Category Archives: Economic History

The Wealth of the Other Americas

The Industrialization of South America Revisited: Evidence from Argentina, Brazil, Chile and Colombia, 1890-2010

Gerardo della Paolera (Central European University), Xavier Durán (Universidad de los Andes), Aldo Musacchio (Brandeis University)

Abstract: We use new manufacturing GDP time series to examine the industrialization in Argentina, Brazil, Chile, and Colombia since the early twentieth century. We uncover variation across countries and over time that the literature on industrialization had overlooked. Rather than providing a single explanation of how specific shocks or policies shaped the industrialization of the region, our argument is that the timing of the industrial take off was linked to initial conditions, while external shocks and macroeconomic and trade policy explain the variation in the rates of industrialization after the 1930s and favorable terms of trade and liberalization explain deindustrialization after 1990.


Circulated by NEP-HIS on: 2018‒03‒19

Review by: Thales Zamberlan Pereira (Universidade Franciscana)

The long road of protectionism in Latin America in the decades between 1930 and 1990 led not only to import substitution of goods, but also of ideas. During those decades each country thought its way of development distanced from its neighbors, despite relatively similar schools of thought under the care of the Economic Commission for Latin America and the Caribbean (ECLAC). The result was a myriad of studies focused on peculiarities – what made each country unique in its backwardness – largely ignoring the possibility of comparative perspectives. Of course, comparative studies existed, but the view of Latin America as an object of study until the 1980s was delegated to a secondary place, shared more by international agencies and foreign researchers who sought a more macro understanding of the region.

During the last three decades things changed, but we still feel the effects of these“lost decades”. “Intellectual isolation” was especially true in Brazil, which until today has very few university courses on the economic history of other Latin American countries. The paper of Gerardo Paolera, Xavier Durán, and Aldo Musacchio, therefore, is a much welcome attempt to understand the differences in long-term development in South America using comparative data for Argentina, Brazil, Chile, and Colombia. They present a history of industrialization in these countries putting together series of manufacturing value added, labor productivity in manufacturing, the size of the labor force, and trade series for the whole twentieth century (until 2010, actually). Despite arguing that they estimated new figures when the data was not available, the authors mostly use secondary sources for macroeconomic data (for example, Brazil’s data comes from IPEA, a government agency).

The paper’s main argument is that the long-term series of industrial GDP suggest that the patterns of industrialization in those countries were heterogenous, and initial conditions – such as level of urbanization, literacy and infrastructure development at the end of the 19th century – mattered more for the timing of industrial takeoff than policies or external shocks. Therefore, the authors reject traditional hypotheses that have tried to explain the industrialization of South America using “one single theory”. Among these traditional explanations are the “adverse shocks” hypothesis, industrialization as a product of export-led growth, and industrialization as the product of import substitution industrialization (ISI). The paper then proceeds to explain the differences between the four countries during the following periods: 1) before 1920, 2) the 1920s, 3) the Great Depression, 4) World War II, 5) the 1980s, 6) 1990s and beyond.

According to the paper, the long-term industrial series show that “none of these hypotheses explain all cases for the entire century.” Moreover, changes in external conditions and domestic policies explain part of the variation in the rates of industrialization only after the 1930s. In their review about the different periods of industrialization, the highlight is for the effects of ISI policies on industrialization. They present a “real distorted import price” index – which are import prices multiplied by the average tariff and the nominal exchange rate – to show the correlation between price distortion of imports and growth of manufacturing as a percentage of GDP. This correlation is widely known in the historical literature, but bringing together data for the South American countries helps us to understand the relative size of barriers to trade in each country.

Musacchio et al Fig1

Figure 1: Real Distorted Import Price Index for Argentina, Brazil, Chile and Colombia,
1900-2012 (1939=100)

Paolera, Duran, and Musacchio’s paper is an interesting contribution, however, it is not clear how much of it is a revisionist interpretation of South America’s industrialization. It would be interesting to have a better sense about how much the literature on Latin America industrialization in the twentieth century really argues that the process was homogeneous across countries and that domestic and initial conditions did not matter. Even in books that summarize the literature, such as Bértola and Ocampo (2012) there are clear differences between the countries and initial conditions (their Human Development Index for example).

