Globalization in Historical Perspective

Published by EH.NET (November 2003)

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Michael D. Bordo, Alan M. Taylor and Jeffrey G. Williamson, editors, Globalization in Historical Perspective. Chicago: University of Chicago Press, 2003. ix + 588 pp. $95 (cloth), ISBN: 0-226-06598-7.

Reviewed for EH.NET by William J. Collins, Department of Economics, Vanderbilt University.

The late twentieth-century surge in international trade, capital, and labor flows has been accompanied by a surge in cliometric research on the history of international economic integration and, importantly, disintegration. Globalization in Historical Perspective, edited by Michael D. Bordo, Alan M. Taylor, and Jeffrey G. Williamson, consists of eleven main chapters that synthesize previous research on the history of globalization while frequently adding substantive original insights. As a whole, the chapters interact well with one another, but at the same time, any one of the chapters could stand alone as a provocative introduction to scholarship in a particular area. The volume reads, in some ways, like a handbook of the history of globalization, and I expect that I will assign several of its chapters in graduate economic history courses for years to come. The volume, however, is not written solely for an audience of economic historians. Rather, every chapter is written with an eye toward the most recent rise in global integration, and every chapter attempts to provide a long-run view of the process and its consequences, past and present. Thus, the volume should prove valuable to any scholar interested in the long and winding course the international economy has taken, including the political economy of its detours and dead-ends.

The eleven chapters are grouped into three parts: one on market integration (commodity, labor, and capital); one on convergence and divergence in national incomes and economic structure; and one on financial institutions and international macroeconomic regimes. Approximately four pages of commentary by leading scholars are appended to each chapter. Typically, the end-of-chapter comments clarify arguments, add valuable critical perspective, and pose questions for future research. I will not discuss their content at any length, but readers will find that the quality and the marginal value of the end-of-chapter comments are quite high.

The volume’s span of topics, geography, and time-periods is impressive. It is fair to say that, as in the quantitative economic history literature itself, the book’s coverage of the Atlantic economy from 1820 onwards is more dense than its coverage of other times and places. I would have welcomed a chapter (or more) akin to an updated and abbreviated version of A.J.H. Latham’s book, The International Economy and the Undeveloped World, 1865-1914 (1978), which situates the developing world in the international economy so effectively. But several chapters in the book, most notably the first chapter by Ronald Findlay and Kevin H. O’Rourke (“Commodity Market Integration, 1500-2000”) and the entire second section of the volume (four chapters on “The Great Divergence, Geography, and Technology”) do extend their coverage as widely as possible and directly investigate the economic consequences of interactions among places at different stages of development.

The first three chapters are: “Commodity Market Integration, 1500-2000” by Findlay and O’Rourke; “International Migration and the Integration of Labor Markets” by Barry R. Chiswick and Timothy J. Hatton; and “Globalization and Capital Markets” by Maurice Obstfeld and Taylor. Although Williamson did not contribute directly to these chapters, he has in the past collaborated extensively with at least one co-author of each chapter, and the influence of those collaborative efforts is obvious. The Findlay and O’Rourke paper explicitly targets inter-continental market integration, is the most ambitious chapter in terms of temporal coverage, and contains a stunning (but well orchestrated) amount of historical evidence in a comparatively small space. It sets the bar high for all chapters that follow. Chiswick and Hatton’s chapter is especially useful in illuminating the motives and the economic and political impacts of free migrants prior to 1914 and after 1950. While the chapter summarizes research on slavery and indentured servitude, including migration from Asia, I wish it had gone further to link endowments, slavery, institutions, and subsequent growth along the lines of work by Stanley Engerman and Kenneth Sokoloff. The chapter by Obstfeld and Taylor reiterates the “policy trilemma” as an organizing principle for understanding the history of global capital markets. The essential idea is that policymakers may have two of the following three policy features (though they might desire all three): free capital mobility, a fixed exchange rate, and monetary policy that focuses on domestic economic concerns. The authors marshal an array of quantity (capital flows) and price (interest rates) data to illustrate changes in the degree of capital market integration over the last two centuries, including the interwar dislocation. Taken together, these first three chapters provide an effective economic history of globalization in its three central areas: commodity markets, labor markets, and capital markets.

