Introduction to Economic History and the Global Economy (Vocabulary Flashcards)
Introduction to the Notes on Economic History and the Global Economy
This set of notes summarizes the material from Pages 1–9 of the provided transcript, focusing on the broad questions, key concepts, and foundational ideas that frame the study of global economic history and development. The notes reproduce major points, definitions, examples, and implications, with explicit references to data, terms, and theoretical strands mentioned in the text. Where relevant, formulas and numerical references are included in LaTeX format.
Why the world is not equally developed; the Great Divergence and the Globalization era
Central question: Why isn't the whole world developed? This has animated thinkers for millennia but gained particular urgency over the last three centuries as Europe’s economic performance decoupled from other regions.
The Great Divergence: The historical gap between rich (developed) and poor (developing) regions, especially pronounced as Europe industrialized earlier than much of the world.
Post-World War II effects: Devastations spurred policymakers to focus on improving global development; the Great Recession (2007–2008) renewed concerns about the stability of growth, inequality, and environmental consequences.
Post-1989 globalization: Eastern European countries shifted from central planning toward capitalism, seeking prosperity comparable to Western Europe; global integration accelerated.
Ongoing tensions: Growth in major developing economies continued even as environmental degradation, cultural disruption, and rising inequality emerged as new global challenges. Sub-Saharan Africa remains far from benefiting from modern economic growth.
Policy question and missteps: Many attempts to “copy” rich-country methods failed due to mistaken analyses of why rich nations succeeded. The idea is to learn from past experiences rather than imitate a universal recipe.
Shifts in thinking and measurement: International agencies have broadened their conceptions of economic progress; economists seek a unified theory of growth, yet historical experience is used to test whether theories explain real-world variation.
Quick takeaway: The book aims to highlight and analyze historical episodes of growth and decline worldwide, extracting lessons to avoid past mistakes and to illuminate pathways to brighter futures for the world economy.
The role of globalization and the evolution of institutions
Current period of globalization: A matter of debate whether it began in the early 1970s or the late 1980s.
Financial globalization began on August 15, 1971, when the United States withdrew from the Bretton Woods system. The result was a rapid liberalization of capital movements and policy changes in global finance.
Real-economy globalization accelerated after the fall of the Berlin Wall (November 9, 1989) as more economies joined international financial and policy frameworks.
Washington Consensus vs. Copenhagen Criteria:
Washington Consensus: Emphasized creating market-oriented institutions immediately—privatize, liberalize, stabilize.
Copenhagen Criteria: Emphasized building EU-like political, bureaucratic, and economic institutions before or alongside market reforms.
IMF/World Bank evolution: Added human development indicators (1990) and later the Doing Business index (2001) to measure the ease of doing business; capital controls gained temporary acceptance after the 2008 crisis.
EBRD and transition economies: The European Bank for Reconstruction and Development issues Transition Reports to track progress and increasingly include broader institutional indicators (financing access, property rights, business formation).
Theoretical integration: Over time, institutional factors became embedded in growth models; early growth theory focused on capital accumulation, but subsequent theories recognized the roles of institutions, governance, and enablements for innovation and diffusion of technology.
Core insight: Institutions, governance, and the enabling environment shape whether individuals and firms can adopt innovations, access finance, and participate in markets—these factors often determine growth outcomes as much as physical inputs like land and capital.
Key quote to remember: Douglass North asserted that institutions form the incentive structure of society and that political/economic institutions are underlying determinants of economic performance; the interaction between institutions and organizations shapes institutional evolution (North, 1993).
Development, growth, and progress: definitions and measurement foundations
Purpose of the terminology:
Growth: A sustained rise in total output (modern context typically GDP). It can happen with or without per-capita gains.
Development: Growth accompanied by substantial structural or organizational change (e.g., shift from subsistence to markets, or growth in manufacturing/services relative to agriculture).
Progress: A normative term; not automatically linked to growth or development because higher income does not imply better distribution or positive social outcomes, and aggressive production can cause negative externalities (e.g., environmental harm).
Measurement cautions:
GDP, GNI, and GNP: Distinct concepts, but in practice they tend to move together; real income is the appropriate comparison measure across time and places, requiring adjustment for price changes and purchasing power.
Real vs. monetary terms: Monetary values can be unstable; real income seeks constant purchasing power.
Composition matters: A country with high manufacturing output may have different welfare implications than one with the same value concentrated in agriculture or services.