As a side note, it also feels unnecessary to argue that the countries shared similar culture, religion, and colonial origin to “control” for cross-sectional variation. Is there really a relevant connection between these conditions and different periods and types of industrialization? Besides the fact that many Argentineans, Brazilians, and Chileans will try to “argue” that they have a very different culture (and, in the case of Brazil, colonial origin), it would be good to show if the traditional hypotheses make these connections.

Moreover, since initial conditions (human capital) mattered for industrialization, why is East Asia a proper counterfactual for Latin America? The authors argue that we “need to improve our knowledge” on this issue, but it feels there is room to present more recent research about the topic, not only Robert Wade’s (1990) book: in the style of Liu (2017) and Lane (2017). Also, as a suggestion, it would be interesting to see the index for “real distorted import prices” for East Asian countries, as it would teach us something about Latin America.

The 1980s and 1990s could also have a more extensive literature review. For example, the paper argues that the improvement in terms of trade after the 1990s was associated with “some form of Dutch Disease”. However, there is not sufficient evidence to make this statement. Their measure of de-industrialization, which is a declining share of manufacturing in total GDP, is a limited way to measure de-industrialization, especially when productivity of the other sectors (like agriculture) was increasing. The lower share of manufacturing after the 1980s could also be a form of correction after the excesses of the 1960s and 1970s. Indeed, we still do not have a clear answer about the opportunity cost of those policies. Nevertheless, the Brazilian’s government attempt (and failure) to resuscitate the policies of the military regime in the years after 2008 shows us that the cost-benefit of industrialization at any cost in previous decades needs to be re-evaluated (as they were in Musacchio and Lazzarini 2014). After three decades of declining knowledge barriers between South American countries, perhaps it is time to “demand” the next step in historical comparative studies: micro studies.


  • Bertolá, Luis and José Antonio Ocampo’s The Economic Development of Latin America since Independence. Oxford: Oxford University Press, 2012.
  • Lane, Nathan. “Manufacturing Revolutions. Industrial Policy and Networks in South Korea.” Job Market Paper, Institute for International Economic Studies (IEES), 2017.
  • Liu, Ernest. “Industrial Policies in Production Networks.” Working Paper, Princeton University, 2017.
  • Musacchio, Aldo, and Sergio Lazzarini. Reinventing State Capitalism. Leviathan in Business, Brazil and Beyond. Cambridge, MA: Cambridge University Press, 2014.
  • Wade, Robert. Governing the Market. Economic Theory and the Role of Government in East Asian Industrialization. Princeton, NJ: Princeton University Press, 1990.

The Elephant (-Shaped Curve) in the Room: Economic Development and Regional Inequality in South-West Europe

The Long-term Relationship Between Economic Development and Regional Inequality: South-West Europe, 1860-2010

by Alfonso Díez-Minguela (Universitat de València); Rafael González-Val (Universidad de Zaragoza, IEB); Julio Martinez-Galarraga (Universitat de València); María Teresa Sanchis (Universitat de València); and Daniel A. Tirado (Universitat de València).

Abstract: This paper analyses the long-term relationship between regional inequality and economic development. Our data set includes information on national and regional per-capita GDP for four countries: France, Italy, Portugal and Spain. Data are compiled on a decadal basis for the period 1860-2010, thus enabling the evolution of regional inequalities throughout the whole process of economic development to be examined. Using parametric and semiparametric regressions, our results confirm the rise and fall of regional inequalities over time, i.e. the existence of an inverted-U curve since the early stages of modern economic growth, as the Williamson hypothesis suggests. We also find evidence that, in recent decades, regional inequalities have been on the rise again. As a result, the long-term relationship between national economic development and spatial inequalities describes an elephant-shaped curve.


Distributed by NEP-HIS on 2018-02-26

Review by: Anna Missiaia

The relationship between economic development and inequality in a broad sense has been at the core of economic research for decades. In particular, the process of industrialization has been much investigated as a driver of inequality: Kuznets (1955) was the first to propose an inverted U-shaped pattern of income inequality driven by the initial forging ahead of the small high-wage industrial sector and a subsequent structural change, with more and more labour force moving out of agriculture into industry. The first to suggest that a similar pattern could take place in the spatial dimension was Williamson (1965), who showed that the process of industrialization could lead to an upswing of regional inequality because of the initial spatial concentration of the industrial sector, which eventually touches the less advanced regions. The paper by Díez-Minguela, González-Val, Martinez-Galarraga, Sanchis and Tirado circulated on NEP-HIS on 2018-02-26 deals with this latter inequality. The authors formally test what is the relationship between the coefficient of variation (in its Williamson formulation) of regional GDP per capita and a set of measures of economic development, most importantly the level of national GDP per capita. The authors use for the analysis four Southwestern European countries (France, Spain, Italy and Portugal).  The paper starts in 1860 and therefore takes a much appreciated multi-country and long-run perspective compared to the original work by Williamson, who was looking only at the 20th century United States.

