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A long-term perspective of economic development Topics: Trends and fluctuations in economic well-being Economic approaches and categories Economic development in the really long-run Eurasian landmass versus the rest Population and economic development

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a long term perspective of economic development
A long-term perspective of economic development

Topics:

  • Trends and fluctuations in economic well-being
  • Economic approaches and categories
  • Economic development in the really long-run
  • Eurasian landmass versus the rest
  • Population and economic development
    • The Great Pestilence: a demographic catastrophe
    • The Malthusian model: attempt to explain population change
  • Summing up: determinants of economic well-being

Reading: *Landes, D. S. Wealth and Poverty of Nations, ch.1

    • Findlay & O’Rourke, Power and Plenty, ch. 1
trends and fluctuations in economic well being
Trends and fluctuations in economic well-being
  • “Economic well-being” has many dimensions:
    • income, wages, consumption (of different “goods”), output (aggregate?), mortality, stature (average height)
  • Economics focuses on a summary measure: output per capita
    • Commonly use “real wages”: wages measured in units of output
    • Why so crude? Data limitations. But, fundamentally, some level of abstraction is essential for any explanation (just be honest about it)
    • Focus on intensive measures, i.e. per person: total output divided by population; extensive measures are of aggregate amounts
    • “Subsistence income” = minimum needs, not minimum physical requirements; hence differs across time and among societies
  • What has been the long-term trend in economic well-being?
    • Very slow, almost imperceptible trend growth until around 1800/1820
    • Sharp year-to-year fluctuations dominated human existence in pre-industrial societies: harvest failure, war, pestilence, disasters
    • Large inequalities that varied across the world and over time
    • Recovery from catastrophes could take centuries (e.g. Black Death)
economic approaches and categories
Economic approaches and categories
  • Output (income): crude measure of `economic well-being’
    • Extensive growth: expansion of total output
    • Intensive growth (`economic progress’): changes in output per person
    • Output is a function of factors of production (inputs): Land, Labour, Capital
  • Classical approach (Smith, Ricardo, Marx, and others)
    • Economic progress requires `division of labour’ (specialisation)
    • “Propensity to truck, barter and exchange” promotes the division of labour
    • “... the Division of Labour is Limited by the Extent of the Market” (Smith)
    • Economic progress generates output surplus to basic needs.
    • What determines the amount of surplus, its growth and distribution?
  • Neoclassical approach (modern mainstream economics) focuses on
    • Individual incentives and strategic interactions (decisions & optimisation)
    • Market mechanisms: allocation of resources via the price system
    • Technological advance as the stimulus for economic progress
economic development in the really long run 1
Economic development in the really long-run (1)
  • Following the last glaciation, c11,000BCE, humans found that in some places, settled agriculture is preferable to hunting/gathering:
    • Domestication of plants: cereals, pulses, fruit trees, etc.
    • Domestication of animals: sheep, goats, cattle, pigs, horses.
  • Geographical distribution of wild plants and animals was uneven
    • Hence, some places domesticate them earlier than others.
    • Original locations: Mesopotamia fertile crescent & possibly China
  • Diffusion of domesticated plants & animals is easier across similar latitudes (east<->west, rather than north<->south)
    • Advantage for Eurasia, compared with Americas & Africa.
  • Settled agriculture enables higher population densities, but
    • greater opportunities for infectious diseases
    • greater likelihood for conflict (but hunter/gatherers were very violent too)
  • Settled agriculture may also allow surpluses above subsistence:
    • Opportunities for “taxation” (centralisation of resources)
    • Opportunities for “saving”: accumulation of capital and knowledge
economic development in the really long run 2
Economic development in the really long-run (2)
  • Agriculture−>higher population density−>organised societies:
    • subdue interpersonal conflicts
    • centralisation more effective than communal decision-making
    • enable indirect exchanges of goods and services
    • increased opportunities for geographical specialisation
  • Trade & conquests−>amalgamation of densely populated areas
    • Centralisation of violence (coercion becomes a “state monopoly”)
  • Stratified societies evolve with centralised organisation
    • But there are also diseconomies of scale
      • technology limits communication and transport
  • Spread of ideas (also ideologies & religions):
    • Written languages
    • Technological innovation: initial advantages persist over long epochs
  • Diffusion of languages and technology, as communications allow:
    • Technological advances provide opportunities to exploit geographical opportunities (e.g. water transport) and surmount obstacles
eurasian landmass versus the rest
Eurasian landmass versus the rest
  • Eurasian land mass (similar latitudes) develops technology (including food production), centralised organisations, dense populations, disease resistance
    • The Americas and Africa encompass greater variation in latitude with fewer plant & animal species that are easy to domesticate
    • Australia, Tasmania and Pacific islands relatively isolated
    • Hence, Eurasia well placed to conquer the others, not vice versa
  • But the Eurasian land mass is heterogeneous:
    • Europe: West and East (rough division)
    • East & South East Asia: dominated by China & Japan
    • South Asia: dominated by the Indian sub-continent
    • Asia minor & North Africa: Islamic nations and Ottoman Empire
    • Northern Asia: Russian steppes, Siberia, Mongolia
  • Tropical/sub-tropical regions face different challenges and opportunities relative to temperate zones (even more so, the northern extremes)
eurasia economic integration development to c1500
Eurasia: economic integration & development to c1500
  • Europe was in relative decline after collapse of Roman Empire
    • Dark Ages and Middle Ages, through to c1500
    • Centuries of change, not stagnation but not sustained progress either
    • Contact with rest of world (Asia) via Middle East: upheavals of political & religious conflict, but trade continues too, even expands
  • East Asia: Chinese civilisation developed early relative to Europe
    • Subject to Mongol invasion & domination from 12th to 14th centuries
    • Sea-borne trade with south Asia, gradually extending westwards
    • Overland trade via “silk road”, the Levant and Venice
  • South Asia: long history of diverse civilisations
    • Subject to periodic invasions (e.g. Moghuls) overland from the west
    • Sea-borne trade via Arabia, the Levant and Venice
  • Development of the “European exception” (economic success)
    • A “great divergence” emerged, but when? Probably not until after 1500, some argue not until as late as 1800 (the “California School”)
population and economic development 1
Population and economic development (1)