Determinants of growth vs. development: Not simply a matter of inputs; technology, organization, and human capital shape productivity and sustainable growth; population dynamics interact with resources and technology under different institutional regimes.
The book’s stance: It does not provide a universal recipe; it offers historical analysis to uncover fundamentals, enabling more objective understanding of why nations differ in their development trajectories.
The determinants of economic development: beyond the simple factors of production
Classical factors of production: Land, labor, and capital; sometimes entrepreneurship is added as a fourth factor.
Limitations of a purely factor-based view: Tastes, technology, and social institutions are not fixed; they evolve and shape production possibilities.
Deep determinants: The dynamic sources of change lie in technology, organizational improvements, and institutional evolution; these drive sustained growth and development.
Endogenous growth perspective: Emphasizes that technology and institutions can be formed from within the economy, not just exogenously given.
Endogenous growth theory and enablements:
Requires incentives to innovate (e.g., stable political and economic environment).
Requires enablements so innovators can implement ideas (e.g., access to finance, property rights, and supportive legal frameworks).
Key theoretical anchor: Douglass North’s view that institutions are central to economic performance, combining formal rules with informal norms and enforcement characteristics; institutions interact with organizations to shape growth trajectories.
The role of capital, population, and productivity: While additional people can generate more ideas, effective growth requires enabling conditions and scalable institutions.
Practical implication: The empirical relevance of institutions and governance means policy should focus on building credible, inclusive, and adaptable frameworks that facilitate investment, innovation, and inclusive access to resources.
Population, resources, technology, and institutions: the core engine of growth
Population dynamics and the Malthusian trap:
Long-run growth requires breaking out of the trap where population growth outpaces the growth of productive capacity.
Endogenous growth theory explains how technology, ideas, and institutions can raise productivity, enabling population growth to sustain, rather than drag down, living standards.
Resources and natural capital:
Resources include not only land and climate but also human-made capital like irrigation, infrastructure, and institutions that enable resource use.
Human capital and knowledge are long-lived resources; their accumulation raises output per worker and supports sustained growth.
Technology as the driver:
The role of technological change has become central to explaining long-run increases in living standards; technology expands the set of feasible production possibilities.
Institutions and social structure:
The organization of the state, legal system, religious or ideological beliefs, and social classes influence how institutions function and how resources are allocated.
Institutions ensure continuity and stability but can also hinder development if they constrain labor mobility, capital allocation, or diffusion of innovations.
The balance of barriers and innovation: Institutional barriers can impede development, yet institutional innovations (markets, money, patents, insurance, modern corporations) can unleash growth. The following chapters promise a detailed treatment of these themes.
Production, productivity, and the rise of human capital
Production and measurement:
Production is the process of turning inputs into goods/services; it can be measured in physical units or monetary terms.
For cross-commodity comparisons, physical outputs must be valued in monetary terms, recognizing price differences and substitution effects.
Productivity and total factor productivity:
Productivity = useful output / inputs; can be measured in physical units or value terms.
Total Factor Productivity (TFP) captures the efficiency of all factors together, going beyond inputs to explain output growth.
The role of human capital:
Human capital arises from investments in knowledge and skill (education, training, experience).
Empirical evidence indicates that increases in total output are driven by productivity gains (technology, organization, and human capital) rather than solely by increasing input quantities.
Notable driver: investments in human capital have raised productivity and enabled higher living standards over the last two centuries.
The role of specialization and division of labor:
The classic example: division of labor in pin production increased efficiency; historical precedents include shipbuilding in Venice and merchant ships in Amsterdam. Specialization and coordination yield substantial productivity gains.
The ultimate resource concept:
Human ingenuity and education are seen as central to sustaining growth, enabling societies to exploit resources more effectively.
Economic structure and structural change: sectors, Engel's Law, and the shift to services
Economic structure and its sectors:
Primary sector: extraction from nature (agriculture, forestry, fishing).
Secondary sector: transformation of natural products (manufacturing, construction).
Tertiary sector: services (retail, finance, professionals, government).
Observed historical shifts:
For millennia, agriculture dominated; in many low-income nations this remains true.
Over time, agricultural productivity rose, allowing labor to move to secondary activities (manufacturing) and then, in many advanced economies, to tertiary services.
Since around 1950, advanced economies have shifted even more toward the tertiary sector.
Explaining structural change:
Supply-side explanation: rising productivity in agriculture frees labor for other sectors.
