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Lecture 6 - A Changing Periphery - 09 November 2023

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Lecture 6 - A Changing Periphery - 09 November 2023

Uploaded by

angelapariciopastor
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Global economic

history
Lecture 6) Economic development: a view from the periphery

09/11/2023
Economist intelligence report 2015
The economist intelligence report, 2050
Course content
1) The periphery: problems & explanations
1.1. Imperialism and the ‘Great Specialization’
1.2. Natural resource ‘curse’
2) Africa
3) Asia
1. The periphery:
problems &
explanations
1.1.
Imperialism
and
specialization
Imperialism
19th century, a new wave of imperialism
1) Partial control: opening of markets
• Narco-imperialism in China
• Japan
2) Full control: resource-driven imperialism
• Africa & Asia
• Copper, gold, diamonds, oil
• Agricultural production (soy, palm-oil, cacao,
…)

-> A global division of labour


• Industrial north vs agricultural south
• Decolonization after 1945, huge wave in Copper mines in Kambove in the 1920s exploited
1960 during Belgian colonial rule (DRC, Congo)
De-industrialization in the
periphery
Source: Barbier, 2011, p. 391

• Simultaneous with imperialism =


deindustrialization
• 1800: developing countries account for 2/3 of
world manufacturing
• 1860: Developed countries account for 63,4 %
of global manufacturing
• 1913: Developed countries account for 92,5 %
of global manufacturing
The Great Specialization
• Great Divergence -> Great Specialization
• During 19th century, industrialization and imperialism created
a world economy with a global division of labor between
South (primary products) versus North (manufactured
products)
• Core versus periphery
• Deindustrialization in the Global South: labour of
manufacturing towards agriculture and resource
production
• Increase in demand for primary products
• Looking for new sources of supply
• Looking for markets/outlets for industry’s products
Source: world economic forum, major exports
commodities (2014)
1.2 The
Resource
Curse
• Are resources a blessing or a
curse?
• Conditions for growth?
• Paradox of the plenty?
• Natural resource curse
• For instance: Nigerian oil
Resource curse?
• Terms of trade: a relative measurement of price of imports and
exports
• Not about volume of trade
• Relative changes of price of trade between countries
• The terms of trade for primary goods were assumed to be structurally
deteriorating.
• Empirical research of Raul Prebisch and Hans Singer (1950). The economic
development of Latin America and its principal problem (1870– 1940)
• The price of primary commodities declined relative to the price of
manufactured goods over the long term
• Use raw materials for import substitution
Rubber production and prices
The Resource Curse: price volatility
and capital factors
• High volatility and dependency upon
prices of commodities
• In times of high prices?
• the booming export sector attracts
economic resources (including labor) away
from other sectors and can cause other
economic activities to deteriorate
• Higher wages and return to capital generates
excess demand which the domestic market
cannot satisfy and increases imports
• Influence on exchange rates can hurt other The discovery of natural gas in the
domestic sectors Netherlands in 1959 caused lower growth and
higher unemployment. This was called by the
Economist in 1977 as the “Dutch Disease”.
Natural resources as a blessing?
• Successful examples resource-led growth
• US, Australia, Canada (19th century)
• Exporting primary commodity gave a boost to their development
• Diversification and upgrading of production dependent on factor
endowments, in particular scarcity of labor and high wages
• Institutional quality: willingness of political elites to develop an internal
market with a skilled and highly-paid labor force
• Today: Norway, Qatar, Saudi Arabia?
• Is the risk less in high-income countries?
Institutions can create “curses” and
“blessings” of natural resources
• Domestic institutions and international markets.
• Natural resource abundance can lead to a concentration of economic
and political power
• Rent seeking behavior -> prevent private and public incentives
from promoting diversifying investment
• Use incomes to renew political capital

• Benefits of natural resource abundance dependent on institutions


Catching-up?
• Imperialism
• no independent economic policy
• Great specialization
• shift from focus on extracting resources
• Standard model of industrialization -> out of use once technological frontier advances
• Different models 20th century?
1) ISI: import substitution industrialization (1960-1980)
• Partial standard model? Tariffs to foster domestic production
• When possible: Link resource production to industrial development
• Examples: Latin America, African states, Turkey
2) Big Push Industrialization
• Soviet Union (1930)
• Later: China, Japan & South Korea
2. Africa
Economic
development in Africa
• Colonialism -> damaging economic influence
• Forced labour and low wages
• Transportation (Standard model): facilitate primary
exports
• Clusters of primary production:
• Copper in Congo/Zambia
• Palm Oil in West Africa/Congo
• Gold, diamonds in South Africa
Africa: resource curse?

