Chapter 4 World Economy Notes Lecture 3 PDF

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Findlay and O’Rourke, Power and Plenty Chapter 4: World Trade 1500–1650: Old World Trade and New World SilverQ: What were the economic consequences of Europe's discovery of the New World before 1650? Adam Smith declared that the discovery of America and the passage to the ‘East Indies’ are the two g...

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Findlay and O’Rourke, Power and Plenty Chapter 4: World Trade 1500–1650: Old World Trade and New World Silver Q: What were the economic consequences of Europe's discovery of the New World before 1650? -

Adam Smith declared that the discovery of America and the passage to the ‘East Indies’ are the two greatest and most important events in history. Created a truly global economy

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The origin of world trade came from the Spanish founding the city of Manila in their exploration in Asia.

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Before the New World, Portugal conquested. The emergence of the world trade aided China and India who engaged and expanded their trade in these centres built by the Portugese. Economically, the Portugese century in Asia was still largely Asian.

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Spain didn’t make as much through the New World through heavy taxes and tight regulations meant there were less opportunities for smuggling and contraband. Set the pattern of translantic trade to come with cattle trade (more open spaces in Latin America), gold (23-27 tonnes shipped to Spain before 1525)

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European spread to the New World caused the indigenous inhabitants’s population to fall rapidly due to exposure to diseases (Bacci says 95% of Native Americans wiped out), but also though to a smaller extent human forces.

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The discovery of New world silver had a major impact on the economies of Eurasia, stimulating price rises and facilitating monetisation and commercialisation, by increasing intra-Eurasian trade. The New World brought Eurasia closer to itself, and the silver facilitated the activities of European trading companies in Asia with profund political consequences for Southeast Asia and India.

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The New World lead to qualitatively new forms of intercontinental trade, because of the vast endowment of land in America. The problem was a lack of affordable labour – solved by slavery, but it took time to become an efficient function.

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The gradual economic transition coincided with the Peace of Westphalia in 1648, ushering in a new era of the highest developed countries expanding like Russia and Japan ushering in a growing network of world trade.

Other Interesting Notes

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The ability to participate in the colonialization required a ‘Military Revolution’, and these growing military costs had to be addressed by the wealth of the nation. The Military Revolution was spread to all other parts of the world, and how these states addressed it was key as it could easily cause increased centralisation as it would require stats to meet this increasing costs via exploitations, monopoloy trade rents and plunder.

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India at this time were in a transitional political situation with kingdoms consested by the Hindus and Muslims. This war-situation meant Arabic horses was the most important trade commodity.

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Portugal, however, were inspired for their conquest by religious zeal vs Islam as the main reason but also for commercial profit (plundered Muslims for it’s principal-agent problem), and the legend of Prester John, and carried out slave trade. They were enabled by their technology advancements in voyages (Parry says it made the ‘Age of Reconnaisance possible with the diversity in the fleet of vessels) and education of astronomy and geography, with the intermediation of Jewish and Muslim scholars key. Aided by disunity in India in Indonesia, but failed in China due to their naval advancement. Another explanation is their use of firearms.

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Findlay and O’Rourke, Power and Plenty Chapter 5: World Trade 1650-1780: The Age of Mercantilism Q: How did the economies of Asia fare in the age of mercantilism?

C104_Topic 2, Lecture 1, Part 2 0:17 This a second reason for why the Great Divergence happened (Olson 1993). It's a theory of government formation. In a lawless society, there is no economic growth as people won't produce surplus due to it being stolen. 0:04:01 So lower taxes encourage greater production (more surplus) so higher output means greater revenue than full taxation. The leader of a society must have a taxation where marginal benefit = marginal costs. 0:06:14

