Williamson’s "Globalization, Convergence, and History" (1996)
1. Introduction: What is Williamson’s Research Question?
Williamson’s study examines the relationship between globalization and economic
convergence over the past 150 years.
Research Questions:
1. Does globalization help poor countries catch up with rich countries?
○ This is called economic convergence—when income gaps between rich
and poor nations shrink.
2. What are the forces behind convergence?
○ Williamson identifies three major drivers of economic convergence:
■ Trade: If goods move freely between countries, wages and prices
should become more equal.
■ Migration: Wages should converge if workers move from low-wage
to high-wage countries.
■ Capital flows: If investment moves from rich to poor countries,
poor countries should grow faster.
3. What happens when globalization weakens or stops?
○ Williamson argues that when globalization collapses (due to war, trade
restrictions, or economic crises), economic convergence stops or
reverses, leading to divergence—where rich and poor countries grow
apart.
Historical Context: Why Is This Important?
● Over the last 150 years, the global economy has gone through periods of
integration (globalization) and isolation (deglobalization).
● By analyzing these shifts, Williamson tests whether globalization is necessary for
reducing global inequality.
Hypothesis:
✔ Globalization promotes economic convergence because free trade, migration,
and capital flows help poor countries grow faster than rich ones.
✔ When globalization weakens or collapses, economic divergence occurs, meaning
income gaps widen.
2. How Williamson Tests His Hypothesis: Data and Methodology
To test this hypothesis, Williamson examines:
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Wages and GDP per worker in different countries over time.
Trade patterns and price convergence between countries.
Migration flows and their impact on wages.
Capital investment from rich to poor nations and its effect on economic
growth.
Countries Included in the Analysis
Williamson focuses on countries with reliable historical economic data, primarily
OECD countries.
✔ European Countries: Britain, Germany, France, Sweden, Ireland, Italy, Spain,
Portugal, Denmark, Norway, Netherlands.
✔ New World Countries: United States, Canada, Argentina, Brazil, Australia.
Countries Excluded:
● Eastern Europe (e.g., Russia, Poland) due to limited data availability.
● Asia and Africa, since historical economic records for the 19th and early 20th
centuries are incomplete.
� Why does this matter?
● By excluding most of the developing world, Williamson’s findings focus mainly on
European and New World economies.
● The study does not directly test convergence in regions like China, India, or subSaharan Africa, though his conclusions may still apply.
3. Historical Periods Analyzed: Three Epochs of Globalization and Convergence
Williamson divides the last 150 years into three major economic periods, analyzing how
globalization and convergence changed.
Epoch 1: 1850–1914 – The First Globalization Boom (Convergence Period)
Characteristics of This Period:
✔ Trade Expansion:
● Steamships, railroads, and the Suez Canal (1869) dramatically lowered
transportation costs.
● Countries increasingly traded raw materials, food, and manufactured goods.
✔ Mass migration:
● Over 50 million Europeans emigrated to the U.S., Canada, Australia, and
Argentina.
● Labour shortages in Europe raised European wages, while an increase in labour
supply slowed wage growth in the Americas.
✔ Capital flows from Britain to developing countries:
● British investors funded railroads, factories, and infrastructure in Argentina,
Canada, and Australia.
Evidence of Convergence:
1️⃣ Real Wage Convergence
● Real wages in poorer European countries grew faster than in richer countries.
● Example:
○ Swedish wages doubled relative to British wages between 1854 and 1913.
○ Irish wages rose from 60% to 92% of British wages during the same
period.
2️⃣ Trade and Price Convergence
● According to Factor Price Equalization Theory, trade should equalize wages
and prices across countries.
● Example:
○ The wheat price gap between Chicago (U.S.) and Liverpool (Britain) fell
from 60% in 1870 to 15% by 1912, showing clear price convergence.
3️⃣ Capital Flows and Industrial Growth
● British investment in Argentina, Canada, and Australia helped these countries
industrialize.
● Example:
○ Argentina’s economy grew so fast that by 1913, it was one of the world’s
wealthiest countries (in GDP per capita).
� Conclusion:
● The 1850–1914 period was a clear case of globalization-driven economic
convergence.
Epoch 2: 1914–1950 – The Collapse of Globalization (Divergence Period)
Characteristics of This Period:
❌ World War I (1914) and World War II (1939) disrupted trade and migration.
❌ The Great Depression (1929) led to protectionist policies (e.g., U.S. Smoot-Hawley
Tariff Act, 1930).
❌ Countries restricted immigration (e.g., U.S. Immigration Act of 1924).
Evidence of Divergence:
1️⃣ Trade Collapse
● Between 1929 and 1934, global trade fell by 30% due to protectionist policies.
2️⃣ Migration Decline
● U.S. immigration fell from 1 million per year in the 1910s to just 50,000 by the
1930s.
3️⃣ Capital Flow Decline
● British investors stopped investing in foreign economies to focus on domestic
recovery.
● Argentina and Canada suffered economic stagnation.
� Conclusion:
● Without globalization, economic divergence occurred, proving that globalization
was a key driver of convergence.
Epoch 3: 1950–1990 – The Second Globalization Boom (Convergence Resumes)
Characteristics of This Period:
✔ Trade liberalization under GATT (General Agreement on Tariffs and Trade, later
WTO).
✔ U.S. and European investment rebuilt war-torn economies (e.g., Marshall Plan in
Europe).
✔ Labor migration within Europe helped equalize wages.
Evidence of Convergence:
1️⃣ Trade recovered, driving wage and GDP convergence.
2️⃣ Germany, Italy, and Japan grew faster than the U.S. in the 1950s–1970s.
3️⃣ Spain and Portugal caught up after joining the EU in the 1980s.
� Conclusion:
● Once globalization returned, economic convergence resumed.
4. Final Conclusions and Implications
✅ Globalization has been the primary driver of economic convergence since 1850.
✅ When trade, migration, and capital flows increase, poorer countries grow faster.
✅ When globalization weakens (wars, tariffs, immigration restrictions), divergence
occurs.
Policy Implications:
● Restricting trade or migration can slow economic growth.
● Investment in developing countries is essential for reducing inequality.