The work by Díez-Minguela and co-authors also relies on the framework developed by Barrios and Strobl (2009), going from a merely descriptive interpretation of an inverted U-shape of regional inequality to a theoretically-founded one. In particular, Barrios and Strobl (2009) use a growth model that takes into account region-specific technological shocks and their later diffusion on the entire national territory; they also include measures of trade openness to test the hypothesis that more market integration leads to more regional inequality; they finally consider regional policies implemented by the State to even out regional disparities. The original paper by Barrios and Strobl (2009) was only considering a sample of countries from 1975 onwards, basically overlooking the whole post-WWII industrial boom in some more developed countries. In this respect, the contribution by Díez-Minguela and coauthors is fundamental, as it proposes a long-run regional analysis not only confined to one specific country as it is customary in the field, but on a group of countries. The paper also proposes a formal testing of the drivers of regional inequality, moving forward from a mere descriptive approach. In terms of methodology, the authors propose an approach that makes use of both parametric and semi-parametric estimations. This is to take into account that the relationship might be different for different levels of GDP.

Moving on to the results, the first thing to note is that three out of four countries in the sample present an inverted U-shaped pattern between GDP per capita and regional inequality (as can be seen in Figure 1).


Figure 1: Regional Income Dispersion and Per-Capita GDP in France, Italy, Spain and Portugal (1860-2010). Source: Díez Minguela et al. (2017)

As for France, the authors suggest that the lack of a U-shaped pattern could be due to its early industrialization that pre-dates the first benchmark year available (1860). The analysis could thus be still capturing the downward part of the U-shape. In terms of the econometric analysis, the OLS regression confirms the predicted pattern through the significance of GDP per capita both in their quadratic and cubic forms.

One interesting discussion is on the controls used in the model: here both openness to trade and public expenditure are not significant, in spite of both being strong candidates for explaining regional inequality in the economic geography literature (see Rodríguez-Pose, 2012 on trade and Rodriguez-Pose and Ezcurra, 2010 on public spending). For the first variable (openness of trade), the explanation could be that the detrimental effect of trade on regional inequality could well have been offset by the increased integration of the financial and labour markets during the First Globalization.

Regarding the second control variable, public intervention (measured as public spending as a share of GDP): the authors admit that having a large public sector does not necessarily imply implementing effective cohesion policies. The example of Fascist Italy on this point is very illustrative: the 1920s and 1930s witnessed rising inequality in Italy, in spite of a growing intervention by the State in the economy and an alleged intent to favor the most backward parts of the country. In general, the impression is that more than one mechanism that is well present in empirical studies after WWII, might not be so in earlier periods. Finally, the authors test for the role of structural change in shaping regional inequality, which was the original explanation by Williamson (1965). This is measured as the non-agricultural value added and it is positive and significant in explaining the coefficient of variation of overall GDP per capita.

Although the paper represents an important step forward for explaining historical regional divergence, several aspects could be addressed in the future by either the authors or by other scholars in the same field. For instance, the use of only four countries from a specific part of Europe does not yet allow drawing general conclusions on the relationship between economic growth and inequality in the long run. As mentioned in the paper, several case studies from other parts of Europe do not entirely fit in the same path: this is the case of Belgium (Buyst, 2011) or Sweden (Enflo and Missiaia, 2018). It is possible that including more advanced economies such as Britain or even some peripheral but Northern ones in the sample might lead to re-consider the increase of regional inequality during modern industrial growth as a golden rule.


