EUROPEAN ECONOMIC DEVELOPMENT dr Joanna Wolszczak-Derlacz. Lecture 6 and 7 History of European economic growth and development

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1 EUROPEAN ECONOMIC DEVELOPMENT dr Joanna Wolszczak-Derlacz Lecture 6 and 7 History of European economic growth and development

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4 We have already seen the polarisation of development in the world and across Europe Why some countries/regions are so much richer than the others? very often the history of development matters (countries can be grouped into beginners and followers) [or leaders and catching-up countries]

5 Phases of economic growth Looking at historical statistics we can distinguish different phases of economic growth Main economic variables used to approximate the speed of development in different epochs- rates of growth of: GDP GDP per capita Productivity GDP per person employed or GDP per hour worked

6 Historical statistics on economic growth Developed countries have been using the system of national accounts (GDP itp.) +- since the Great Depression (1930s) Simon Kuznets in the USA However, it is possible to estimate (approximate) olderhistorical statistics concerning GDP Population (POP) GDP per capita(=gdp/pop) Productivity Angus Maddison s Historical Accounts

7 Comparative view Compare the evolution of GDP, GDP per capita in different epochs History of European economic growth should be analysed with respect to other countries (eg. China, US) dynamic changes in economic leadership leader/follower relations

8 History of economic growth Maddison distinguished the following epochs of growth: Agrarianism, Advancing agrarianism, Merchant capitalism, Capitalism, Modern Economic growth is a relatively new phenomena (after the Industrial Revolution) Some countries have followed rapid paths of growth, the others lagged behind increase in the disparities across countries The West and The rest

9 Economic growth when did it take place?(1) Comparison of Income per capita levels Source:Crafts & O Rourke, 2014, Twientieth Century Growth

10 Economic growth when did it take place?(2) Comparison of Income per capita levels Source: Acemoglu (2008)

11 Economic growth when did it take place?(3) Comparison of Income per capita levels Source: Acemoglu (2008)

12 Economic growth when did it take place?(4) Comparison of Income per capita growth rates Source:Maddison, World Development and Outlook

13 Why did the West arise? Human capacity to transform forces of nature through rational investigation and systematic experimentation, including rise of universities and the mass use of printing and publishing; The fostering of entrepreneurship, especially in urban trading centers (Bruges, Venice, etc.); Reforms of marriage, inheritance, and kinship arrangements to support individualism, accumulation and nation state building The emergence of a multipolar nation-state system that supported trade, competition, and intellectual exchange. A gradual evolution of these forces to establish European economic leadership Source: B.van Ark, 2010, Global Growth and Crises in Historical Perspective,

14 Industrial Revolution The term commonly used to characterise the unprecedented experience of the British economy during the later decades of the XVIII and early decades of the XIX century Factor system, steam power Rapid industrialisation (previously: agriculture based economy) Rapid economic growth Demographic pressure Social changes modern economic growth

15 The effects of Industrial Revolution

16 Maddison s view on European development history (1) West European income was the lowest around the year 1000; lower than it had been in the first century; below that in China, India and other parts of East and West Asia; turning point in the XI century when the economic ascension of Western Europe began: The North Italian city states and, in particular, Venice initiated the growth process and reopened Mediterranean trade. Portugal and Spain opened trade routes to the Americas and Asia, but were less dynamic than the Netherlands which became the economic leader around 1600, followed by the United Kingdom in the XIX century;

17 Maddison s view on European development history (2) Western Europe overtook China (the leading Asian economy) in per capita performance in the XIV century. Thereafter China and most of the rest of Asia were more or less stagnant until the second half of the XX century. from the XVIII century onwards: West European colonial exploitation, appropriation of the natural resources of North America, introduction of European settlers, technology and organisation Towards the end of the XIX century, the United States became the world economic leader The most dynamic growth performance has been concentrated on the past two centuries (XIX, XX) A. Maddison, The contours of world development (Chapter I) OBLIGATORY READING

18 Population rise in periods of intensive growth Source: Maddison (2007), The conference board, from B.van Ark, 2010, Global Growth and Crises in Historical Perspective

19 Income per capita rise in periods of intensive growth Source: Maddison (2007), The conference board, from B.van Ark, 2010, Global Growth and Crises in Historical Perspective

20 Shares in global economy Source: B.van Ark, 2010, Global Growth and Crises in Historical Perspective,

21 Shares in global economy Source: B.van Ark, 2010, Global Growth and Crises in Historical Perspective,

22 GDP shares in global economy Source: B.van Ark, 2010, Global Growth and Crises in Historical Perspective,

23 Economic leadership (1) (Rostas, 1985): economic leadership: the relative primacy of a country in commercializing a new technology and establishing a dominant position in a major sector the assumption of responsibility for the successful operation of the world economy as a whole Source: B.van Ark, 2010, Global Growth and Crises in Historical Perspective,

24 Economic leadership (2) Economic leadership arises from intensive growth : Population growth, more specifically: a rising share of the working age population A sustainable mix of investment and productivity growth A pioneering role in technological and institutional innovation Source: B.van Ark, 2010, Global Growth and Crises in Historical Perspective,

