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This chapter considers to what extent ‘geography’, broadly conceived, mattered for economic growth across the globe. First, it sets out the pattern of comparative aggregate growth between 1700 and 1870 and documents the east to west shift in the global distribution of economic activity. The next section surveys the comparative evidence on key first nature (or physical) geography characteristics that are potentially critical for long run economic development. This is followed by a discussion of second nature geography (the ’geography of interactions between economic agents’) and a quantitative assessment of the extent to which first nature characteristics, second nature geographical forces and institutional quality can account for income differentials across a sample of major economies in America, Asia, and Europe. Finally, a case study on shifting comparative advantage in the textile industry illustrates the outcomes of technical change within a changing global economic geography. The chapter concludes that changes in trade costs, agglomeration economies and differential access to markets with associated productivity gains probably played a major role in moving the economic centre of gravity. The West became absolutely and relatively richer than the East, not only because of better institutions but also because of more favourable geographies.
This chapter describes broad regional and temporal trends in the evolution of international trade and international factor flows between 1700 and 1870, including key differences in trade costs across space and time. We find trade links in western Europe and the European colonies of North America intensified at the same time these regions experienced the initial Industrial Revolution and the spread of industrialization, which led to sustained economic growth. At the same time, global differences in specialization and income emerged. To understand the contribution of global market forces as well as colonialism to these differences, the chapter lays out theoretical reasons for links between trade and economic growth and examines related historical arguments and evidence. We conclude that trade contributed to global divergence, but the magnitude and mechanisms through which trade affected global welfare lies not so much in the direct impact of trade and specialization as in multiplier effects emerging from the interactions of trade with other factors that affect economic development.
Acting on socially learned information involves risk, especially when the consequences imply certain costs with uncertain benefits. Current evolutionary theories argue that decision-makers evaluate and respond to this information based on context cues, such as prestige (the prestige bias model) and/or incentives (the risk and incentives model). We tested the roles of each in explaining trust using a preregistered vignette-based study involving advice about livestock among Maasai pastoralists. In exploratory analyses, we also investigated how the relevance of each might be influenced by recent cultural and economic changes, such as market integration and shifting cultural values. Our confirmatory analysis failed to support the prestige bias model, and partially supported the risk and incentives model. Exploratory analyses suggested that regional acculturation varied strongly between northern vs. southern areas, divided by a small mountain. Consistent with the idea that trust varies with socially transmitted values and regional differences in market integration, people living near densely populated towns in the southern region were more likely to trust socially learned information about livestock. Higher trust among market-integrated participants might reflect a coordination solution in a region where traditional pastoralism is beset with novel conflicts of interest.
Pre-industrial money supply typically consisted of multiple, often foreign currencies. Standard economic theory implies that this entails welfare loss due to transaction costs imposed by currency exchange. Through a study of novel data on Finnish nineteenth-century parish-level currency conditions, we show that individual currencies had principal areas of circulation, with extensive co-circulation restricted to the boundary regions in between. We show that trade networks, defined here through the regional co-movement of grain prices, proved crucial in determining the currency used. Market institutions and standard price mechanisms had an apparent role in the spread of different currencies and in determining the dominant currency in a given region. Our findings provide a caveat for the widely held assumption that associates multi-currency systems with negative trade externalities.
Cattle are costly to transport, which could lead to segmented regional cattle markets. The cointegration of cattle prices over regions has been of research interest for decades. This article investigates price cointegration between regional cattle markets in the United States and proposes a simple procedure for incorporating a flexible transition function into an economic indicator–controlled smooth transition autoregressive (ECON-STAR) model to evaluate market dynamics. The empirical results show that these markets have been highly integrated when excess supply exists, but when cattle inventories decrease, the market pattern becomes very regionally segmented.
This article studies the financial market integration in the 1670s by examining the effectiveness of triangular exchange arbitrage. The results suggest that international credit markets based on bills of exchange in northwestern Europe were well integrated and responded to exchange-rate differences quickly. The speed of adjustment, ranging between one and three weeks, accorded with the speed of communication, but the transaction cost associated with exchange arbitrage was much lower than that of shipping bullion. Although warfare had a disruptive effect on exchange arbitrage by increasing transaction cost, markets were resilient in remaining efficient.
We propose the concept of the “Fish Revolution” to demarcate the dramatic increase in North Atlantic fisheries after AD 1500, which led to a 15-fold increase of cod (Gadus morhua) catch volumes and likely a tripling of fish protein to the European market. We consider three key questions: (1) What were the environmental parameters of the Fish Revolution? (2) What were the globalising effects of the Fish Revolution? (3) What were the consequences of the Fish Revolution for fishing communities? While these questions would have been considered unknowable a decade or two ago, methodological developments in marine environmental history and historical ecology have moved information about both supply and demand into the realm of the discernible. Although much research remains to be done, we conclude that this was a major event in the history of resource extraction from the sea, mediated by forces of climate change and globalisation, and is likely to provide a fruitful agenda for future multidisciplinary research.
