Global Economic History

Lecture 7) economic globalization: what, when and how?

14/11
Globalization
Globalization
Source FT, 2020
Waves of economic globalization
• Early modern globalization (1500-1800)
• Drivers of early modern globalization?
• First global economy (1850-1914)
• Significant lowering of trade costs
• The great specialization
• De-globalization (1914-1945)
• World War I (1914-1918) & World War II (1939-1945)
• Era of protectionism and economic crisis (1929)
Periodization of economic globalization
Restoration of the global economy (1945-1980)
• General agreement on Trade & Tariffs (GATT)
• But protectionism: Communism vs Capitalism, Postcolonial world
Neoliberal (1980- today)
• New communication technologies
• Deregulation
• Financial integration
Course content
1) Why (global) trade?
2) Origins of early modern globalization
3) How global was early modern globalization?

Paired with next week (lecture 8): 19-20th century and “obstacles of
trade” (23/11)
• Lecture 9: Global Business (30/11)
• Lecture 10: Global Crises (07/12)
• Lecture 11: How is the world economy governed (14/12)
1. Why (global) trade?
Thinking about the benefits of trade
• Mercantilism (before 1800): promotion of domestic
industries rather than import goods
• Adam Smith: trade is beneficial, not efficient for a country
to produce everything
• Absolute advantage= the ability of an actor (country,
company) to produce more of a good or service than a
competitor
• Linked to his idea on labour productivity (tackle
inefficiencies)
• Trade between two countries with an absolute advantage -
> goods/services at a lower price -> better welfare
• David Ricardo (1722-1823) and the comparative advantage
Example of absolute advantage
• 1 world – two countries: England and China
• 2 goods: textiles and porcelain
- If China has an absolute advantage in porcelain, labour input for textile is
equal
- Absolute advantage theory: there will be no incentive for trade between
England and China
England China Total
textiles 90 units of labour 90 units of labour 180 units of labour
porcelain 100 units of labour 80 units of labour 180 units of labour
Total 190 units of labour 170 units of labour 360 units of labour
Example
• Comparative advantage England China Total

• England = production of textiles

• China= production of porcelain textiles 180 units of
labour
0 units of labour 180 units of
labour

• Specialization -> (all labour units in one

product) porcelain 0 units of labour 160 units of
labour
160 units of
labour

• Influential idea of trade and

specialization Total 180 units of
labour
160 units of
labour
340 units of
labour

• Is limited model: oversimplified, no

transaction costs, mobility of labour
Comparative advantage: Japan (1851-1869)

Bernhofen, 2004
Economic globalization = integration?
• -> law of one price: in a perfectly integrated global economy prices of
the same product are the same, wages for the same job are equal,
interests are similar and exchange rate superfluous (money is worth
the same everywhere)
• Customers will have the same purchasing power
• Condition: free trade of goods, knowledge and information -> free
market/no transaction costs
• Theory versus practice
Why is there integration?
• Answer = arbitrage
• Price differences, wages or money is being exploited by competitors (under
perfect competition)
• Merchants can exploit price differences in different countries
• Market integration occurs when prices in different locations or related
goods follow similar patterns
• Convergence is an indicator of market integration
• Movement of goods: trade -> prices
• Movement of people: migration -> wages
• Movement of capital: financial integration -> interest rates
• And the movement of knowledge? -> patents, innovation etc (see lecture on IR)
 2. Early modern
globalization (1500-1800)
 • What’s before?
2.1. Origins of • Luxury goods & overland trade (silk roads)
early modern • China & Song dynasty (960-1276)
globalization • Comparative advantages
• Manufacturing of luxury goods in China <->
Europeans?

• 1500: start of European explorations

• 1492: Columbus ‘discovers’ America
• Vasco da Gama
• Structural connections between different continents
Silk road of today?
Iberian explorations
Zheng He’s voyages
Zheng He’s voyages
• Maiden voyage (1405) the
fleet consisted of 317
ships and over 27,000
men
• Much larger than
European expedition ships
(technological advantage)
• Capacity and
technological means to
become a world leader
3) How global was early
modern globalization?
3.1. Market
integration?

• Did early modern globalization lead to

convergence and price integration?
• Scope for convergence remained
relatively high (transportation costs,
monopolies protectionism)
• However maritime trade clearly lowered
costs
• Portuguese pepper monopoly challenged
after 1600 -> see price convergence

Price of pepper (England/India)

C o n v erg en ce& co n su m erv o lu tio n

Prices of VOC goods (1600-1800)

3.2. Silver as the
global currency?
• Europe had nothing to “offer”
• Mines in Bolivia, Potosi
• Flows of silver, from Latin America to Asia
& Europe
• “wheels of commerce”
• Price of silver ca. 1640, convergence in
China & Europe.
• Positive impact on global trade
De Zwart & Van Zanden, 2020, p 38.
 3.3. Early modern globalization and slavery
A. Global production on sugar plantations
• Ecological degradation -> deforestation
and global expansion
• Madeira, Brazil, Caribbean Island
• Labour and capital-intensive
• But “modern” production process:
division and specialization
• First “global” enterprise -> slaves from
Africa, an Asian crop, for European
customers, on plantations in America

Sugar plantations, French West Indies, 17th

century, De Zwart & Van Zanden, 2020, p.
84.
B. the Atlantic slave trade system

Source: britannica,
https://www.britannica.com/summary/Transatlantic
-Slave-Trade-Key-Facts
Impact of slavery on Africa
• 15-16th century: main exports -> ivory, gold
• 18th century: 90% of the total “value”
• Shift to captives -> spurred conflicts and de-
population
• Regional differentiation
• West central Africa = gravity point (3,5 mio before
1800)
• African states: relatively well developed
• Engaged in slave trade by raiding other tribes, states
• Coastal cities, traders benefitted <-> rural
hinterlands suffered
• Depopulation diminished growth possibilities in a Sugar plantation,
labour-scarce continent Antigua, 18th century.
Source: British Library
End of slavery?
• Slave revolt of 1791 in Haiti
• Religious motives in Britain
• 1807 slave trade abolished
• 1833 end of slavery in British empire
• US: “import” of new slaves prohibited
in 1808
• Southern states relied on slaves for
cotton production
• Civil War (1861-1865) put an end to
Toussaint Louverture was the leader of
slavery the slave revolt in Haiti
Conclusion?
• Economic globalization in theory
• Exploitation of comparative advantages
• The convergence of price (trade)
• How global was early modern globalization?
1) Clear signs of price integration in luxury goods and textiles. Maritime trade
lowered trade costs (pepper, textiles…), but not for bulk goods
2) Silver greasing the “wheels of commerce”
3) Slave trade as a driver
- The global trade and production in sugar
- Transatlantic trade system (triangular trade)