New Perspectives on the First Wave of Globalization

Question

By Christopher M. Meissner
The first "Great Wave of Globalization," during the late 19th and early 20th centuries, witnessed a historically unprecedented rise in spatial economic integration. Between 1850 and 1913, transportation costs plummeted, information flows accelerated, tariffs fell, trade treaties such as free trade agreements with unconditional most-favored-nation clauses and treaty ports proliferated, and empires expanded. In addition, a set of global financial intermediaries flourished, migrants flowed to previously unsettled regions in unprecedented numbers, and economic and political stability was largely the norm.

Unsurprisingly, many commodity prices converged and the export share of total production increased dramatically, dou-bling or tripling in many small, open economies between 1850 and 1914. In addition, new markets opened up to international trade and previously unavailable varieties of goods became accessible. Patterns of specialization and production processes were transformed. All of these forces significantly affected the living standards of those participating. Modern economic growth, meaning sustained rises in the standard of living, became the new norm. Social and political transformations also accompanied this episode of great integration.

My research, in collaboration with Michael Huberman, David Jacks, Dan Liu, Dennis Novy, and Kim Oosterlinck, seeks to shed further light on the causes and consequences of the international trade boom between 1870 and 1914. How much did trade costs actually fall in this period of globalization? What fraction of the rise in trade flows can be explained by the decline in trade costs? What was the relative contribution of geography, policy, and technology in explaining the first wave of globalization? What impact did trade costs and trade integration have on welfare and then on institutional and policy outcomes such as labor standards or the level of democracy?

To help answer these questions we have digitized and compiled a large amount of historical data from national data sources covering bilateral trade flows, GDP, gross production, and many other geographic and policy variables. Comprehensive bilateral trade data were recorded in the 19th century by national authorities and colonial powers, since a large fraction of government revenue came from taxes on international trade. Moreover, as I will detail below, not only can we make use of aggregate bilateral trade data, but economic historians are now able to rely on bilateral, product-level trade flows which provide greater granularity and deeper insight into the mechanics of the first wave of globalization. While research is only just beginning as regards the latter, these data will allow us to gain a greater understanding of forces driving globalization and its connections to economic growth, both in industrial leaders and their followers. Such questions potentially have great relevance today both to developing countries and to leading countries that are being strongly affected by globalization. This brief survey discusses what emerges when we combine these data sets and analyze them with the help of trade theory and modern empirical methods.

Trade Costs and the Determinants of Globalization
Trade costs can be broadly defined as the resource costs of shipping and trading commodities across international borders. When such trade is costly, foreign demand for domestic goods is assumed to be lower than it would be in the absence of such costs. What role did these costs play in explaining the growth of international trade and the types of goods traded during the first globalization? Especially important is understanding how much trade costs mattered relative to other determinants, such as economic growth and comparative advantage.

Previous work in economic history has emphasized the rapid decline in transportation costs and the fall in tariffs.1 However, a number of other trade costs mattered over this period, and not all of them followed the same path as real transportation costs. My collaborators and I have built up a number of historical datasets that allow us to track the evolution and impact over time of trade costs other than transportation and tariffs. For instance, my research with J. Ernesto López-Córdova covering 28 countries between 1870 and 1910 uses a gravity model of bilateral trade flows.2 We find that when two nations adopted the gold standard, trade was higher by 15 percent, on average, relative to non-adopters. Monetary unions, political alliances, language, and trade treaties also affected the direction of trade.

Many other factors determine trade costs, and very often these are unobservable or impossible to measure in any conventional sense. In this case, a structural approach to trade costs can be taken. Jacks, Novy, and I measure trade costs as the scaled difference between domestic and international trade flows.3 The structural approach provides a measure of trade costs in terms of a tariff equivalent, and it is often referred to as the Head-Ries measure. This measure is quite general and is consistent with nearly all leading theoretical models of trade. Our data for the U.S., U.K., and France and their major trading partners between 1870 and 1913 show that trade costs fell at a rate of about 0.3 percent per year, which is significantly slower than the decline in average maritime freight rates of 2 percent per year. Our explanation for this is, first, that our all-encompassing trade-cost measure captures many other frictions which were slower to decline than freight rates. These include border frictions, legal and cultural barriers to trade, and significant rises in tariffs during the period. Another crucial aspect to highlight is that interna-tional integration can only rise when the relative costs of engaging in international trade fall. During this period, the railroad and many other domestic infrastructure projects promoted internal as much as international integration.

After reading this article answer the following:
What is it? Primary or secondary?
Tell me if it is valid why or why not?
Tell me if it is reliable why or why not?
Tell me if it is credible why or why not?

Then answer the blanks : I think it is an example of facts, opinions, or propaganda. (Choose one) I think this because____

Answer 1

What is it? Primary or secondary?
This article is a secondary source. It analyzes and interprets historical data and research concerning the first wave of globalization and draws conclusions based on historical evidence compiled by the author and collaborators.

Tell me if it is valid why or why not?
The article can be considered valid because it presents a systematic analysis of historical data, utilizes established economic theories, and employs empirical methods. The research is grounded in quantifiable data, and the questions posed and answered are based on comprehensive historical datasets that lend support to the conclusions.

Tell me if it is reliable why or why not?
The article is likely to be reliable due to its rigorous use of historical data and the collaboration of multiple researchers. The methods used, such as gravity models, and the reference to relationships between economic indicators (like trade costs, transportation, and tariffs) point to thorough analysis and consistent application of trade theory.

Tell me if it is credible why or why not?
The article is credible, as it is written by Christopher M. Meissner, who is likely an expert in the field of economic history based on the content and depth of the research. The collaboration with other prominent researchers suggests a collective effort to ensure accuracy and validity in the findings.

Then answer the blanks:
I think it is an example of facts. I think this because it provides an analysis based on empirical data, historical records, and systematic research methods, rather than personal opinions, unverified claims, or biased representations.