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The Impact of the Terms of Trade on Economic Development in the Periphery, 1870-1939: Volatility and Secular Change

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Listed:
  • Christopher Blattman
  • Jason Hwang
  • Jeffrey G. Williamson
Abstract
Most countries in the periphery specialized in the export of just a handful of primary products for most of their history. Some of these commodities have been more volatile than others, and those with more volatile prices have grown slowly relative both to the industrial leaders and to other primary product exporters. This fact helps explain the growth puzzle noted by Easterly, Kremer, Pritchett and Summers more than a decade ago: that the contending fundamental determinants of growth—institutions, geography and culture—exhibit far more persistence than do the growth rates they are supposed to explain. Using a new panel database for 35 countries, this paper estimates the impact of terms of trade volatility and secular change on country performance between 1870 and 1939. Volatility was much more important for accumulation and growth than was secular change. Additionally, both effects were asymmetric between Core and Periphery, findings that speak directly to the terms of trade debates that have raged since Prebisch and Singer wrote more than 50 years ago. The paper also investigates one channel of impact, and finds that foreign capital inflows declined steeply where commodity prices were volatile.

Suggested Citation

  • Christopher Blattman & Jason Hwang & Jeffrey G. Williamson, 2004. "The Impact of the Terms of Trade on Economic Development in the Periphery, 1870-1939: Volatility and Secular Change," Harvard Institute of Economic Research Working Papers 2040, Harvard - Institute of Economic Research.
    • Handle: RePEc:fth:harver:2040
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    Cited by:

    1. Tena-Junguito, Antonio & Lampe, Markus & Fernandes, Felipe Tâmega, 2012. "How Much Trade Liberalization Was There in the World Before and After Cobden-Chevalier?," The Journal of Economic History, Cambridge University Press, vol. 72(3), pages 708-740, August.
    2. Paul Castillo Bardález & Jorge Salas, 2010. "Los términos de intercambio como impulsores de fluctuaciones económicas en economías en desarrollo: estudio empírico," Premio de Banca Central Rodrigo Gómez / Central Banking Award "Rodrigo Gómez", Centro de Estudios Monetarios Latinoamericanos, CEMLA, number prg2010, July-Dece.
    3. Nishat Fatima, 2010. "Analysing the Terms of Trade Effect for Pakistan," Trade Working Papers 22828, East Asian Bureau of Economic Research.
    4. Rodolfo Cermeño & María José Roa, 2013. "Desarrollo financiero, crecimiento y volatidad: Revisión de la literatura reciente," Documentos de Investigación - Research Papers 9, CEMLA.
    5. Sambit Bhattacharyya & Jeffrey G. Williamson, 2011. "Commodity Price Shocks And The Australian Economy Since Federation," Australian Economic History Review, Economic History Society of Australia and New Zealand, vol. 51(2), pages 150-177, July.
    6. Junior A. Ojeda Cunya & Gabriel Rodríguez, 2022. "Time-Varying Effects of External Shocks on Macroeconomic Fluctuations in Peru: An Empirical Application using TVP-VAR- SV Models," Documentos de Trabajo / Working Papers 2022-507, Departamento de Economía - Pontificia Universidad Católica del Perú.
    7. Rodolfo Cermeño & María José Roa García & Claudio González-Vega, 2016. "Financial Development and the Volatility of Growth: Time Series Evidence for Mexico and United States," Monetaria, Centro de Estudios Monetarios Latinoamericanos, CEMLA, vol. 0(2), pages 195-232, july-dece.
    8. Khalil Jebran & Amjad Iqbal & Zia Ur Rehman Rao & Arshad Ali, 2018. "Effects of Terms of Trade on Economic Growth of Pakistan," Foreign Trade Review, , vol. 53(1), pages 1-11, February.
    9. Tarlok Singh, 2023. "Do terms of trade affect economic growth? Robust evidence from India," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 31(2), pages 491-521, April.
    10. Francis, Joseph A., 2014. "The Periphery’s Terms of Trade in the Nineteenth Century: A Methodological Problem Revisited," MPRA Paper 57934, University Library of Munich, Germany.
    11. David S. Jacks & Kevin H. O'Rourke & Jeffrey G. Williamson, 2011. "Commodity Price Volatility and World Market Integration since 1700," The Review of Economics and Statistics, MIT Press, vol. 93(3), pages 800-813, August.
    12. Luigi Ventimiglia, 2012. "Commodity markets," Chapters, in: Jan Toporowski & Jo Michell (ed.), Handbook of Critical Issues in Finance, chapter 8, pages i-ii, Edward Elgar Publishing.
    13. International Monetary Fund, 2005. "Russian Federation: Selected Issues," IMF Staff Country Reports 2005/379, International Monetary Fund.
    14. Sambit Bhattacharyya & Jeffrey Williamson, 2013. "Distributional Impact of Commodity Price Shocks: Australia over a Century," CEH Discussion Papers 019, Centre for Economic History, Research School of Economics, Australian National University.
    15. Paul Castillo Bardález & Jorge Salas, 2010. "The Terms of Trade as Drivers of Economic Fluctuations in Developing Economies: An Empirical Study," Premio de Banca Central Rodrigo Gómez / Central Banking Award "Rodrigo Gómez", Centro de Estudios Monetarios Latinoamericanos, CEMLA, number prg2010eng, July-Dece.
    16. Khalil Jebran & Amjad Iqbal & Kalim-Ullah Bhat & Arshad Ali, 2018. "Effect of Terms of Trade on Economic Growth of China," Emerging Economy Studies, International Management Institute, vol. 4(2), pages 157-168, November.
    17. Rodolfo Cermeño & María Roa García & Claudio González-Vega, 2012. "Financial Development and Volatility of Growth: Time Series Evidence for Mexico and USA," DEGIT Conference Papers c017_035, DEGIT, Dynamics, Economic Growth, and International Trade.
    18. Aiolfi, Marco & Catão, Luis A.V. & Timmermann, Allan, 2011. "Common factors in Latin America's business cycles," Journal of Development Economics, Elsevier, vol. 95(2), pages 212-228, July.
    19. Ansari, S. A. & Khan, W., 2018. "Relevance of Declining Agriculture in Economic Development of South Asian Countries: An Empirical Analysis," AGRIS on-line Papers in Economics and Informatics, Czech University of Life Sciences Prague, Faculty of Economics and Management, vol. 10(2).
    20. Rodolfo Cermeño Bazán & María Roa García & Claudio González Vega, 2012. "Financial Development and Growth Volatility: Time Series Evidence for Mexico and The United States," Working Papers DTE 544, CIDE, División de Economía.
    21. Gabriel Rodríguez & Pierina Villanueva Vega & Paul Castillo Bardalez, 2018. "Driving economic fluctuations in Peru: the role of the terms of trade," Empirical Economics, Springer, vol. 55(3), pages 1089-1119, November.
    22. Gulzar Ali & Zhaohua Li, 2016. "Analyzing the role of Imports in Economic Growth of Pakistan; Evidence from ARDL Bound Testing Approach," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 6(9), pages 19-37, September.

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    More about this item

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General

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