Nice review of J. Williamson's book "Trade and Poverty" in the new issue of the EJ.
While not exactly a ringing endorsement, the review made me want to read the book (which I probably should have already done.
Here's an excerpt:
Williamson's conclusions can be summarised as follows. First, the link between falling behind and globalisation is causal (p. 231). Second, changes in the external terms of trade matter much more for growth outcomes than most people recognise (p. 199) while the role of changing domestic fundamentals and, in particular, institutions has been exaggerated (p. 213). Third, if the goal was industrialisation and growth, the periphery needed smart tariff policies to foster skill-intensive sectors; in some countries, especially in Latin America, the politically driven policy response was, unfortunately, the wrong sort of protection (p. 229).
The rest of the review spells out why Williamson may be shortchanging the importance of institutions.
Hat tip to Justin S.
Showing posts with label economic history. Show all posts
Showing posts with label economic history. Show all posts
Tuesday, March 12, 2013
Friday, February 01, 2013
Cotton Bond Bubble
A fascinating story, both a history and a modern caution.
...on Jan. 29, 1863, the Confederate Congress secretly authorized the Paris-based bankers at Erlanger et Cie. – which rivaled Rothschild for European royalty connections – to underwrite $15 million of Confederate bonds, denominated in British pounds or French francs.
But unlike ordinary bonds backed only by the faith and credit of the issuing country, at the option of the holder an Erlanger certificate could be converted into a receipt for a pre-specified quantity of cotton. Furthermore, the conversion rate was fixed at 12 cents a pound, regardless of the commodity’s market price, at the time about 48 cents. On top of that, the bonds paid a handsome 7 percent annual interest rate.
Put another way, a buyer of a £1,000 bond could convert it into 80 500-pound bales of cotton worth almost £4,000. If the price of cotton continued to rise, the underlying bond’s conversion-value would climb in lockstep. European investors flocked to the bonds, including the future British prime ministers William Gladstone and Lord Cecil.
But like any too-good-to-be-true investment, there was a catch: the cotton was located in the Confederacy. Upon conversion, Confederate authorities were obligated only to deliver the bales to a point within “ten miles of a navigable river or railhead,” where the new owner must arrange transport to the final destination.
ATSRTWT
Nod to JR, who asks: "What would have happened in the war if they had followed Benjamin's way to sell cotton future instead of the banker's model?"
...on Jan. 29, 1863, the Confederate Congress secretly authorized the Paris-based bankers at Erlanger et Cie. – which rivaled Rothschild for European royalty connections – to underwrite $15 million of Confederate bonds, denominated in British pounds or French francs.
But unlike ordinary bonds backed only by the faith and credit of the issuing country, at the option of the holder an Erlanger certificate could be converted into a receipt for a pre-specified quantity of cotton. Furthermore, the conversion rate was fixed at 12 cents a pound, regardless of the commodity’s market price, at the time about 48 cents. On top of that, the bonds paid a handsome 7 percent annual interest rate.
Put another way, a buyer of a £1,000 bond could convert it into 80 500-pound bales of cotton worth almost £4,000. If the price of cotton continued to rise, the underlying bond’s conversion-value would climb in lockstep. European investors flocked to the bonds, including the future British prime ministers William Gladstone and Lord Cecil.
But like any too-good-to-be-true investment, there was a catch: the cotton was located in the Confederacy. Upon conversion, Confederate authorities were obligated only to deliver the bales to a point within “ten miles of a navigable river or railhead,” where the new owner must arrange transport to the final destination.
ATSRTWT
Nod to JR, who asks: "What would have happened in the war if they had followed Benjamin's way to sell cotton future instead of the banker's model?"
Wednesday, December 05, 2012
Speed as Lower Transactions Cost
The speed of ships and shipping productivity in the age of sail
Klas Rönnbäck
European Review of Economic History, November 2012, Pages 469-489
Abstract:
A sample of vessels from the transatlantic slave trade is used as source for a quantitative analysis of the transit speed of ocean-going ships during the early modern period. In contrast to influential previous studies, the results show that the speed of ships in my sample increased significantly during this period, potentially contributing to increasing productivity of ocean shipping. The pattern is homogeneous geographically. This might have been one of the factors behind falling freight rates in the transatlantic trade, which in turn contributed to a process of market integration already during the early modern period.
Monday, December 19, 2011
Same as it ever was
While we either resent or enjoy cheap Chinese imports, most of us think of them as a relatively recent phenomenon.
Check out this description of Chinese imports:
"much prettier articles than are made in XXXX and sometimes so cheap that I am ashamed to mention it" The trades "pursued by the XXXXers have all died out because people buy their clothes and shoes from the [Chinese]"
Hmmm, floods of cheap textiles and footwear that are killing domestic industries? Is XXXX the USA and 2011 the year?
No, XXXX is Spain and the time period is the 1580s!
The quotes are from Charles Mann's fascinating book 1493. (page 153)
At least the 16th century Chinese got paid in silver; their unlucky modern day disciples have to take green pieces of paper or electronic IOUs from Uncle Sam.
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