Earnings per day: cacao Earnings per day: palm oil

Source: R. Allen, 2011, p. 107


Source: R. Allen, 2011, p. 108
Trap 1.
Wages and use of technology low -
> makes it unprofitable to invest in
Explanations for capital goods and mechanization
underdevelopme
nt: two traps Trap 2.
Absence of complementary firms
and scale -> firms need networks of
firms
Inga Dams in Congo

• Industrialization
policies with huge
investments
• “White elephants” with
high costs and little
payoffs
• Many African states
suffered from debt
problems in the 1980s
3. South East Asia
3.1 Japan
• Japan: some industrialization, but
World War II
• 1950- 1990: on par with the West
• Annual average growth rate of 5,9 %
(!)
• Outliers in the 1960s of over 10%
• Reversing the policy of adapting
technologies (before 1945)
• Planning -> Ministry of International
Trade and Industry (MITI)
• Focus on steel, cars, electronics
A Toyota assembly line in the 1960s –
Japanese cars started to be mass produced
for the world market
Big Push in Japan
• Challenge related to achieving the Minimum
Efficiency Size/Scale (MES):
• The balance point at which a company can produce
goods at a competitive price.
• MES in steel mills
• 1950 MES (1 – 2,5 million tons)
• 1960 MES (In Japan = 7 million tons)
• MES in the car industry
• 1960s MES (150,000-200,000 in the US)
• 1970s MES (400,000 in Japan)
• Just in time & multiple assembly lines ->
efficiency
• Crisis in American car and steel industries
3.2 China
• Historically much richer, but in
1850 lagging behind
• Enormous growth in the last
decades
• Roughly around 1 billion
people removed from poverty
• Poverty line (1,9 $)
• 1990: 66,2 %
• 2016: 0,5 %
Chinese per capita GDP, 1960-2019
China (first
stage)
• Mao (1949-1976)
• Communist planning economy
• Forced collectivization of agriculture
• Development of heavy industries
• Steel production: 1950 (1 million
tons) -> 1978 (32 million tons)
• Per capita income from $ 448 to $
978 (2,8 % year)
• Setbacks:
• Great Leap Forward (1958-1960)
• Cultural Revolution (1967-9)
China (second stage)
• Era of pragmatic reforms
(Deng Xiaoping 1978-1997)
• Market economy or planned
communism?
• "No matter if it is a white cat
or a black cat; as long as it
can catch mice, it is a good
cat.“
• 1981: reversed
collectivization in agriculture
(Household Responsibility
System)
China
• Continued planning of heavy industry (steel, energy)
• Township and village enterprises (TVEs)
• Consumer goods
• Low capital to labour ratios
• 28 million workers (1978) -> 135 million (1996)
• 1992: endorsement of the “socialist market economy”
• State-owned enterprises -> publicly owned corporation
• Investment rates remained high (steel production increased)
• Production of steel towards 500 million tons (USA never produced more than 150
million)
• GDP per capita grew by 6,7 % (1978-2006)
• Return to its status as the world’s biggest manufacturing country
Conclusion: changing periphery
• Problems for the periphery
• De-industrialization
• Imperialism
• Spectacular catch-up, less international inequality
• Big Push Industrialization
• State involvement
• But also, areas unable to converge
• Agriculture and resource extraction
• ISI models
• Future shift of the world economy -> a new division of labour
• Other epicenters of growth: China, Brazil, India etc?
• De-industrialization in the West?

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