Democracy is better as competition is true as leaders incentive to sacrifice revenue so they can win elections and thus lower taxes. 0:08:13 Olsen's theory is proven right, as Europe had a fast transition to a democratic society with the 1688 English Glorious Revolution due to previously having a decentralised government whilst China had a stable autocratic regime (central bureaucracy) with little challenge from other aristocracies like the church and military. 0:10:14 The Glorious Revolution is connected to the Great Divergence as King Charles ruled without parliament for 11 years. A power vacuum after Oliver Cromwell dies restores the monarch and hurts England financially, and the previous power of the parliament comes into play as they bring in William and Mary to take the throne at the request of the parliament with economic conditions. 0:16:26 The implication is functioning credit markets and created the division of powers, with legislative power (done by parliament), the executive and judiciary and the three different ages of power is crucial for a future development. Olson - More democracy = more conductive to growth. More revenue, more state capacity. EC104_Topic 2, Lecture 3 0:02:43 'The European Miracle' in the Early Modern Period. The role of trade and institutions (VERY GOOD SOURCE). 0:05:38 Western Europe is better than the East, which is also better than Asia. It could be due to GEOGRAPHY for the reason. Within WE, Atlantic traders grow mode (TRADE) as Atlantic Traders lead to specialisation (Smithian Growth) BUT not all Atlantic traders grow the same, as Portugal and Spain fell behind yet they engaged in the Atlantic trade in the long-run. In the short run trade could be used, but not in the long-run. 0:07:45 Institutions can help or hinder economic growth, as Democratic governments will not be able to fully pander to their own interests and will be careful to others interests. Polity IV index measuring constraints on executives (1 to 7), lower values: no limitation to executive's actions, which higher values are more INCLUSIVE INSTITUTIONS. The coding is done regarding a lot of historical research 0:10:05 Institutions can explain the fall off Spain and Portugal, as England and Holland had a higher Polity IV, so there is a positive correlation between Polity IV and urbanisation. 0:12:52

De Long and Shleifer (1993) - contrast the growth under 'Princes' and 'Merchants' in the preIR Europe. Legal Order is just an instrument of control, whilst the limited authority regimes gave Merchants economic control. EC104_Topic 2, Lecture 4 0:01:06 Institutional legacy of European expansion. We are exploring the effect colonialism had on the institutions in the Americas. 0:03:13 Acemoglu (2001) divides the institutions into two types, 'Settler Colonies (places with geography with a lower settler morality e.g. Europe) and Non-Settler Morality (e.g. Africa). The Settler Colonies had a strong emphasis on the rule of law and government checks, whilst the non-settler colonies created extractive states with no checks and balances on government.

0:07:14 The argued channel is that settler morality -> early institutions -> current institutions -> current economic performance. To measure this, we use data from 17th to 19th century settler mortality and the fraction of population which is of European descent in 1900, and of course GDP per capita for current economic development. 0:18:00 There is a strong positive correlation between the institutions (average expropriation risk) and the GDP. REVERSE CAUSALITY is again the problem, and the instrument we use here, is Settler Mortality (log of both). There is a NEGATIVE relationship here, so IV is exogenous to outcome and unrelated to causes. 0:18:42 The historical presence of Christianity preaching missions in Latin America is key, as these 'Jesuit' missions had more emphasis on education and since 1609 they settled, before they were expulsed from LA in 1767. 0:21:04 To measure the effect of these Jesuit missions, we use an estimation capturing the presence/distance of the Jesuit mission, the geographical controls (mountainous areas could hurt education), and variation across the states. The closer you are to the mission, your levels of literacy and income levels are higher. Only Jesuit missions were key for the longterm than the F missions (social work for the poor and health). Channels of transmission are that of occupational specialisation and allows you to move out of subsistence agriculture and into the artisan class (areas closer to missions are less agricultural). This allows adoption of new technologies. Robust to alternative storie like urbanisation and population density. 0:29:22

Vietnam is an interesting case as they were colonialism very late so their own cultures were established early on. North Vietnam were strong centralised state, whilst South Vietnam was a patron-client state. The boundary of interest in this study defines the treatment....