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Globalization Today and 100 Years Ago It has occurred to many economists and historians that today's increasing level of globalization, which is the increased integration of the world's economies through trade, investment, and immigration, may not be so exceptional if we compare it to the world economy 100 years ago. An interesting and well-researched comparison is presented by Michael Bordo, Barry Eichengreen, and Douglas Irwin (1999), "Is Globalization Today Really Different from Globalization a Hundred Years Ago?," in Susan M. Collins and Robert Z. Lawrence, eds., Brookings Trade Forum 1999, Washington, D.C.: Brookings Institution Press, pp. 1-72. Bordo, Eichengreen, and Irwin answer the question they ask in their title in the affirmative. They conclude that today's world is much more integrated than the pre-World War I world. Trade as a percentage of GDP is not necessarily that much higher today than 100 years ago, but today's economies are much more service oriented. For manufactures, imports and exports are twice as high, as a percentage of production, than they were. Also, international investment is much deeper today than ever before, consisting of a great variety of investments rather than just the international bond sales by governments and railroads as was the case before World War I. Comparisons of globalization now versus 100 years ago are interesting because there are many similarities as well as differences. It is useful to keep in mind how globalization was reversed by World War I and the intentional isolation by many countries after World War I. There is nothing inevitable about globalization, just as there is nothing inevitable about economic growth. Bordo, Eichengreen, and Irwin discuss the likelihood that globalization will again be reversed. Remember, after a century of rapid globalization between 1820 and 1913, we decided to fight two world wars, start a trade war that halved the volume |
of world trade
between 1929 and 1933, create an economic depression that reduced international investment
to a trickle, and isolate ourselves into competing economic systems. Will we be so stupid again?
The discussion by Bordo, Eichengreen, and Irwin is quite encouraging. They conclude that the
world today, because of its better governance, is in a better position to deal with the special
interests who are likely to seek protection and isolation. It is less likely that we will kill
the goose that lays the golden eggs. Why Did Globalization Flourish 100 Years Ago? A new book by Kevin H. O'Rourke and Jeffrey G. Williamson (1999), Globalization and History: The Evolution of a Nineteenth-Century Atlantic Economy, Cambridge, MA: MIT Press, provides many insights into the world's first great venture with globalization between 1820 and 1913. Taking a rather conventional approach based on the standard neoclassical model of international trade (the well-known Heckscher- Ohlin model), O'Rourke and Williamson highlight the key forces that so radically increased the integration of the world economy. The description of the improvements in transportation is especially interesting. Detailed chapters on immigration that brought 40 million Europeans to the Western Hemisphere is worth reading. As pointed out in a thorough review of this book by C. Knick Harley (2000), "A Review of O'Rourke and Williamson's Globalization and History," Journal of Economic Literature, Vol. 38(4), pp. 926-935, O'Rourke and Williamson do not focus much on the dynamic bi-directional relationships between globalization and economic growth. Applying the dynamic relationships, such as technology spillovers, increased competition, and more rapid creative destruction to O'Rourke and Williamson's detailed account of the 1800s is an interesting exercise. |
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In a related article, Kevin O'Rourke and Jeffrey Williamson (2000),
"When Did Globalization Begin?," NBER Working Paper, April, address the timing of globalization.
They conclude that even though there were some increases in world trade earlier in human history,
the sharp increase in trade during the 1800s makes that century truly the beginning of globalization,
which is the widespread growth of international trade, investment, and migration. Re-Examining R&D Spillovers In Section 9.4 of Chapter 9 we examined technology spillovers and the evidence that they are related to international trade. An interesting paper that was not included in our textbook discussion but relates directly to the effects of international trade and investment on technology flows between countries is by Frank Lichtenberg and Bruno van Pottelsberghe de la Potterie (1996), "International R&D Spillovers: A Re- Examination," NBER Working Paper 5668, July. Lichtenberg and van Pottelsberghe de la Potterie recognized that international trade is not the only channel through which technology can move between countries, and they specifically tested whether inward and outward flows of foreign direct investment (FDI) was related to technology flows. They used Coe and Helpman's data base (from the studies mentioned in the textbook) and added data on FDI flows. Interestingly, they found that on the trade side it was imports that was positively related to a country's rate of technological progress, but for investment flows it was FDI outflows, not inflows, that were significantly related to a country's rate of technological progress. Lichtenberg and van Pottelsberghe de la Potterie take this as evidence that the sourcing of R&D research by multinational enterprises in their home countries actually stimulates technological progress there. A very recent paper by Francesco Caselli and Wilbur John Coleman II (2001), "Cross- Country Technology Diffusion: The Case of Computers," NBER Working Paper 8130, February, ( www.nber.org/papers/w8130 ), and |
forthcoming in the American Economic Review, uses data on imports of computers to see
what determines the spread of computer technology. The strongest result of their statistical
analysis is that educational attainment is critical to computer- technology adoption. And the
size of the effect is large: a one percentage point increase in the population with more than
primary education leads to a 1 percent increase in computer investment. Computer investment also
depends on a country's openness to trade with the advanced economies of the world. Thus, the failure
of Brazil's policy of restricting imports of computers in order to foment a domestic computer
industry was due to inappropriate cutting off of precisely the channel of through which computer
technology flows. Interestingly, Caselli and Coleman do not find English language skills across
a country's population to be a significant explanatory variable for the spread of computer
technology: those interested in computers find a way to communicate and pick up the little
English that may be required. In the textbook we signaled the need for further understanding of how technology and ideas flows between countries. It is encouraging that research is continuing. International trade and investment, the key elements of the process of globalization, are increasingly seen as important media for transferring technology. |