The next group of chapters deals with the role that globalization has played in determining observed patterns of long-run macroeconomic growth and structural change. The first is “Globalization and Convergence” by Steve Dowrick and J. Bradford DeLong. The paper will be a pleasant surprise to anyone who sees the title and thinks “not another GDP/capita convergence paper ….” It takes a fresh view of the data, reconnects the discussion to the landmark work by Baumol and Wolff on the “convergence club” and how nations gain (or lose) membership in that club, and raises several big questions (e.g., Is conditional convergence meaningful? Why does the connection between openness and growth appear to change over time?). The subsequent commentary by Charles I. Jones is equally engaging. Peter H. Lindert and Williamson follow with a chapter that sounds a lot like the previous one (“Does Globalization Make the World More Unequal?”), but that in fact takes a very different approach. By focusing on how globalization affects factor returns (as opposed to income per capita), the authors provide more consideration of within-country changes in inequality while driving home the point that whether one perceives gains or losses from increasing integration may depend on one’s portfolio of factor ownership. Ultimately, the authors argue that inequality between countries has probably been mitigated, rather than augmented, by international economic integration. In “Technology in the Great Divergence,” Greg Clark and Robert C. Feenstra argue that total factor productivity (TFP) is the major component of income inequality across countries, and they go on to investigate whether TFP gaps are related primarily with labor inefficiencies (as opposed to unavailability of best-practice technology or competent managers). To guide their work, the authors undertake a cross-country analysis of railway efficiency, as well as a clever comparison of countries (with emphasis on India) in a Heckscher-Ohlin-Vanek framework (within which the factor content of trade has implications for relative factor productivity). The real sources of TFP differentials are never quite nailed down here, and so the TFP puzzle awaits future research. Nicholas Crafts and Anthony J. Venables put transaction and trade costs at the center of their discussion of “Globalization in History: A Geographical Perspective.” The chapter provides a welcome connection between the history of industrialization, particularly its clustering in the US, and the theoretical economic geography literature that Paul Krugman played a central role in developing in the 1980s and early 1990s.

The final four main chapters explore the historical and institutional foundations of modern financial markets, including their influence on broader macroeconomic performance. In “Financial Systems, Growth, and Globalization,” Peter L. Rousseau and Richard Sylla provide new evidence supporting the hypothesis that solid financial systems significantly enhanced growth performance (particularly prior to 1930), starting with simple historical correlations and progressing to more elaborate econometric analyses. The relevance of this hypothesis for contemporary policy, particularly in developing countries that could benefit from foreign capital inflows, is self-evident. Bordo and Marc Flandreau discuss the history of the relationship between exchange regimes of core and peripheral nations. A key point of their argument is that peripheral countries, lacking “financial maturity,” have had to borrow in terms of foreign currencies, an arrangement that bolsters the incentive to adopt a fixed exchange rate regime (the alternative being a float with more limited access to foreign capital). In response, Anna J. Schwartz offers one of the book’s more lively commentaries, including an alternative reading of the decision by “mature” economies to float their currencies in the late twentieth century and a note that “immaturity may be a euphemism for misguided monetary and fiscal policies” (p. 469). Larry Neal and Marc Weidenmier contribute a chapter on “Crises in the Global Economy from Tulips to Today: Contagion and Consequences.” As the title suggests, they review international financial crises from the 1630s (tulips) to the 1990s, with special emphasis on crises in the late nineteenth and early twentieth centuries. For that period, they examine an impressive collection of high-frequency (weekly) data from short-term capital markets for evidence of international contagion. The results are mixed, but on the whole, the authors lean toward there being little evidence of contagion, at least by the criterion of the modern econometric literature on the subject. The last main chapter is by Barry Eichengreen and Harold James on “Monetary and Financial Reform in Two Eras of Globalization.” The chapter provides a narrative description of how the international financial system has evolved since the nineteenth century, emphasizing gradual, market-driven change, but also including some major reforms and the economic circumstances under which they took place. Specifically, forces promoting significant, abrupt reforms have emerged (and prevailed) when instability in the international financial system was widely perceived to threaten the international trading system.

The volume concludes with relatively short musings on the costs, benefits, and future of globalization by a panel consisting of Clive Crook, Gerardo della Paolera, Niall Ferguson, Anne Krueger, and Ronald Rogowski. These short commentaries effectively zoom out from the previous chapters’ historical and econometric detail, back to the big picture issues associated with globalization. The panel’s members come at these issues from quite different and provocative directions. Together, they remind readers just how much may be at stake in the process of economic integration, and just how important a well-articulated understanding of that process may be in guiding the political responses to globalization. In that regard, this volume makes a valuable contribution.

William J. Collins is an Assistant Professor of Economics at Vanderbilt University and the Model-Okun Fellow in Economic Studies at the Brookings Institution (for 2003-2004). He is the author of “Labor Mobility, Market Integration, and Wage Convergence in Late Nineteenth-Century India,” Explorations in Economic History (July 1999); “Were Trade and Factor Mobility Substitutes in History?” (with Kevin O’Rourke and Jeffrey G. Williamson), in Migration: The Controversies and the Evidence, edited by R. Faini, J. de Melo, and K. Zimmerman, Cambridge University Press (1999); and more recently, “The Labor Market Impact of State-Level Anti-Discrimination Laws, 1940-1960,” Industrial and Labor Relations Review (January 2003).