Recently, new research has challenged the traditional narrative; Spain did not suffer from a ruler that threatened his subjects’ property with excessive taxes and forced loans. Instead, Spanish economic development was held back by decentralised and non-predatory governance, unable to solve the coordination problems blocking the way to more integrated markets. Through the analysis of the governance and loan portfolios of an ecclesiastical order, this paper examines the extent to which mortgage credit markets were fragmented in early modern Spain. This order not only collected resources that it subsequently lent but also pooled them. Indeed, it developed into a nationally integrated organisation able to offer everything from small loans to farmers to substantial amounts to the king and the Madrid elite.
Several studies indicate an integrated global market for salmon. However, there is increasing evidence of market segmentation for various seafood species. A disease crisis in Chile that reduced production by two-thirds provides a strong market shock that can shed light on how strongly integrated the salmon market is. Our results indicate that Chilean producers changed the product mix and export markets as a result of the disease shock. Yet, the relative prices remained constant, indicating a high degree of market integration. Moreover, Chilean prices are endogenous to the Norwegian price, indicating that prices are determined at the global market.
The analysis of the evolution of the location of economic activity in Portugal between 1890 and 1980 depicts a strong concentration of productive activity in the coastal regions. We estimate data for regional GDP per capita, which show that the evolution of regional inequality followed an inverted U-curve, in line with that observed in other regions of Europe, but with a rather late peak, in 1970. The reasons for this behaviour may be found in the limits to industrialisation in the interior regions and the benefits generated by the agglomeration economies in the more developed coastal regions.
This research examines whether mandatory price reporting (MPR) impacted price relationships among U.S. hog markets. Markets are cointegrated before and after MPR enactment, but not fully integrated in either period. Terminal markets adjust to shocks in the Iowa-Southern Minnesota market more quickly and Iowa-Southern Minnesota prices adjust to shocks in terminal markets more slowly following MPR enactment. Granger causality tests indicate a causal flow from terminal markets to Iowa-Southern Minnesota prices before MPR and a causal reversal after MPR enactment. These results likely reflect decreases in volume of negotiated sales, particularly in terminal markets, and greater reliance on mandatorily reported prices for market information.
A regime-switching model for analysis of market integration has been developed that incorporates rate of trade information. An application of the methods to United States–China soybean trade demonstrates that the extended trade information allows better interpretation of market conditions. While the empirical results show that China's reform efforts since mid 1990s toward an open market have greatly improved United States–China soybean markets integration, about 40% of nontransitional disequilibrium occurrences likely indicate infrastructural limits such as the lack of information availability and limited competition. The United States–China price linkage is observed to be closer after China's World Trade Organization membership. The link has also been found relatively slack during the South American soybean harvest.
The degree of development of Spanish agriculture at the end of the XIX century and the beginning of XX is a controversial issue. In this respect the study of the integration of the domestic market could provide new evidence since the degree of the market integration can be considered an indicator of economic development. By using regional wheat prices this paper analyzes the Spanish market integration between 1891 and 1905. With this aim in mind we employ the usual cointegration approach as well as an alternative method based on spectral analysis that allows taking into consideration the existence of no synchronized cycles.
This paper analyzes the processes of integration of the poor into the market, as instigated by their involvement in microfinance projects. This analysis is based on the findings of an ethnographic study of the Turkish Grameen Microcredit Project (TGMP), conducted in Diyarbakır at different time periods between September of 2004 and July of 2005. By analyzing in detail the nature of economic life revolving around the microfinance practices, this paper intends to elucidate the way in which the integration of the microcredit borrowers into the market is guided by societal processes. The findings of the field research show that in everyday practices the borrowers adjust the microfinance system to their own needs and accommodate the economic activities originating in microcredit into their wider social structure. Thus, one can conclude that they are integrated into the market in their own way, guiding the integration process with their own socio-cultural institutions.
The U.S. broiler industry is highly vertically integrated and increasingly concentrated in the number of firms and production areas. These structural elements could have implications for performance and the functioning of the law of one price (LOP) across regions. This article investigates this using data on four regional markets. Cointegration results indicate that regional prices are spatially linked in the long run, but pairwise cointegration was not found, suggesting that the LOP does not hold. Causality tests confirm the relative importance of price shocks from the South. This finding is reflective of price coordination by firms with production in multiple regions.
Legislative authorization for the Livestock Mandatory Reporting Act of 1999 was renewed in October of 2006. One of the cited justifications for implementing mandatory reporting was that the voluntary reporting system for the slaughter cattle cash market was unable to provide accurate and timely market information. We extend the spatial market analysis literature by developing a methodology for detecting distortions in spatial relationships across related price series. Using spatially linked regional markets, we compare state-level mandatory price-reporting data to the U.S. Department of Agriculture voluntarily reported state data to determine if the spatial relationship between price-reporting mechanisms was disrupted by market distortions prior to implementation of federal mandatory price reporting. We found no empirical evidence of system failure; therefore, we conclude that market thinning or noncompetitive behavior had not reached the level necessary to disrupt the ability of the voluntary price-reporting system to provide timely and accurate price information.
Alternative hypotheses of market integration in the U.S winter market for fresh tomatoes were evaluated using a dynamic model of spatial price adjustment. The results showed that while Florida and Mexico were integrated in the same market, a price change in one area was not instantaneously reflected in the other. Lagged effects were important with long-run integration being supported for both Florida and Mexico and short-run integration for Mexico. However, the information flow, while relatively efficient, was not symmetric. Florida was found to be dominant in the price formation process with Mexico responding to changes in the Florida price.
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