The Great Pestilence, now known as “The Black Death”:

  • “… undoubtedly the greatest catastrophe to strike the Western World during the last millennium …” (Findlay & O’Rourke, p. 111)
  • Infectious disease(s) that arrived in Europe from Asia, 1348/51, killing 1/4 to 1/3 of population; with successive epidemics until late 1500s
  • Economic consequences: fall in total output; but rise in output per capita
  • Reduction in Labour/Land ratio: increased wages relative to rents; labour gains both absolutely and relatively to land (the other major input)
  • Expansion in land-intensive outputs: animal products, e.g. wool, fall in price, promoting growth of textile industries
  • Increased demand (and higher prices) for beer, wine and oriental spices
  • Stimulus for labour-saving technologies, e.g. printing press; firearms
  • Shift of power in Western Europe’s political institutions from feudal organisation to more modern centralised states
    • More effective capacity to raise revenue, via taxation, possibly promoting expansion of competitive markets and trade
  • “The path to the Industrial Revolution began with the Black Death” (R.C.Allen)
population and economic development 2
Population and economic development (2)
  • Population fluctuations and growth in pre-industrial societies:
    • Long-term growth rate positive but negligible (almost zero)
    • Allow for large fluctuations of, say 30-50%, lasting for centuriesWorld population more stable than local (some complete depopulation)
    • About 2.005 surviving children per female before 1800 (G. Clark)
  • Some convenient shorthand:
    • Let “economic well-being” = “income” (short-hand for “living standard”)
    • “birth rate” = indicator of fertility; “death rate” = indicator of mortality
    • “population” = population density, i.e. per unit land area
  • Malthusian model: a theory of population, that assumes:
    • Birth rates vary positively with income (“preventive check”)
    • Death rates vary negatively with income (“positive check”)
    • Population growth forces a decline of income (per capita)
    • If births>deaths, population grows driving down well-being
    • If deaths>births, population declines driving up well-being
population and economic development 3
Population and economic development (3)
  • Crucial issue: how sensitive were the assumed relationships?
    • How much do births and deaths respond to well-being, and how swiftly?
    • How much does well-being respond to population, and how swiftly?
  • Some `stylised facts’ (rough generalisations):
    • Fertility responds more slowly than mortality to income
    • Fertility differed substantially across cultures
    • Mortality sensitive to disasters (geophysical, climatic, biological, social)
    • Technological progress allows higher income for a each population level
      • But technology progresses slowly and intermittently before c1800
  • Strengths and weaknesses of the Malthusian model:
    • Population is limited by available resources in the long-term (as predicted)
    • But “shocks” (disasters, technological progress, cultural changes) may dominate so that population is always far from its equilibrium level
    • Focus on average income neglects the effects of inequalities in societies
summing up determinants of economic well being
Summing up: determinants of economic well-being
  • Environment and resources
    • Geography, climate, disease and demography (human and animal)
    • Human and non-human capital; Land
  • Culture, philosophy and religion
    • Impact on motives, incentives and opportunities
  • Political and social institutions
    • Individual freedom vs. authoritarian control
    • Rule of law: extent of arbitrary confiscation or taxation
    • Order vs. anarchy: stimulate or retard economic expansion?
  • Markets: “the Division of Labour is Limited by the Extent of the Market”
    • Incentives to trade and save (requires protection of property rights)
    • Competition versus exercise of monopoly power
    • Extraction of surplus: what remains for capital accumulation?
  • Technologies and their application
    • Diffusion of new ideas and incentives for their application(Commercial links promoted the spread of new technologies)
    • Freedom to reap the rewards from investment (capital accumulation)