Barrios, S., Strobl, E., 2009. “The Dynamics of Regional Inequalities.” Regional Science and Urban Economics 39 (5), 575-591

Buyst, E., 2011. “Continuity and Change in Regional Disparities in Belgium during the Twentieth Century.” Journal of Historical Geography 37 (3), 329-337

Díez Minguela, A., González-Val, R., Martínez-Galarraga, J., Sanchis, M. T., and Tirado, D. 2017. “The Long-term Relationship Between Economic Development and Regional Inequality: South-West Europe, 1860-2010.” EHES Working Papers in Economic History 119

Enflo, K. and Missiaia, A. 2017. “Between Malthus and the Industrial Take-off: Regional Inequality in Sweden, 1571-1850.” Lund Papers in Economic History

Kuznets, S., 1955. “Economic Growth and Income Inequality.” American Economic Review 45 (1), 1-28

Rodríguez-Pose, A., 2012. “Trade and Regional Inequality.” Economic Geography 88 (2), 109-136

Rodríguez-Pose, A., Ezcurra, R., 2010. “Does Decentralization Matter for Regional Disparities? A Cross-Country Analysis.” Journal of Economic Geography 10 (5), 619-644.

Williamson, J.G., 1965. “Regional Inequality and the Process of National Development: a Description of the Patterns.” Economic Development and Cultural Change 13 (4), 1-8


from VOX – The return of regional inequality: Europe from 1900 to today

by Joan Rosés (LES) and Nikolaus Wolf (Humboldt University)



via EHS The Long Run

Original post Here

The Middle Income Trap

Development State Evolving: Japan’s Graduation from a Middle Income Country

By Tetsuji Okazaki (University of Tokyo)

Abstract: This paper reexamines the industrial policy in postwar Japan from perspectives of the literature on a “development state” and a “middle income trap”. Japan transited from a middle income country to a high income country in the period from the 1950s to the 1970s. This process was characterized by a large structural change, such as resource reallocation from the primary industry to the secondary and the tertiary industries as well as resource reallocation within the secondary industry. Transition to a high income country is a challenging task for a middle income country. With respect to Japan, the industrial policy played a positive role in the transition. This was achieved by interactions between MITI and other related actors, who constrained and corrected MITI’s attempts of excess intervention.


Distributed by NEP-HIS on 2017‒09‒03

Review by: Joyman Lee (University College London)


Students of modern Japanese economic history are familiar with the work of Chalmers Johnson (1982) on the Ministry of International Trade and Industry (MITI). In that work Johnson argued that MITI was the leading state actor in Japan’s economic miracle, playing a vital coordinating role between policymakers and the private sector. Johnson’s emphasis on the role of the state in the East Asian experience has triggered similar studies on the development state in Korea (Alice Amsden) and Taiwan (Robert Wade).

As Okazaki notes, the emergence of newly industrialising economies facing the challenges of globalisation and democratisation has led to a renewed interest in the development state. Okazaki argues that rather than constituting a static set of policies, Japan’s developmental state was highly dynamic and adaptive, echoing Douglass North’s idea of “adaptive efficiency” (North 2005). Significantly, this ceased to be the case in Japan after the 1990s. A second strand of literature that informs the paper is the idea of the “middle income trap” (Gill and Kharas 2007), which highlights a particularly challenging transition which middle-income economies face, as the policies that have fueled the initial stages of growth are no longer appropriate for continued growth. The idea has gained considerable traction among commentators in China.

china middle income

The fear of the “middle income trap” has been particularly acute in China.

Okazaki’s paper shows that Japan’s successful voyage through the “trap” was partly facilitated by its success in resource allocation across industries, in addition to well-known increases in the intra-sector productivity. Between 1955 and 1975, Okazaki attributes 29% of the increases in labour productivity to resource allocation, which he stresses was “substantial” (p. 4).

Okazaki traces the evolution of policies from the American occupation period, when U.S. advisor Joseph Dodge initiated the abolition of strict wartime controls. A 1953 government report was followed by the Five Year Plan of 1955, which highlighted the need to transition from light to heavy industries. MITI was formed in 1949 to pursue the policy of “industrial rationalization”. Formal economic controls were replaced by a portfolio of public financial institutions, including the Japan Development Bank (1951), tax relief, and foreign exchange allocation, and a central coordinating Council for Industrial Reorganisationolic . The government promoted new sectors, particularly the machinery and the automobile industries within it, which included the use of cultural strategies such as a campaign to promote the purchase of domestic cars at the same time as regulating foreign direct investment (1952) and curtailing the foreign exchange available for car imports (1954). The government also actively implemented policies concerning the automobile parts industry, which was quite atypical given the miscellaneous and low tech nature of that sector.

japan car industry

A Toyota factory in 1948. MITI’s policy in supporting the automobile parts industry which supplied major manufacturers such as Toyota was particularly distinctive.

