Giovanni Federico is Professor in Economic History at University of Pisa
Parallels are often drawn between the Great Recession of the past decade and the economic turmoil of the interwar period. In terms of global trade, these comparisons are based on obsolete and incomplete data. In a new EHES Working paper, we re-estimates world trade since the beginning of the 19th century using a new database. The effect of the Great Recession on trade growth is sizeable but fairly small compared with the joint effect of the two world wars and the Great Depression. However, the effects will become more and more comparable if the current trade stagnation continues.
AntonioTena-Jungito is Professor in Economic history at Universidad Carlos III de Madrid
The long-run consequences of the slowdown of trade growth since 2007 are still under debate (Boz et al.2014, Costantinescu et al. 2015, Hoekman 2015). Pessimists warn that the Great Recession might be a historical watershed, marking the end of decades of booming world trade and globalisation (The Economist2014). It is clearly still too early to tell, but economic historians are drawing parallels with the backlash against globalisation in the 1930s (Eichengreen 2015) – comparing the boom before 2007 to the growth before World War I, relabelled the ‘first globalisation’ (O’Rourke and Williamson 1999, Bordo et al 2003, Collier and Dollar 2002).
These comparisons are based on obsolete and partial series of trade. They do not take into account recent scholarship, do not cover the first half of the 19th century, and neglect less developed countries. Thus, in new work, we have re-estimated world trade starting from a comprehensive database of trade by country (Federico and Tena-Junguito 2016 EHES Working paper). For each polity (independent countries, colonies, and native territories) we estimate imports and exports, at both current and constant (1913) prices and for both current and at constant (1913) borders. Whenever available, we have used modern estimates of trade or national accounts. Otherwise, we have collected data at current prices from original sources, filling the gaps with interpolations or extrapolations based on trends in nearby or similar polities. We have deflated these series with country-specific price indexes, mostly based on London prices, adjusted for freights and we have converted all data into both current or 1913 dollars. The number of series in the database increases progressively from 10 to about 130 – that is, all the existing ones, with very few and quantitatively negligible exceptions – after 1850. We compute world trade after 1850 as a sum of exports of all polities. We extrapolate the 1850 level with indexes of trade for time-invariant samples, which include 10 polities since 1800, 62 polities since 1823 and 89 since 1830, which account respectively for 55%, 80% and 95% of world trade in 1850. Finally, we link our estimate in 1938 to the series of the United Nations (UNStatistical Yearbook) and of the WTO to get a series of world trade from 1800 to present.
Figure 1 plots the resulting series in log scale to highlight long-run trends. From 1800 to 2007, world exports grew at an impressive 4.22% annual rate (significant at the 1% level), corresponding to a cumulated 6437-fold increase.
Figure 1. The logarithm of wold trade
A combination of visual inspection and statistical testing suggest dividing the series into eight periods, plus the most recent slowdown. Table 1 reports the corresponding yearly rates of change.
World exports started to grow quickly after the end of the French wars. The early rise also reflects the return to normal trading conditions after the shock of the wars, but this effect accounted for less than 7% of the increase of trade until 1865, and for less than 2% of overall growth before World War I. Contrary to conventional wisdom, trade grew faster in 1817-1866 than in 1867-1913, and the difference is significant at the 1% level. If trade had continued to grow as fast as it had before 1867, by 1913 it would have been 55% higher. The outbreak of World War I caused world exports to fall by about a quarter. They returned to the pre-war level in 1924 and continued to grow, up to about a third higher in 1929 than in 1913. At the trough of the Great Depression in 1933, world trade was 30% lower than in 1929 and 5% lower than in 1913. In the next four years, it recovered about two thirds of the lost ground so that by 1937 it was ‘only’ below the 1929 level by a tenth. World trade recovered quite quickly after World War II. By 1950 it was already 10% higher than in 1929 and it grew at breakneck speed during the golden age. Thus, as Figure 1 shows, by the early 1970s the recovery was (almost) complete, and trade was again on its pre-1913 growth path. The growth slowed down markedly in the 1970s but it accelerated again after 1980. World trade has exceeded the pre-1913 growth path since the mid-1990s and its rate of growth was significantly higher in 1950-2007 (5.10) than in 1817-1913 (3.62). The Great Recession caused trade to decline much less than the Great Depression, but seven years after its start there is still no clear sign of a rebound.
