Chapter 3 Flashcards
(34 cards)
Prerequisites of Growth:
Institutions
Human capital
Physical capital
Inhibitors of Growth
Terrain
Climate
Size of land mass
Landlocked or remote
Theories of Growth: North and Weingast
- British institutions are superior (help secured property rights) compared to Spanish and Portuguese institutions -> helps explain the difference in economic growth between North and South America
- BUT: Argentina is rich for a time, and the British Caribbean is poor
Theories of Growth: Acemoglu, Johnson & Robinson
- Climates determine economic growth.
- If there is good climate -> settlers create settlements -> institutions are established and this propels economic growth
- This thus explains why North America grows well while Latin America and the Carribean does not
- Lower likelihood of dying (lower mortality) -> correlates with high GDP per capita
- BUT: The argument does not fully explain economic growth
Theories of Growth: Engerman and Sokoloff
Countries that grow sugar -> operate on slavery and exploitation -> creates inequality -> creates rent-seeking rulers -> poor schools -> low human capital -> low growth rates
Countries that grow wheat have no such problems
This is a highly plausible argument
Theories of Growth: Allen, Murphy, Schneider
Real wages in Latin America (equal to Spanish wages) < North America wages (equal to English wages) from early colonial period. The ration was 2:1.
High initial productivity creates path dependency -> surplus of income -> investment in education and innovation for productivity enhancing machinery
Only works of migration is voluntary -> in presence of slavery, slave owners have higher returns
Long run income growth for whites has been low in the American South, suggesting that an Engerman and Sokoloff “Slave plantation agriculture leads to bad institutions” has merit
India
North and Weingast
British Institutions in India offered secure property rights and limited but effective government. But India remained poor
India
Acemoglu, Johnson & Robinson
India represents a case where Europeans did not settle in large numbers and yet they did not create the institutions of extraction either
India
Engerman and Sokoloff
Crops are not chosen by London, and there are not rent seeker rulers.
India
Allen, Murphy, Schneider
India is already heavily populated, and does not need to attract immigrants.
Marx view on India and the Empire
- Argues that England’s mission in India is the annihilation of old Asiatic society which was primitive, and the laying of Western society in India that was dedicated to materialism and progress
- Later on, Marx saw colonialism as exploitative, with money flowing out of the conquered nations (periphery) towards the imperial nation (core).
- BUT: Payments to London were <1% GDP, including dividends on London financed railways
British policies in India
- Enforced property rights to land (initially held communally) with no preference for white people -> benefitted current residents on the land rather than white people
- Eliminated/reduced slavery and serfdom
- Irrigation, to Madras and interior regions
- Built lots of railways
- Low taxes (<3% GDP)
- Access to lower cost capital -> low social overhead capital such as airports and railways
- Access to machinery and expertise
- Resulting Effects
- Building blocks for future growth but not sufficient for growth
- Extensive growth from irrigation
- BUT: The UK Raj is indifferent to famines and success of Indian economy -> not a developmental state nor cares about local welfare -> Indian GDP growth rates is between 1 and 2% but GDP per capita decreases from 1% to 0.2%
Indian development: Agriculture
- For most of India’s history, industry is the main source of growth
- Agriculture dictated by monsoon -> 9 dry months therefore highly dependent on a strong monsoon
- Wheat and rice yields were the same in 1910 as in 1600 -> no productivity growth in the sector
- Average marriage age is 13 years old
- Indian wages are at Malthusian subsistence -> From 1690 to 1870, Indian subsistence ratio is at 1
Indian development: Industry
- Industry grows remarkably well, especially 1880-1914.
- 4th biggest cotton industry in the world
- The origins of the Tata steel company
- Driven by local entrepreneurs and finance but is helped with imported machinery and expertise
- Highlights a voluntary “core-periphery model”
- BUT: Only 2-3% of workers are in the modern industrial sector by 1900
Indian railways
- The British Imperial Indian government built lots of railways in modern day India, Pakistan and Bangladesh
- The Government had three motives for building railroads:
- Military
- Commercial
- Humanitarian
Advanatages of Indian railways
- Speed -> 600km a day vs 20km for a bullock vs 100km for steam ship
- Price -> 75% less that road, 66% less than river, 50% less than coastal shipping
- Reliability -> all year, irrespective of rainy season, dry season, etc
- Railways were efficiently run -> TFP increases from 100 in 1874 to 250 in 1910 -> TFP was matched by Japan but better than UK and France
Effects:
- Railway access raises real income by 16 percent.
- Half of the real income effects come from decreased trade costs which allowed greater trade, and Ricardo-style specialisation
Why nations fail:
Compares the difference between Nogales Arizona and Sonora to show how the instiutions determine the economic outcomes
The establishment of the US involved democratic pracitces which means politicians strive to do their best, as they can be replaced.
In sonora, the colonial institutions set up created a setting for extractive institutions, as it created a power struggle and authoritarian leadership
- Acomayo uses agriculture for substinence while Calca grows the same crops and sells them on the market.
- The income in Calca is approx. 3 times that in Acomayo.
- The roads on the way to the cities als differ
- The road to Calca is more surfaced and smooth whereas the one to Acomayo is in a state of disrepair; it is much harder to get to Acomayo than it is to Calca from the regional capital (Cusco)
- Note: Acomayo was in the catchment area of the mita (the pool selected for forced labour)
Karl Marx on the Role of England arriving to India
British Annihilate the old Asiatic regime (destructive) and they lay the foundations for an established western society in India
There was an opening for potential growth in capitalism and industrialisation.
Marx had the expectation that the British rule over India, would bring new elements like electric telegraph, (western) education and political unification etc. in order for any ‘social’ progress to occur
The main hope was that colonialism would lead to a mirror image of the establishment of capitalism within the economies.
English colonialisim in India in 1860
colonialism was seen as a set-back and an obstacle in the capitalist development of India (led to the overthrow of the British rule).
1857 revolt
Why did the capitalism/colonialism interface was not conductive to the growth of capitalism in the colony but allowed for capitalism growth in the colonising country?
- Division of labour meets the requirements of the main centres of modern industry; it therefore converted one part of the globe into a chiefly agricultural field of production in order to supply the industrial field of the other part’. Britain benefited from the lack thereof industrial development in India and strengthened the process of surplus appropriation (the implication to sell surplus grain or goods from the agricultural economy to the state (or in this case the colonising country) ) through unequal exchange.
Unequal exchange
involves trade between economies with different productivity levels where commodities are exchanged between the higher and lower productivity economies (with the lower having a higher labour input) for the same market value. Britain obtain more out of that exchange than India since their input of labour is much larger than India, meaning their costs are higher.
- Any ‘new elements’ came about in colonial retrospect and therefore ad no regenerative effects on the colony.
- There was no evidence that colonialism was even a stepping stone towards capitalism establishment or development in the economy (seeming its exploitative nature ).
End result of British intervention
In the colonial context meant that the expected development appeared in the colonising country rather than the colony and further strengthening that system. The cycle of agricultural sector to industrialisation was completed abroad. Commodity production was in response to ‘forced commercialisation’ (the need to produce for financial gain of the metropolis), when output and exports did increase they were sent abroad to the colonising nation rather than perpetuating growth in the colony.
In India, what happened to agricultural output between 1911-1941?
Fell by 0.72%
1891-1946: Crop yields per acre declined by 0.01%
Largest economy in the sector
Result
- Famines
- Second largest industry was textiles and they suffered too