At the same time as developing the domestic economy, MITI also foresaw foreign pressure on trade liberalisation, and formed a committee to formulate its strategy in 1959. While the ministry remained ambivalent with respect to its effects, it nonetheless adopted a sequential programme of liberalisation that was intertwined with plans to upgrade the industrial infrastructure. The high level of alert to likely external treasures had a direct effect on the government’s sector-specific strategies, e.g. to focus on passenger cars in the automobile sector. However, MITI’s more radical plans to consolidate the industry by policy intervention were not adopted, and instead the government aided the industry through JDB loans and low interest loans to small and medium-sized suppliers. MITI also successfully resisted IMF pressures to remove the industry from the foreign exchange system until Japan was well established in the world market (1963). Meanwhile, the government conceded that the coal industry would be uncompetitive and adopted a programme of gradual phasing out.


Okazaki’s study provides a timely, quantitative and authoritative review on an important and relatively understudied topic (given the acceptance of Johnson’s view as orthodoxy among historians) by one of Japan’s leading economic historians, whose trans-war perspective is particularly useful in teasing out more subtle changes amidst MITI’s strong posture towards industrial policy. As Okazaki observes,  the difficulties that middle-income economies face are acute, as “one of the difficulties that middle income countries face is that they should compete with low income countries in the markets of labor-intensive industries as well as with high income countries in the markets of capital and technology intensive industries” (Bulman 2017). In this context, Japan’s success appears remarkable, perhaps no less than the historiographically well-recognised significance of Japan’s Meiji-period Westernisation.

However, the complexity of policies required for breaking the “middle-income trap” in Japan’s case may not provide much comfort for middle-income economies currently facing the challenge. Although Japan rejected centralised state controls, the Japanese example appears to require a complex set of policies that presupposes a high degree of political cohesion and long-range economic planning, which is often difficult in many middle income economies given various political and social challenges. It also requires a state that is highly persuasive to the populace with respect to its vision for economic development. These factors appear to mark Japan out as an exception rather than an example that can be easily perceived as immediately relevant by many developing countries.

Perhaps the most avid student of Japan’s experiences will be China, which possesses a similar state capacity for a coordinated industrial policy and a qualified commitment to the market, even if it may not enjoy the same degree of social cohesion. This likely Chinese interest may explain the timing of Okazaki’s paper. However, the requirement of a strong state may produce perverse incentives for middle-income countries to maintain authoritarian systems of government (even though Japan was not classically authoritarian in that period in its history), and reminds us of unresolved tensions between economic development and democratisation.

Additional References

Alice, A, 1992. Asia’s Next Giant: South Korea and Late Industrialization. New York, NY: Oxford University Press.

Bulman, D, Eden, M, Nguyen, H, 2017. “Transition from Low-Income Growth to High-Income Growth: Is there a Middle-Income Trap ?” Journal of the Asian Pacific Economy, 22(1): 5-28.

Gill, I, Kharas, H, 2007. An East Asian Renaissance: Idea for Economic Growth. Washington DC: The World Bank.

Johnson, C, 1982. MITI and the Japanese Miracle: The Growth of Industrial Policy, 1925-1975. Stanford, CA: Stanford University Press.

North, D, 2005. Understanding the Process of Economic Change. Princeton, NJ: Princeton University Press.

Wade, R, 2003. Governing the Market: Economic Theory and the Role of Government in East Asian Industrialization. Princeton, NJ: Princeton University Press.

Measuring Benefits from Energy Transitions

Consumer Surplus from Energy Transitions 

by Roger Fouquet (Grantham Research Institute on Climate Change and the Environment at LSE)

Abstract: Energy transitions have led to major advances in human wellbeing. However, little evidence exists about the scale of the net benefits. By developing a new method for identifying the demand curve, and by using a unique, historical data set, this paper estimates the consumer surplus associated with heating, transport and lighting over more than two hundred years and identifies the gains from a number of key energy transitions. For certain energy transitions, the increase was dramatic, reflecting the transformations in society and lifestyles that mobility and illumination provided in the nineteenth and twentieth centuries. Yet, the net benefits related to heating technologies only rose modestly. Finally, due to saturation effects of the demand for energy services, future technological developments and energy transitions may benefit consumers (though not necessarily society as a whole) less than those in the past.


