy cooperation appears to be the best recipe to avoid disaster. 

This blog post was written by Thilo Albers, PhD candidate at the Deparment of Economic History at LSE. 

The working paper can be downloaded here: http://www.ehes.org/EHES_110.pdf

References

Accominotti, Olivier (2012): “London Merchant Banks, the Central European Panic and the Sterling Crisis of 1931,” The Journal of Economic History, Vol. 72, pp. 1–43. 

Albers, Thilo (2017): “Currency Valuations, Retaliation and Trade Conflicts Evidence from Interwar France,” LSE Economic History Working Paper, No. 258/2017

Burfisher, Mary E., Sherman Robinson, and Karen Thierfelder (2001): “The Impact of NAFTA on the United States,” The Journal of Economic Perspectives, Vol. 15, pp. 125–144.


Cheung, Yin-Wong, Chinn, Menzie and Xin Nong (2016): “Estimating currency misalignment using the Penn effect: It’s not as simple as it looks.” NBER Working Paper, No. 22539

Eichengreen and Irwin (2010): “The Slide to Protectionism in the Great Depression: Who Succumbed and Why?” Journal of Economic History, Vol. 70, pp. 871–897.

Eichengreen, Barry (2013): “Currency War or International Policy Coordination?” Journal of Policy Modeling, Vol. 35, pp. 425 – 433.


Johnson, H. Clark (1997): Gold, France, and the Great Depression, 1919–1932: Yale University Press.


Goldstein, Morris and Nicholas Lardy (2006): “China’s Exchange Rate Policy Dilemma,” The American Economic Review, Vol. 96, pp. 422–426. 

Head, Keith and Thierry Mayer (2014) “Gravity Equations: Workhorse,Toolkit, and Cookbook,” in Elhanan Helpman Gita Gopinath and Kenneth Rogoff eds. Handbook of International Economics, Vol. 4, Chap. 3, pp. 131 – 195. 

Irwin, Douglas A (1993): “Multilateral and Bilateral Trade Policies in the World Trading System: An Historical Perspective,” in Jaime De Melo and Arvind Panagariya eds. New Dimensions in Regional Integration, Vol. 5: Centre for Economic Policy Research, Cambridge University Press, pp. 90–119. 

Irwin, Douglas A. (2010): “Did France Cause the Great Depression?” NBER Working Paper, Vol. 16350 

Irwin, Douglas A. (2013): The Nixon shock after forty years: the import surcharge revisited. World Trade Review, 12(1), 29-56.

Krugman, Paul (2010): “Taking on China,” New York Times, March 14, 2010

Mankiw, Gregory N. (2009): “It’s no Time for Protectionism”, New York Times, February 7, 2009

Between war and peace: The Ottoman economy and foreign exchange trading at the Istanbul bourse

Did events during the First World War reflect in the foreign exchange rates? A new  EHES working paper by Avni Önder Hanedar, Hatice Gaye Gencer, Sercan Demiralay, and İsmail Altay from different universities in Turkey provide evidence on the foreign exchange trading at the Istanbul bourse of the Ottoman Empire to shed light on this question.

They examine the influence of political risks on the foreign exchange rates at the Istanbul bourse during the First World War. Their empirical methodology is identifying the abrupt changes in the value of Lira against the currencies of the neutral countries at the Istanbul bourse, i.e., the Dutch Guilder, the Swedish Krona and the Swiss Franc. They exploit unique data on daily foreign exchange rates announced at the Istanbul bourse from May 1918 to June 1919. The data are manually collected from the Ottoman Empire’s official newspaper, i.e., Takvim-i Vekayi.

A column of Takvim-i Vekayi showing the value of Turkish Lira against several foreign currencies on 27 August 1918 (Takvim-i Vekayi. (28 August 1918). Kambiyo: 6.

They fill the gap in the historical literature on the Ottoman economy for the period ended by the First World War, in which there is a lack of empirical research (See Hanedar, Hanedar, & Torun (2017, 2016)). Furthermore, the literature on the impacts of the First World War on foreign exchange rates is confined (See Hall (2004), Kanago & McCormick (2013)).

The findings pinpoint the sudden changes in the value of Lira against the currencies of the neutral countries at the Istanbul bourse during important war-related events pointing out that the end of WWI was approaching. The war and occupation of the Allies deteriorated the economy of the Ottoman Empire, whereby the inflation levels surmounted along with the huge budget deficits. These circumstances were reflected in the foreign exchange rates and the Lira devaluated significantly against the currencies of the neutral countries by the end of the war.

 

The value of one Lira against Swiss Franc, Dutch Guilder, and Swedish Krona, 1918–1919. The three vertical lines in the graph represent the armistices signed by Bulgaria, the Ottoman Empire, and Germany, respectively. (Click to enlarge)

The research uncovers the effect of the war-related events on the foreign exchange rates using data from the First World War and validates the significance of these events at the beginning of the 20th century. It can be suggested that even at the war conditions, the Ottoman foreign exchange market displayed efficiency to some degree in the period marking the end of WWI. 

This blog post was written by Avni Önder Hanedar, researcher in economics and econometrics at (Dokuz Eylül University and Sakarya University).



The working paper can be downloaded here: http://www.ehes.org/EHES_108.pdf




References

Hall, G. J. (2004). Exchange rates and casualties during the First World War. Journal of Monetary Economics, 51(8): 1711–1742.

Hanedar, A. Ö., Hanedar, E. Y., and Torun, E. (2016). The end of the Ottoman Empire as reflected in the İstanbul bourse. Historical Methods, 49(3):145–156.

Hanedar, A. Ö., Hanedar, E. Y., Torun, E., and Ertuğrul, M. (2017). Perceptions on the Dissolution of an Empire: Insight from the İstanbul Bourse and the Ottoman War Bond. Defence and Peace Economics, (Forthcoming).

Kanago, B. and McCormick, K. (2013). The Dollar-Pound exchange rate during the first nine months of World War II. Atl. Econ Journal, 41(4): 385–404.

Takvim-i Vekayi. 30 May 1918–11 June 1919.