New study suggests Globalisation wasn't always positive.

Thursday 27 Oct 2016

Economics Assistant Professor, Luigi Pascali has recently had a paper accepted for publication in the American Economic Review; ‘The Wind of Change: Maritime Technology, Trade and Economic Development’ which shows that only a few countries benefited from the international trade made possible by the steamship, with many ending up worse-off.

The paper aimed to address two key questions, ‘what factors drove globalisation in the nineteenth century’ and ‘how did the rise in international trade affect economic development?’, using new data and a novel identification strategy.

Until the mid-1800s, the distribution of goods around the world was determined by sailing vessels, which relied on global wind patterns, so the adoption of the steam engine not only reduced shipping times, but it did in in a disproportionate manner across countries and trade routes.

I looked at a novel set of data from the time and used it to make trade predictions focusing on urbanisation rates, population densities, and per-capita incomes Author, Luigi Pascali, Assistant Professor of Economics at the University of Warwick

This study found that the adoption of the steamship had a major impact on patterns of international trade worldwide, with only a small number of countries actually benefiting from the trade integration. It also found that globalisation was the major driver of the economic divergence between the rich and poor portions of the world in the years 1850-1905.

What my study actually found was that the majority of nations actually lost out as a result of globalisation during this short period in history – which astonishingly goes against the widely held belief that globalisation generally has a positive impact on the world. Author, Luigi Pascali, Assistant Professor of Economics at the University of Warwick

The results of this study are really important for both researchers and policy makers, because it presents the first empirical study to identify the effects of the steamship on trade and development. Moreover, researchers will be able to exploit a new source of variation in international trade that is exogenous with respect to economic development, for studying the impact of trade on other economic/social outcomes, such as technology diffusion or conflicts.

Luigi concluded that inclusive political institutions are vital to ensuring globalisation results in prosperity and history presents a warning to modern day policy-makers that economic development should not be taken for granted.

Globalisation has become commonplace in these last years; however, the increasing interconnection that we observe in the world today is not a new phenomenon, and policy makers who are willing to learn from history are advised to consider that a reduction in trade barriers across countries does not automatically produce large positive effects on economic development Author, Luigi Pascali, Assistant Professor of Economics at the University of Warwick

Luigi's finding are available to read in a working paper.