EUROPEAN ECONOMIC DEVELOPMENT dr Joanna Wolszczak-Derlacz Lecture 6 and 7 History of European economic growth and development
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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]
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
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
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
History of economic growth Maddison distinguished the following epochs of growth: Agrarianism, 500-1500 Advancing agrarianism, 1500-1700 Merchant capitalism, 1700-1820 Capitalism, 1820- 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
Economic growth when did it take place?(1) Comparison of Income per capita levels Source:Crafts & O Rourke, 2014, Twientieth Century Growth
Economic growth when did it take place?(2) Comparison of Income per capita levels Source: Acemoglu (2008)
Economic growth when did it take place?(3) Comparison of Income per capita levels Source: Acemoglu (2008)
Economic growth when did it take place?(4) Comparison of Income per capita growth rates Source:Maddison, World Development and Outlook 1820-2030
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, www.conferemceboard.org
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
The effects of Industrial Revolution
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;
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
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
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
Shares in global economy 1-1820 Source: B.van Ark, 2010, Global Growth and Crises in Historical Perspective, www.conferemceboard.org
Shares in global economy 1820-2008 Source: B.van Ark, 2010, Global Growth and Crises in Historical Perspective, www.conferemceboard.org
GDP shares in global economy 1-2020 Source: B.van Ark, 2010, Global Growth and Crises in Historical Perspective, www.conferemceboard.org
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, www.conferemceboard.org
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, www.conferemceboard.org
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, www.conferemceboard.org
GDP growth in Europe versus the US historical perspective GDP (PKB) 10000000 9000000 8000000 [bln 1990 Int GK$] 7000000 6000000 5000000 4000000 3000000 2000000 1000000 0 1 1821 1832 1843 1854 1865 1876 1887 1898 1909 1920 1931 1942 1953 1964 1975 1986 1997 2008 Western Europe (Europa Zach) 12 Western Europe (Europa Zach) 30 Eastern Europe (Europa Wsch) 7 USA Source:own elaboraton based on Maddison Historical Accounts
GDP per capita growth in Europe versus the US historical perspective GDP per capita (PKB per capita) 35000 30000 25000 [1990 Int GK$] 20000 15000 10000 5000 0 1 1820 1830 1840 1850 1860 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 Western Europe (Europa Zach) 12 Western Europe (Europa Zach) 30 Eastern Europe (Europa Wsch) 7 USA Source: own elaboration based on Maddison Historical Accounts
GDP per capita with respect to US (1) Source:Crafts & O Rourke, 2014, Twientieth Century Growth
GDP per capita with respect to US (2) Source:Crafts & O Rourke, 2014, Twientieth Century Growth
GDP per capita with respect to US (3) Source:Crafts & O Rourke, 2014, Twientieth Century Growth
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 1950-1973 (after the WW II and before oil shocks consequences)
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 1820-1870 Belle epoque 1870-1913 Technological progress 1913-1950 Wars 1950-1973 Golden Age 1973-1996 Productivity decrease 1.7 0.9-2.2 1.3 1.6 1.8 1.2 1.8 4.6 3.8 4.7 2.1 1.7 2.1 * Austria, Belgium, Denmark, Finland, France,,Germany, Italy, Netherlands, Norway, Sweden, Switzerland, UK Source:Maddison Historical Accounts
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, www.conferemceboard.org
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 1820-1870 0.6 1870-1913 1.2 1913-1950 1.0 1950-1973 3.9 1973-1996 -0.3 *Bulgaria, Czechoslovakia, Hungary, Poland, Romania, USSR/Russia Source:Maddison Historical Accounts
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)
Trends in income per capita second half of XX century GDP per capita (PKB per capita) 1950-2008 35000 30000 [1990 Int GK$] 25000 20000 15000 10000 5000 0 1950 1952 1954 1956 1958 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 Western Europe (Europa Zach) 12 Western Europe (Europa Zach) 30 Eastern Europe (Europa Wsch) 7 USA Source:Maddison Historical Accounts
Recent trends in GDP in the EU Source: EU in the world 2013, Eurostat
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.
Sources Materials from A.Parteka Angus Maddison. Historical Statistics of the World Economy: 1-2008 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, http://www.ggdc.net/maddison/maddisonconference2010/maddis 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)
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) http://www.ggdc.net/maddison/oriindex.htm