Generating the Wealth of Nations 18: A Rolling 10-Year Average Annual Rate of Growth for Brazil

Because there was some dicussion about how well (or poorly) Brazil is doing, I used the Maddison Project data to construct the following chart.  What a "rolling 10-year" average annnual rate of growth means is this:  The value shown for 1880 is the average annual rate of growth from 1870 to 1880; for 1881, the average annual rate of growth from 1871 to 1881; and so on.  The final data point is the avarage annual rate of growth from 2000 to 2010.

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What's happening here is not simple to characterize, and I'm guessing it's not simple to explain.  Basically, the rate of growth was rising from around 1900 until the Great Depression hit (almost everywhere) in about 1930), then the rate of growth accelerated again until about 1980, after which there was a decade of stagnation.  (Wasn't there a series of debt crises that affected a lot of Latin America in that decade).  And, finally, we see accelerating rates of growth again from 1990 to 2010.  I'm not familiar with the internal dynamics of Brazil's politics or its economic policies or any cultural or institutional factors that may be relevant.  But at least that's the pattern of things.

Generating the Wealth of Nations 17: Unemployment Rate in the US

I ended  this with 1930, and the unemployment rate leaps upward from 1930 to 1933.  But we're not there yet.  These data are from a number of sources, but mostly from Claudia Goldin's work on reconciling different unemployment rate series.

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Generating the Wealth of nations 16: Labor Productivity in Manufacturing in the US

The following chart shows an index of output per hour worked in US manufacturing from 1874 to 1930; the average annual growth of productivity over this period was 2.16%.  (Data from the Historical Statistics of the United States, Table Series D 683-688.  (This is somewhat slower than the post-World-War-II growth in labor productivity in manufacturing, which has averaged about 3.1% per year.)

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Generating the Wealth of Nations 15: Union Membership in the United States

This chart shows union membership in the US as a percentage of the non-farm labor force.  Until 1935, US law generally did not protect the right of workers to belong to unions.  Indeed, until 1932, and the passage of the Norris-LaGuardia Act (http://en.wikipedia.org/wiki/Norris-Laguardia_Act), firms could, and some did, require workers to affirm that they were not union members, as a precondition of employment.  After the National Labor Relations Act (Wagner Act) passed in 1935, union membership grew rapidly, peaking at over 35% of the non-farm labor force in the late 1950s.

(Click to enalrge.  Source: Walton and Rockoff, An Economic History of the United States.)

Generating the Wealth of Nation 14: Population in the US and in the UK

In 1830, US population was about 13 million, while populationin the UK was about 24 million.  By 1920, their populations were about 106 million and about 44 million respectively.  The average annual rate of growth of the population in the US was 2.4% per year; in the UK, it was 0.7%.  The US had added 93 millopn people, while the UK had added 20 million.  The US clearly had more places to put people, and one of the major differences is that immigration into the US was vastly larger.  My own estimate is that something more than half (probably around 2/3) the US population growth came from immigrants and their descendants, whereas in England, that was a negligible source of population growth. 

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Generating the Wealth of nations 13: The Fixed Price of Gold and the "Real" Value of Gold in the US, 1800-1914

In constructing this chart, I have used the "official" US price of gold, which was $19.39 per ounce from 1800 to 1834 and $20.67 per ounce from 1834 through 1933.  I have adjusted the official price of gold by dividing by the CPI in the US; periods during which the "real" value of gold is falling are periods of inflation, and periods during which the "real" value of gold are rising are periods of deflation.

 

 

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The deflation of the 1820s and the "long deflation" of the 1870s throught the 1890s are evident, as is the inflation curing the Civil War.

Generating the Wealth of Nations 12: US Cotton Exports and the Price of Cotton

Just because I have the numbers.  There's clearly the sort of a relationship economists would expect--as the price of cotton fell, US cotton exports rose.

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Generating the Wealth of Nations 11: US Cotton Exports

This is a follow-up and addendum to the previous post.  As Prof. Borland noted in the lecture, one of the things economists expect to happen in cases in which two countries have different resource endowments, this: If The US has abundant land and scarce labor, while the UK has (relatively) abundant labor and scarce land, the US will tend to specialize in the production of goods and services that are land-intensive, while the UK will tend to specialize in the production of goods and services that are labor-intensive. 