Demand-side explanation (Engel's Law): as income rises, the share of expenditure on food declines, shifting demand toward manufactured goods and services.
A related insight: as income grows, demand for all goods/services rises but at different rates; services often grow faster as incomes rise.
The role of relative prices:
Structural change is driven by changes in relative prices (and wages), with resources reallocating toward the uses that offer higher rewards.
Implications for growth and development: Structural change indicates the economy’s modernization path, the diversification of output, and the development of more complex economic activities.
The logistics of economic growth: logistic curves and epochal growth patterns
The logistic curve (S-curve):
The logistic curve describes an initial accelerating growth phase followed by deceleration, asymptotically approaching a limit.
General form (biological and social growth): N(t) = rac{K}{1 + A e^{-rt}} where K is carrying capacity, r is growth rate, and A is a constant determined by initial conditions.
Population and growth surges in Europe: historical episodes show successive logistic-like growth phases in Europe, with each phase accompanied by economic expansion.
The Great Plague and population dynamics: the Black Death of 1348 dramatically reduced population, followed by a period of stagnation and later renewed growth, consistent with logistic-like patterns.
A potential fourth logistic on a world scale: some scholars argue for continued global growth surges after World War II.
Link between population growth and economic growth: during accelerations in population, total and per-capita output tended to rise, indicating that population dynamics and economic growth were closely linked during these epochs.
Tradeoffs and hardship during decelerations: the decelerating phases of the first two logistic curves coincided with deteriorating living standards in some regions, even as pockets of prosperity persisted in certain cities or areas.
Adam Smith’s intuition: the idea that labor conditions improved in some phases of rapid growth is echoed in his remarks about the laborer during the accelerating phase of growth (contextual reference to the third logistic).
Data, indicators, and the meaning of “development” in practice
Per-capita income benchmarks (selected snapshots):
2011 PPP-adjusted incomes illustrate wide disparities: United States ~ $50,000; Norway ~ $61,500; Euro area ~ $35,000; Democratic Republic of the Congo ~ $340.
These figures highlight large gaps between high-income and low-income regions, even as global population exceeds 7 billion (2011).
Shared structural patterns across income groups:
The BRICs (Brazil, Russia, India, China) demonstrated notable progress in the past two decades, although disparities persist.
Global inequality remains substantial and increasingly complex, with low-income populations concentrated in sub-Saharan Africa.
Population, income, and structure indicators (Table 1-2):
Health Development Index, energy use, women in wage nonagricultural employment, and time to register property (days) vary systematically with income level.
High-income countries tend to have higher life expectancy, lower birth rates, and greater ease in establishing property rights (shorter registration times) compared to middle- and low-income countries.
Example table content (summarized):
High-income countries (e.g., United States, Australia, Canada, Germany, United Kingdom, Japan) show higher GDP per capita and higher service shares; some exhibit high energy use and positive gender participation in wage labor.
Middle-income to low-income countries show a wide range in sector shares and development indicators, with agriculture occupying a larger share in lower-income economies and services/industry dominating in higher-income economies.
The human development index (HDI) and the link to income: higher per-capita income correlates with higher HDI, reflecting better health, education, and living standards.
Structural indicators and policy relevance: indicators such as “time to register property” reveal how institutional efficiency correlates with development levels and economic potential.
Conclusions from 2011–2013 data: despite the 2008 financial crisis, global living standards rose in aggregate, but confidence in growth policies and limits to growth were increasingly acknowledged, necessitating a rethink of conventional wisdom about development paths.
The historical approach to economic development: why study the past?
The value of historical analysis: It isolates fundamentals of development, avoids single-country bias, and informs policymakers about long-run patterns beyond short-term fluctuations.
The risk of ignoring history: Assuming contemporary conditions are unique can mislead policy; the uniformity of natural laws and human behavior underpins scientific inquiry and the value of historical perspective.
Scope and limits of the book: It aims to introduce economic history and development, focusing on major episodes and lessons rather than offering a universal theory or universal policy recipe.
The role of past lessons: By examining historical successes and failures, the book intends to guide present and future policy, highlight institutional prerequisites for growth, and illuminate how to avoid repeating past mistakes.
Notable concepts, terms, and definitions (quick glossary)
GDP (Gross Domestic Product): total value of goods and services produced within a country’s borders.
GNI (Gross National Income) and GNP (Gross National Product): measures that incorporate income from residents abroad and income earned by foreigners within the country, respectively; often move with GDP in empirical analyses.
