Alexandru Tamas
Tim Maecker
Industrial Revolution and Growth in the Periphery
Reasons for Growth
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Divergence - As the Great Divergence took place, labour became increasingly
expensive in the industrial core relative to the poor periphery. Thus, the poor
periphery became increasingly competitive in labour- intensive manufacturing.
Terms of Trade - Sharp rise in relative price of manufacturers, favouring home
industries.
Trade and exchange rate policies - Changes in favour of import-competing
manufacturers
World trade - Cheap imports of manufacturing intermediates and resources such
as coal and minerals or cotton, therefore diminishing the advantages held by
countries with easy access to them.
Urban Industry
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Price-reducing and productivity-enhancing forces thrived in urban industrial
activities
Industry grew in relative importance, pulling GDP up with it.
Asymmetric growth in urban industry and agricultural sectors, because of:
o Agglomeration economies in urban clusters
o Denser urban markets are more efficient
o Skill-intensive industry fosters a higher demand for better education
o Denser urban production complexes generate easier knowledge transfer
between firms
o Industrial firms are more likely to draw on technological best practice
used by world leaders
 Fast future growth correlated strongly with current levels of industrialization
Industrial Catching Up
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1870-1890 fastest contenders were Latin American: Argentina, Chile and Mexico
Colonial status did not necessarily suppress industrialization
Industrial growth actually favoured those without policy autonomy over the half
century after 1890
Industrial Revolution gained speed, depth and breadth throughout the period.
1920-1940 more than 2/3 of the periphery were catching up with leaders,
especially since the depression-induced fall in manufacturing growth was less
visible here than with the leaders
Reasons for Industrialization
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NOT GDP per capita determinants such as culture, geography or institutions
Focuses on Industrialization rather than measuring GDP
o “Industrialization and cities are the carrier” of growth a of GDP growth but
is delayed
o Dynamic industrial sector pulls the rest of the economy
Alexandru Tamas
Tim Maecker
o Manufacturing output growth not correlated with GDP per capita
(fundamentals did not spill over in to rates of industrialization)
o Profitability and competitiveness of manufacturing production are the key
reasons for Industrialization
Productivity Growth
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Correlation between manufacturing output growth and labour productivity
growth
Productivity growth explains part of the catch-up growth but not all of it
Industry labour productivity as proxy for TFP growth.
Cheap Labour
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Positive correlation between industrial growth rates relative to the leaders and
labour costs per unit relative to the leaders
Cheap Labour is part of the explanation for Industrialization
Relative Prices
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Price takers in the world economy, therefore forces affecting prices of
manufacturers were:
o A fall in terms of trade between resource exporters and manufacturer
importers
o Depreciation in real exchange rate
o Rise in tariffs and other barriers on manufacturers
o Second mover advantage: countries falling behind on GDP growth had
advantage of cheap labour
o Interest rates fell as they financial capital markets integrated with world
markets
o Tariff policy favoured import of capital goods, therefore capital goods
prices fell compared with the leaders
Integrating in global market profited them more than those countries which were
already resource abundant
Fast factor productivity growth resulted in higher profitability than the leaders
Tariffs and Barriers
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In literature usually comparison of tariffs as a proxy for openness and GDP
o Correlation between GDP growth and openness is changing sign over time
Author opposes influence of Tariffs
o Missing the causes for GDP growth -> Industrialisation
o No close correlation between tariffs and industrial growth
o Changing tariffs in Latin America, European Periphery and Asia in time
without correlation in their industrial growth rates.
Exchange Rates
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Fixed exchange rates in the periphery lead to reinforcing stimulus on local
manufacturing whenever an exchange rate depreciation or a terms of trade fall
occurred
 Made manufacturing imports more expensing, facilitating some of the local
industrialization surge