Circulated by NEP-HIS on 2017‒10‒22

Review by: Cristián Ducoing (Lund University)


Energy Transition


The current research focus in energy transitions is mainly motivated by the environmental implications of energy consumption. This more than justified direction has relegated to a second place the analysis of the enormous benefits derived from energy transitions, specially when we observe consumers’ welfare.  This new paper by Roger Fouquet analyses the positive impacts of energy transitions (hereafter, ET) by looking into how each ET generates consumer surplus.


Roger Fouquet

This paper combines data sets from two previous works of the author about the United Kingdom on service prices between 1300 and 2010 (Fouquet 2011a), and service consumption between 1700 and 2010 (Fouquet 2014). The data sources and methodologies used were explained in Fouquet (2008). In brief, Fouquet has done an upgrade of his former estimations to measure how much welfare we have obtained by ET. The author follows a standard measure of welfare (how less consumers pay for a specific service) and he applies it to each ET during the last two centuries in the United Kingdom.


Figure 1: Income Price Elasticity of Demand for Energy Services in the United Kingdom, 1800 – 2008

As shown in the examples in Figure 1, a key advantage of focusing on energy services, rather than on fuels (energy carriers), is that the demand for services remains comparable with the introduction of new goods and technologies. 


Figure 2: Consumer Expenditure on Domestic Heating, Passenger Transport and Lighting as a share of GDP in the United Kingdom, 1800 – 2010

The conclusions extracted from the paper could be summarized as follows:

  1. Attempts to estimate consumer surplus face enormous challenges, mainly by the effects of disruptive technologies. However, it could be possible to get an approximation taking into account the methodology used by Nordhaus (1997). Moreover, the paper presents a novel method that allows to identify the changes in demand curves for energy services (lightning, heating and transport).
  2. There were dramatic increases in consumer surplus due to energy transition in transport (stagecoaches to railways) and lightning (candles to gaslight and to electric lightning).
  3. Developing countries are benefited by increasing energy consumption. On the other hand, benefits in developed countries could be lower than in the past.
  4. The method offered allow us to forecast the long-run net benefits of new energy technologies and transitions. This issue has enormous policy implications in relation with the environmental challenges that we are facing us.


Currently, to defend energy systems/consumption as mechanisms of progress and development is quite complicated, specially if the energy systems contain fossil fuels, such as the main energy carriers in the case of the United Kingdom. This paper focuses its attention on the “good side” of energy consumption and mechanization, tackling a compulsory debate on the trade-off between economic development and sustainability. Roger Fouquet has mentioned this debate in an 2016 article, where he analyzed the lessons from history to our current energy transition. Now, Fouquet has demonstrated, accounting for the consumer surplus, than previous energy transitions have been beneficial for consumers/population. The question is: how should the current and  future energy transition be carried? In order to achieve economic development, countries pursuing higher income levels require an increase in energy consumption.  Fossil fuels still are a valid option to increase energy consumption; a low carbon economy could be farther in the road than we thought. A challenge to global society is to create an economic environment favorable to clean energy technologies, in order to promote economic growth in low income regions without the deprivation of our natural resources and environment.    

As this paper has shown us, there are periods when the increase in energy consumption has been beneficial to aggregate welfare, at least from a country/region perspective. However, the current global situation doesn’t allow an increase in energy consumption based in fossil fuels without risking main environmental equilibriums.

The only possible criticism to the paper is the implicit “normative” scope supported by one country experience. Nevertheless, Fouquet presented this paper as a starting point for further research.


Fouquet, R. (2011a) “Divergences in Long Run Trends in the Prices of Energy and Energy Services.” Review of Environmental Economics and Policy 5(2) 196-218.

Fouquet, R. (2014) “Long Run Demand for Energy Services: Income and Price Elasticities over 200 Years.” Review of Environmental Economics and Policy 8(2) 186-207.

Fouquet, R. (2008) Heat Power and Light: Revolutions in Energy Services. Cheltenham: Edward Elgar.