Real income: income adjusted for price changes to reflect constant purchasing power.
Human Development Index (HDI): composite measure of health, education, and income used to assess development levels.
Engel's Law: as income rises, the proportion of income spent on food falls; this helps explain shifts from agriculture to manufacturing and services as economies develop.
Structural change: shifts in the economy’s composition across sectors (primary, secondary, tertiary) and the resulting changes in employment and output shares.
Total Factor Productivity (TFP): a measure of the efficiency with which all inputs are used in production; captures effects of technology, organization, and human capital beyond input quantities.
Endogenous growth theory: growth driven by internal dynamics (technology, ideas, institutions) rather than solely by external factors;
emphasizes the importance of incentives and enablements (e.g., institutions that support innovation and finance) for sustained growth.
The Washington Consensus: a policy framework emphasizing market-oriented reforms as a prerequisite for growth.
The Copenhagen Criteria: EU admission requirements focusing on political and economic institutional development.
The “ultimate resource”: a term often used to denote human capital and knowledge as the most important long-run resource for growth.
Connections to broader themes and real-world relevance
The historical process of globalization has reshaped policy debates about development strategies, institutions, and the role of international organizations.
The balance between market liberalization and institutional development remains central to policy design, especially in transition economies and developing countries.
The lessons from the past highlight that growth alone is not sufficient for welfare; distribution, inclusion, and sustainability are essential components of development discussions.
The emphasis on human capital, technology, and institutions aligns with current policy priorities in education, research and development, financial systems, property rights, and governance reforms.
Quick reference: formulas and numerical anchors mentioned in the text
Logistic growth form (illustrative):
N(t) = rac{K}{1 + A e^{-rt}}
Where: K is carrying capacity, r is intrinsic growth rate, and A is a constant set by initial conditions.
Conceptual relationships:
Real income measures use constant prices to compare across time; placeholder relationships such as per-capita output growth versus population growth are discussed, with the key caveat that per-capita growth may lag if population grows faster than output.
Key data anchors (illustrative):
2011 global population: >7 billion.
2011 PPP-adjusted per-capita incomes: high-income countries around $50k–$61k, Congo around $340, etc.
Share of global population vs. share of income varies significantly by income group (e.g., high-income groups represent ~16% of population but >54% of income).
Selected sector shares (examples from Table 1-2):
High-income countries often show substantial service shares; manufacturing often ranges from ~20–40% in some economies; agriculture's share declines with development.
Important historical milestones (dates):
1944: Bretton Woods system established.
1971: End of Bretton Woods (U.S. move away from fixed exchange rates).
1989: Fall of the Berlin Wall and acceleration of globalization.
1990: Wave of reforms and Russia’s coup attempt highlights the Soviet Union’s fragility.
1990–2001: Human development indicators begin to be integrated into IMF/World Bank policies; Doing Business index introduced in 2001.
2008: Global financial crisis and Great Recession.
Illustrative historical phenomena:
The Great Plague (1348) and subsequent population dynamics in Europe.
The shift from agriculture to manufacturing and then to services, driven by productivity growth, technology, and changing demand patterns.
The role of capital markets, financing, and access to external financing in enabling new technologies and institutions to diffuse.
Summary takeaway for exam readiness
Development is not a mere outcome of capital accumulation; it requires the right mix of technology, institutions, and human capital, coupled with the ability to allocate resources efficiently in response to changing relative prices and demand.
Institutions matter: rules, norms, enforcement, and governance structures shape incentives, enablement, and the diffusion of innovations.
Structural change and differentiation by sector (primary/secondary/tertiary) are central to understanding growth trajectories and living standards.
The study emphasizes historical context to avoid overgeneralized prescriptions and to understand the real-world constraints and opportunities faced by different economies across time and space.
Data limitations and methodological challenges are acknowledged, especially when comparing across time and places with different prices, institutions, and sector compositions.
The overarching goal is not a universal recipe but a nuanced, historically informed framework for analyzing why some nations became rich and others did not, and how policy can foster sustainable and inclusive growth in the future.
Capital controls are measures implemented by a government to regulate or restrict the flow of capital into and out of a country. These controls can take various forms, such as taxes on financial transactions, quotas, or outright prohibitions on certain types of international capital movements. According to the notes, capital controls gained temporary acceptance in policy discussions after the 2008 financial crisis, indicating a shift in perspective on their utility in managing economic stability.