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Lecture 16
The Tripartite World
Years 1820-70 1870-1914 1914-45 1945-89 1989-Present
Dominant pattern of global economy
Beginning of modern economic growth in Europe and the challenge to the rest of world
Globalization Mark I: Networks under European hegemony
Civil war among the economic leaders; financial turmoil and Depression
The Tripartite World
Globalization Mark II: Networks under Sovereignty, with U.S. predominance
Global Politics European Political change; European challenges to traditional empires
European dominance; Colonial rule or quasi-colonial rule. Independence in Americas
Crisis and war in Europe; imperial rule in other regions; new statism (bolshevism, fascism)
First, second and third worlds
Cold War
Adoption of market economies; collapse of second world; Third-wave of democratization
Technological advance
First industrial revolution
Second industrial revolution (electrification, chemistry, transport)
Continuation of second industrial revolution
Third industrial revolution (biology, information and communications, transport)
Intensification and acceleration of technological change
International economic management
Treaties among European powers
Unequal treaties between Europe and rest of world
First attempt at global cooperation (League of Nations)
Global cooperation in Bretton Woods institutions, GATT
Stronger harmonization of policies, especially birth of WTO
Global Monetary arrangements
multiple arrangements, not harmonized
Predominance of the gold standard, beginning of international cooperation
collapse of gold standard; failure to reconstruct the gold standard
Bretton-Woods system of currencies (1946-1971); mixed floating and fixed afterwards
Floating exchange rates, new currency areas, especially Euro
The Tripartite World, 1945-1989
1. First-World reconstruction After WWII
2. Second-World increase in scope (China, Eastern Europe)
3. Third-World search for a political and economic “ThirdWay”
Some Milestones on the Reconstruction of the “First World” Economies
• Bretton-Woods Institutions, 1946• GATT (General Agreement on Tariffs and Trade), 1947• NATO alliance, 1949• Marshall Plan, 1947-1952• Aid to Japan, 1946-early 1950s• Treaty of Rome 1957• Convertibility of European Currencies 1958• Convertibility of Yen 1964• Multilateral trade rounds under the GATT• Establishment of WTO, 1994
Some Milestones in the rise and decline of the “Second World” Economic system
1917 Bolshevik Revolution1928 First Five-year Plan in the Soviet Union1945 Soviet occupation of Central and Eastern Europe1949 Chinese Communist Party victorious in Civil War1950s Wars of revolution in post-colonial countries1960s Early experiments on market-type reforms in socialist
economies; crushed by end of decade1970s Bankruptcy of some socialist economies (e.g. Poland)1978 Beginning of Chinese economic reforms1986 Perestroika reforms under Soviet system1989 Fall of Berlin Wall, collapse of Socialism in Central
and Eastern Europe1991 Fall of Soviet Union
Some Milestones in the Rise and Decline of the “Third-World” Economic systems
• State-led industrialization under Ataturk, 1920s-30s• Heterodox economic policies in Latin America during Great• Depression• Post-colonial independence (e.g. India, 1947; Indonesia, 1950; • Egyptian Revolution, 1952)• Indian National Planning, 1950 onward• Non-Aligned Movement, Bandung Conference 1955• Dependency and structuralist theories, beginning 1950s• Demands for “New International Economic Order” 1970s• Developing Country Debt Crisis, late 1970s and generalized in 1982• Structural adjustment era, 1982-2000, involving widespread• Liberalization of trade and financial arrangements
The Tests of “Convergence”
1) Do poorer countries grow more rapidly than richer countries (absolute convergence)?
2) Do poorer countries grow more rapidly than richer countriescontrolling for other factors, such as economic policies andinstitutions, geography, etc. (conditional convergence)?
Three main reasons to expect convergence:
• Higher rates of return on investment in capital-scarce economies• Inflows of investment into poorer economies• Adoption of technologies and narrowing of technological gaps by
the poorer economies
Main reasons for divergence:• pace of technological innovation; and • “disconnectedness” (through autarkic economic policies)
The Gains from Trade:
Specialization (and comparative advantage)
Transmission of Technologyimports of capital goodsintegration into global production
Increased competition
Increased incentive to innovate
Possible Downsides of Trade:
“Infant Industries” don’t mature
(temporary protection could, conceivably, give themtime to learn)
Increased inequality
Geographical advantages; skill advantages
The Problems with Infant Industry Protection
1. The domestic market is too small to promote innovationor learning
Consider the following cases:
Ecuador $16.2 billion (1999)Ghana $7.4 billionBolivia $8.2 billionThailand $121 billion Vietnam $28.2 billion
NYC $338 billionRochester $30.4 billion Springfield $16 billionAnn Arbor $18.8 billion
2. The Protected Industry lacks the incentive to innovate anddevelop
3. The “infant” never grows up
4. The needed technology, at least for critical inputs, canonly be obtained from the rest of the world
Growth, 1975-99 Exports/GNP, 1999
Equitorial Guinea 8.4
China 8.1 22
South Korea 6.5 42
Thailand 5.7 57
Singapore 5.3 200
Hong Kong 4.8 >100
Vietnam 4.8 44
Indonesia 4.6 54
Malaysia 4.2 124
Chile 4.1 27
Fastest Growing Countries in the World (per capita GNP, 1975-99)