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

47 Pages Posted: 9 Jul 2004 Last revised: 19 Dec 2022

See all articles by Christopher Blattman

Christopher Blattman

University of Chicago, Harris School of Public Policy; National Bureau of Economic Research (NBER)

Jason Hwang

Harvard University - Department of Economics

Jeffrey G. Williamson

Harvard University - Department of Economics, Laird Bell Professor of Economics, Emeritus; Honorary Fellow, University of Wisconsin - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

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Date Written: July 2004

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

Blattman, Christopher and Hwang, Jason and Williamson, Jeffrey G., The Impact of the Terms of Trade on Economic Development in the Periphery, 1870-1939: Volatility and Secular Change (July 2004). NBER Working Paper No. w10600, Available at SSRN: https://ssrn.com/abstract=563044

Christopher Blattman (Contact Author)

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Jason Hwang

Harvard University - Department of Economics ( email )

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Jeffrey G. Williamson

Harvard University - Department of Economics, Laird Bell Professor of Economics, Emeritus ( email )

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