In the US, that implies export specialization in agricultural products, and cotton was the single most important US export before the Civil War.  As the following chart indicates, cotton's share of US exports grew from about 1/3 of total exports to nearly 60% of total exports from 1815 to 1860.  This does suggest specialization according to relative resource abundance.

 

 

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Generating the Wealth of Nations 10: Wages in the US Relative to Wages in the UK, 1800-1914

As Prof. Borland noted in the lecture, one of the things economists expect to happen in cases in which two countries have different resource endowments, this:  If The US has abundant land and scarce labor, while the UK has (relatively) abundant labor and scarce land, the US will tend to specialize in the production of goods and services that are land-intensive, while the UK will tend to specialize in the production of goods and services that are labor-intensive.  Over time, the demand for land will grow relative to the demand for labor in the US, while the demand for labor will tend to grow relative to the demand for land in the UK.  This will result in the price of land in the US rising relative to the price of land in the UK, and the price of labor in the UK rising relative to the price of labor in the US.  (There's actually a famous Theorem in economics about this, the Stolper-Samuelson Theorem.)  I happened to know where to find a series of wage data for the UK and an index of the wages of unskilled labor (with 1860 = 100) for the US (David, Paul A. and Peter Solar, (1977).  "A Bicentenary Contribution to Research the History of the Cost of Living in America," Pages 1-80 in Volume 2 of Explorations in Economic History , Greenwich: JAI Press, Inc. (Table B.1 p. 59).  So I was able to convert the UK wage series into an index centered on 100 in 1860, and then compute the US wage index relative to the UK wage index, also centered at 100 in 1860.  (How's that for a lengthy explanation?)  Here's what it looks like, from 1800 to 1914:

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It shows two periods in which wages in the US fall relative to those in England--during the Civil War and during the 1870s, a period in which the US economy was experiencing severe deflation.  Other than those two episodes, though, it's not apparent that there was a persistent long-term downward trend in US wages relative to wages in the UK.  Even if we would expect that mostly to have happened early in the development in both countreis following the beginning of the Industrial Revolution (because the US economy shifted considerably to a manufacturing base in the last few dacades of the 19th century), that's not apparent either.  So it's probably the case that something else was happening besides the relative factor abundance.

Generating the Wealth of Nations 9: Transportation Costs Within the US

This shows what happened to transport costs in the US from 1800 to 1900, based on data in a couple of Douglass North's books, and which I found in Walton & Rockoff, Economic History of the United States:

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Note that the drop in freight rates is particularly rapid beginning about 1830, which is precisely when India's and China's chare of world manufacturing output starts to fall dramatically.

And the following table shows freight rates on the Mississippi River, to and from New Orleans.  The dramatic drop in upstream shipping was, or course, caused by the introduction of steamships on the river.  (Prior to that, at least according to the legends handed down) is that flatboat or rafts were used to ship goods to New Orleans.  These were then broken up and sold as scrap wood or as firewood, and the crews walked back home (or just stayed in New Orleans).

 

Average freight rates per hundred pounds of cargo between Louisville, KY, and New Orleans, Louisians, 1800 – 1860, from Walton and Rockoff, American Economic History

Time Period	Upstream Rates	Downstream Rates
Before 1820 1820-1829 1830-1839 1840-1849 1850-1859	$5.00 $1.00 $0.50 $0.25 $0.25	$1.00 $0.62 $0.50 $0.30 $0.32

Generating the Wealth of Nations 8: Three "Lagging" European Countries

There's no big point here, just a counterpart to the discussion in the third lecture about the differential timing of industrial "take-off" in Europe.  What we have here are three countries that were "lagging" throughout the 19th century--by the beginning of World War II, two of them had GDP per capita lower relative to England than in the early 19th century.  And only Norway had made any (and that only very limited) progress relative to England:

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By 2010, Norway's real GDP per capita was about 120% of Englands (almost all of the catch-up came post-World-War II), Italy was at about 80% (about where it was in 1820, but down from about 100% in the early 1980s), and Greece was at about 60% (also down from the early 1980s, when they got to 70% of England).  Anyone want to take a shot at explaining this pattern?  I don't.

