Uitgebreide samenvatting Economische geschiedenis

INTRODUCTION TO GLOBAL ECONOMIC
HISTORY OR AN ECONOMIC HISTORY OF
THE WORLD
WHEN TO START

 From 1500 Common Era/AD onwards: first globalization
o Christoph Columbus 1492 arrives in the West Indies “discovers” the American continent
 From 1870 CE/AD onwards: second globalization (until 1914)
o Innovations in transport (steamboats) and communication (telegraph, telephone)
 Imperialist expansion, FDI, multinational companies
 From 1970 CE/AD onwards: third globalization (until ?)
o 2008
o 2020 (Covid)
o March 2022: Russian attack on Ukraine and the energy crisis




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,THE MODERN ECONOMY
THE HISTORY OF THE M ODERN ECONOMY

 Production factors: land, labor and capital
o Factor prices: the prices at which means of production are sold
o Factor endowments: the amounts of land, labor, capital a country possesses
 Modern economy is an industrialized economy
o Colin Clark (1905-1989): acceleration of economic growth thanks to industrialization
 Significance of his 3-sector breakdown
 1) primary sectory
 2) industry
 3) services
o Industrialization is not only technology
 Creation of the (centralized) firm with fixed capital
 Creation of the labor market

HOW TO ADDRESS THE HISTORY OF THE MODERN ECONOMY

MEASURING ECONOMIC G ROWTH

 The invention of GNP (Gross National Product)
o Colin Clark (1905-1989) invented GNP in 1937
 Exception: Sovjet dominated communist economies: Net Material Product as
nonmaterial services were considered not productive
 GNP conquers the world, the most appropriate geographical unit of measurement for economics: GNP
(1937)
 From 1990s onwards GNP lost ground to GDP (Gross Domestic Product)
o GDP was globally accepted


THE FUNDAMENTAL DATA FOR AN ANALYSIS OF ECONOMIC SUCCESS AND ITS FLAWS
 The figures on economic growth based on GDP/capita are not always reliable
o Conversation 2007 between Chinese prime minister and US ambassador
o Changes in methodology to calculate GDP
o Problem of measuring government output
 Mismeasurement of GDP concerns all activities that are not captured in market transactions
(environmental degradation, leisure time, nonmarket work)
 Negative growth not included
o Omits harmful elements such as pollution
 GDP underestimates growth
o As price indexes are flawed
 EXAMPLE: lighting
 GDP  only input prices count
 What is consumed and produced is assumed to be constant of quality – but
it is not
 Real input  also based on input prices but there is more
 Price of fuel
 Price of lighting devices


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, o From oil lamps to kerosene lamps
o From incandescent to Compact Fluorescents Lightbulbs (CFLs) and
then LEDs

COMPARING ECONOMIC SUCCESS: INTER-NATIONAL INEQUALITY

 The unit of observation is a country and within-country distribution is considered perfectly equal and
compares average income among nations
o Basic data: GDP/capita = average income for each country
 To compare GDP internationally
o Market conversion into 1 currency is required: DOLLAR
o Price levels are different between countries: one dollar is worth more in China than in
Belgium  local purchasing power needs to be taken into account = Purchasing Power Parity
 GDP/capita in $ PPP (data from 1970 onwards)


WHY $ PURCHASING POWER PARITY
 More stable than exchange rates
 What is the actual purchasing power of the country’s inhabitants who mostly spent their income at
home? Do they pay prices for goods and services which are the same all over the world?
o Process of goods that can be traded internationally are not very different (differences
depends on cost of shipping and local taxes and subsidies) – oil, steel
o Prices of goods and services that cannot be traded internationally are lower in poorer
regions, because they are usually relatively labor intensive and labor is a relatively abundant
production factor in less developed countries
 Use domestic price level
 Use a local consumption basket (bundle of items that is representative of what
people buy




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, LONG TERM HISTORICAL EVOLUTION OF GDP/CAPITA
 Life work of Angus Maddison
o GDP/capita in 1990 $ PPP
o Now continued at the university of Groningen
 The Maddison database
o Global, regional ant ‘national’ estimates since
‘year zero’
 Until 1820: ‘guess estimates’ for some
regions
 As of 1870: estimates for 26 countries
 As of 1950: margin of error becomes
smaller, sample becomes global

MEASURING AND COMPARING ECONOMIC WELFARE

 GDP/capita: measurement of the value-added of an economy, to be used
as a welfare benchmark?
o Issues of inequality
o Tension between price and real output
o Incomplete (only those captured in market transactions and
always in positive terms)
 Expression of economic success in the life of ordinary people:
o Human length
o Poverty statistic, but depended on (changing) administrative
criteria
o Life expectancy at birth


HUMAN DEVELOPMENT INDEX
 HDI (1990) measures economic AND social progress in a simple
number between 0 and 1
o Life expectancy at birth
o Education attained
 Primary school enrolment and literacy
o GDP/capita
 Innovation of HDI by 2000: declining marginal utility
of rise in GDP/capita

More revealing of impact on the lives of ordinary people than GDP/capita

HOW TO EXPLAIN ECONOMIC SUCCESS

KNOWLEDGE AND TECHNO LOGY

 Technology benefits all economies, whatever their level of development
o No importance of factor price configurations
o A constant return to scale
 Technology has a bias against countries with low wages
o Countries with a high wage environment innovate
o Increasing returns to scale


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