These data are for current borders – we estimate that boundary changes had a minimal effect before 1913 and a fairly large one after both world wars. The changes after the treaty of Versailles increased trade by 3.1% relative to the estimate at constant borders in 1924 (6.8% for Europe only) and by 1.5% (2.7%) in 1938 – that is, our series at current borders overvalues the level of trade in interwar years relative to its pre-war level but understates its growth. Lavallée and Vicard (2013) estimate that the border changes of the 1950s (e.g. the division of British India) and of the 1990s (the fragmentation of Soviet Union and of Yugoslavia) accounted for 6.6% of the growth of trade during the Golden Age and for about a sixth of the overall rise from 1950 to 2007. This is equivalent to a third of a point of the growth rate – that is, to about a fifth of the difference between the two globalisations.
In the long run, exports of all polities increased, but not to the same extent. For instance, the UK was by far the largest exporter in 1850 (19% of total at current prices) and still in 1913 (13.7% vs. 12.9% for Germany and 12.8% for the US), but only the 10th largest in 2007 (3.2%). China was the 11th largest in 1850 (2.3% of world exports), sliding to 17th place in 1913 (1.6%), and then rising to second place in 2007 (8.9%, behind Germany’s 9.6%). Most changes are concentrated in the second globalisation – the simple coefficient of correlation between shares by polity is higher between 1850 and 1913 (0.91) than between 1972 and 2007 (0.85). Although there is a lot of noise, a simple division of countries by continent and by level of development highlights the main patterns (Figure 2). Note that we define ‘advanced’ countries as those which had a GDP per capita over half that of Britain in 1870 – i.e., Australia, Belgium, Canada, Denmark, France Germany, Netherlands, New Zealand, Switzerland, UK and the US. The ‘other OECD’ countries are Austria, Greece, Finland, Ireland, Iceland, Italy, Japan, Norway, Portugal, Spain, and Sweden.
Fig 2a. Shares by continent
Figure 2 b Shares by level of development
In the early 1830s, Europe accounted for 62% of world exports and the advanced countries for about a half. The latter share increased by ten points in the 1850s and then remained around 60% until the war, while the share of Europe was drifting slightly downwards to 56%. The two world wars and the Great Depression caused substantial changes in shares, which were, however, largely reversed during the Golden Age. In 1972 Europe still accounted for 52% of world exports and the ‘old rich’ for 57%. In contrast the changes after 1972 have been large and (so far) permanent. The share of Asia rose from about a sixth to a third, at the expense of all other continents. Europe fared comparatively better than others. Until the early 1990s, the fall in the share of ‘old rich’, from 56% to about 40% of world exports, was compensated by the relative increase of exports from the ‘other OECD’ countries – most notably Japan. In the last 15 years, exports from the advanced countries decreased further to slightly over a third, the other OECD countries returned to a sixth, their level for the 1970s and the ‘rest of Asia’ (mostly China) jumped to a quarter of the world market.
Summing up, the effect of the Great Recession on long-term growth of trade is sizeable but so far fairly small in comparison with the joint effect of the two world wars and the Great Depression. However, the effects are going to become more and more comparable if the current stagnation of trade continues.
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Collier, P and D Dollar (2002) Globalization, growth and poverty, World Bank and Oxford University Press: Washington and Oxford.
Constantinescu, C, A Mattoo and M Ruta (2015) “The global trade slowdown cyclical or structural?”, World Policy Research Working Paper 7158, World Bank.
Eichengreen, B (2015) Hall of mirrors: The Great Depression, the Great Recession and the uses – and misuses of history, New York: Oxford University Press.
Federico, G and A Tena-Junguito (2016) “A new series of world trade, 1800-1938” EHES Working paper, n.93.
Hoekman, B(2015) The great trade slowdown: a new normal? CEPR eBook.
O’Rourke, K and J G Williamson (1999) Globalization and history. The evolution of the nineteenth Atlantic economy MIT Press Cambridge (Mass)
Lavallée, E and V Vicard (2013) ‘National Borders Matter…Where One draws The Lines Too’Canadian journal of economics 46 pp. 135-163.
The Economist (2014) “A troubling trajectory”, The Economist, 13 December.
UN Yearbook (ad annum) Yearbook of international trade statistics, New York: United Nations