Generating the Wealth of Nations 7: Some Data on US Cotton Prices 1814-1860

Findlay and O'Rourke (in "Commodity market integration, 1500–2000," one of the suggested readings for Lecture 2) write: 

The literature on these issues is sparse, and to a large extent relies on qualitative evidence, or quantity data, rather than the price data we really need. In a classic article, Crouzet (1964) drew attention to the disruptive effects of the wars on Continental industry. The sea blockade by the British Royal Navy affected Atlantic-oriented export activities severely: shipbuilding, rope making, sailmaking, sugar refining, and the linen industry all suffered. Industrial activity shifted from the Atlantic seaboard to the interior, as import-substituting industries such as cotton textiles flourished behind the protection from British competition afforded by the Continental system.

One thing that does seem clear is that the export price of cotton in the US dropped quite dramatically immediately following the end of the Napoleonic Wars in 1815, from $141 per bale in 1816 to $44 per bale in 1827, a drop of almost 70% (data from D. C. North, The Economic Growth of the United States, 1790-1880, Table A-X, p. 257, and displayed in the following chart).  This is just the opposite of what Findlay and O'Rourke's argument would suggest would happen at the end of an essentially pan-European and pan-Atlantic war.  The price in the importing country would rise during the war because of increased shipping costs (insurance, risk of loss, etc.) and fall during the war in the exporting country (demand would have effectively decreased); these effects would reverse after the war.  So maybe something else was going on as well.

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Generating the Wealth of Nations 6: Financial Freedom and Growth

A recent comment suggested that countries scoring higher on the Heritage Foundation's Index of Financial Freedom will exhibit faster rates of growth in real GDP per capita.  Here's the chart, with a regression line:

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The relationship is not statistically significent, for what that's worth.  Incidentally, the relationship between the Index of Investment Freedom and growth is all but identical.

Generating the Wealth of Nations 5: Real GDP per Capita in North and South Korea

Acemoglu, Johnson, and Robinson (DJR) (in one of the recommended readings, "Institutions as the Fundamental Cause  of Long-Run Growth") use North Korea and South Korea as one of their "test cases" to explore the effects of institutions (and institutional change) on economic development.  Here, graphically, are the data from the Maddison Project:

 

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The first chart simply shows the levels of real GDP per capita in the Maddison Project database.  The second chart is North Korean real GDP per capita relative to South Korea's.

I have a little trouble believing the data.  First, if DJR are correct about the role of institutions, it's odd that it takes two decades for any difference to become apparent in the data.  Second, it's even harder to believe that real GDP per was essentially constant in North Korea from 1973 to 1991 and then (again, at a much lower level) from 1996 to 2010.

I'm willing to believe that the institutional regime change in North Korea (and in South Korea) mattered.  But I'm hard pressed to accept these data as being accurate.
 

Generating the Wealth of Nations 4: Literacy Rates and the Heritage Foundation's Economic Freedom Index; Literacy Rates and Real GDP per Capita

There is not much of a relationship between the heritage Foundation's index and literacy rates.  And while there is a relationship between literacy rates and real GDP per Capita, there is also a substantial number of low-income countries with almost universal literacy.  (Click the charts to enlarge them.)

Generating the Wealth of Nations 3: Corruption and Economic Growth

One of the arguments that comes up when people discuss culture and/or institutions, and their reationship to economic growth, is that corruption represents a barrier to growth.  The Heritage Foundation (and don't get me started about that organization) includes an index of "Freedom from Corruption" (higher scores = less corruption) as a component of their "Index of Economic Freedom."  What I have here is a chart showing the relationship (purley correlation; I do not mean in any way to suggest causation) between the Heritage Foundation's "Freedon From Corruption" index in 2012 and the average annual rate of growth in real GDP per Capita for about 190 countries from 2005 to 2011.
(Heritage Foundation Index data here; real GDP per Capita data here).

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Two things.  The solid line is the plot of a linear regression of growth in real GDP per Capita (dependent variable) on the Index.  The R-squared is small (about 0.04).  And the relation suggests that a higher index (less corruption) is associated with (remember, I do not mean to suggest causation) slower growth.