25 Possible reasons of the erosion of economic leadership Preconditions for the relative decline of leading world economic powers (Kindleberger, 1996): Financialization of the economy and erosion of manufacturing base Overindebtedness (Reinhart and Rogoff, 2008) Currency debasement Overdependence of energy Political corruption and rent seeking Loss of technological leadership A falling share in working age population and skill erosion In other words: extensive growth Source: B.van Ark, 2010, Global Growth and Crises in Historical Perspective,

26 GDP growth in Europe versus the US historical perspective GDP (PKB) [bln 1990 Int GK$] Western Europe (Europa Zach) 12 Western Europe (Europa Zach) 30 Eastern Europe (Europa Wsch) 7 USA Source:own elaboraton based on Maddison Historical Accounts

27 GDP per capita growth in Europe versus the US historical perspective GDP per capita (PKB per capita) [1990 Int GK$] Western Europe (Europa Zach) 12 Western Europe (Europa Zach) 30 Eastern Europe (Europa Wsch) 7 USA Source: own elaboration based on Maddison Historical Accounts

28 GDP per capita with respect to US (1) Source:Crafts & O Rourke, 2014, Twientieth Century Growth

29 GDP per capita with respect to US (2) Source:Crafts & O Rourke, 2014, Twientieth Century Growth

30 GDP per capita with respect to US (3) Source:Crafts & O Rourke, 2014, Twientieth Century Growth

31 History of economic growth and development in Western Europe since 1820s On the base of historical statistics we can distinguish several phases of economic growth in Western Europe since 1820, characterised by: 1. Industrial revolution 2. Wars 3. Catching up period (with respect to the US) 4. Relative slowdown after oil shocks in 1970s Best phase (fast growth of GDP, income per person and productivity): golden age (after the WW II and before oil shocks consequences)

32 Phases of economic growth in Western Europe since 1820 Average annual rates of growth (%),12 Western European countries.* Period Real GDP Real GDP per capita Real GDP per hour worked Belle epoque Technological progress Wars Golden Age Productivity decrease * Austria, Belgium, Denmark, Finland, France,,Germany, Italy, Netherlands, Norway, Sweden, Switzerland, UK Source:Maddison Historical Accounts

33 Phases of economic growth in Western Europe since 1820 updates of Maddison s estimates + projections Source: B.van Ark, 2010, Global Growth and Crises in Historical Perspective,

34 Phases of economic growth and development in Eastern Europe since 1820 Average annual rates of growth (%), 7 Eastern European countries.* Period Real GDP per capita growth *Bulgaria, Czechoslovakia, Hungary, Poland, Romania, USSR/Russia Source:Maddison Historical Accounts

35 Economic growth in Eastern Europe second half of the XXth century After the 2nd WW economic growth in Eastern European countries was highly dependant on their relations with the Soviet Union Years immediately after the 2nd WW were characterised by relatively rapid growth in Eastern Europe, driven mainly by heavy industry (cold war!) and reconstruction after the war However, in 1973 average income per person in Eastern Europe was 60% lower than in Western Europe (golden age!) Situation in Eastern Europe continued to detoriate divergence from Western European standards of living 1990s effects of Soviet Union disintegration and system transformation (output decline, high unemployment)

36 Trends in income per capita second half of XX century GDP per capita (PKB per capita) [1990 Int GK$] Western Europe (Europa Zach) 12 Western Europe (Europa Zach) 30 Eastern Europe (Europa Wsch) 7 USA Source:Maddison Historical Accounts

37 Recent trends in GDP in the EU Source: EU in the world 2013, Eurostat

38 Key terms Directed technical change Industrial revolution Catching up Convergence Divergence, big time (Pritchett, 1997) The great specialization (Robertson, 1938) Catching up, forging ahead and falling behind (Abramovitz, 1986) Economic miracles Technological leadership ICT revolution COMPULSORY READING: Crafts and O Rourke, 2014, Twentieth Century Growth.

39 Sources Materials from A.Parteka Angus Maddison. Historical Statistics of the World Economy: AD (available at GGDC web pages) Angus Maddison, The nature and functioning of European Capitalism: a historical and comparative perspective. Valedictory Lecture at University of Groningen, 1st October 1997, Banca Nazionale del Lavoro Quarterly Review, December, 1997) B.van Ark, 2010, Global Growth and Crises in Historical Perspective, on_paper_nov10_rev3.ppt%20[compatibility%20mode][1].pdf Eurostat GAPMINDER Crafts and O Rourke, Twentieth Century Growth. Handbook of Economic Growth, Volume 2A, Elsevier, 2014, Chapter 6 A. Maddison, The contours of world development (Chapter I)

40 Compulsory reading Crafts and O Rourke, Twentieth Century Growth. Handbook of Economic Growth, Volume 2A, Elsevier, 2014, Chapter 6 A. Maddison, The contours of world development (Chapter I)