How To Understand The Industrial Revolution

Transcription

1 Lecture 2 Industrial Revolution & trade Humber Dockside Hull 1881 by John Atkinson Grimshaw 1

2 Key features of the Industrial Revolution Impressive cost reducing technological breakthroughs in some significant industries producing traded goods. Cotton and other textiles. Iron. Rapid population growth placing pressure on agricultural resources. An adaptable economy that was able to reallocate capital and labour to respond. 2

3 Technological change, trade and the nature of the IR Trade growth most spectacular in cotton textiles and iron the famous Industrial Revolution industries But other exports held up and even expanded Temin (1997) argues this is inconsistent with the Crafts-Harley view of concentrated technological change. 3

4 Victorian export industries Share of total exports % Cotton Woolens Iron Share of gross output exported %

5 Trade and Industrial Revolution Trade and Technological Change Was the Industrial Revolution trade led? Cuenca Esteban, JEH 1997 Rising share of constant value (1801 prices) industrial exports in constant value industrial output A prime facie case for export led growth? Did trade respond to technical change? 5

6 Exports relataive to income, (current prices) Source: Crafts, 1985; Davis, 1979; Imlah,

7 Trade and industrial output, Exports as % of manufacturing output constant prices 7

8 General equilibrium insights : production possibility frontier An economy has the potential to allocate its productive resources among a range of activities. Industrialize can occur without growth by shifting factors of production to industry. Growth increases the potential out put of the economy (moves PPF). How do we sort out structural shift from growth? 8

9 Production possibility frontier & Industrialization vs. growth Industry Growth Growth with industrialization Industrialization w/o growth Production possibility frontier Agricultural economy Growth w/o industrialization Agriculture 9

10 Economic Equilibrium, (without trade) (per caput) Industry Industry Economic Equilibrium (per caput) Relative prices PPP Production and consumption Indifference curves Agriculture 10

11 Export led industrialization IR Industry B A C Rest of Economy 11

12 Proto-industrialization Regions developed industrial production for export before the industrial revolution. One causal factor is increased population density in a trading economy. Agricultural output capacity per caput falls. Handicraft industrial output per caput is unaffected. International prices are unchanged. Diagrammatic analysis. 12

13 Industry Equilibrium, proto industrialization (per caput) Industry Economic Equilibrium (per caput) Population growth lowers land person Decline in welfare Production with trade Equilibrium without trade Production and consumption Consumption with trade With trading, move to industry, trade for food and less loss of welfare New Production Possibility Frontier Agriculture 13

14 Industrialization from tech advance (per caput) Industry Economic Equilibrium (per caput) Tech advance increases man. possibilities. Increase in welfare Production with trade Equilibrium without trade New Production Possibility Frontier Production and consumption With trading, move to industry, trade for food and more welfare gain Consumption with trade Agriculture 14

15 Nature of Industrial Revolution Dramatic cost savings in some industries. Competitive markets. Rapid entry. Falling prices. Increased sales to foreigners because prices have fallen. Volume of exports increases but price falls, what are the gains? 17

16 Britain s gains from exports ( monopoly ) (Ricardian model) IR Industry Britain Production (w/trade) IR Industry RoW Consumption (and Production w/o trade) Consumption Production Rest of Economy Rest of Economy 18

17 Harley-Crafts (2000) IR trade Spectacular technological change but only in some industries. Falling prices generated export demand. Industry expanded. Falling prices (that drove exports) imply that export earning increase much more slowly than export volumes in IR goods. Rapid population growth. Upward pressure on food prices. Generate raw material imports (also cotton) in excess of increased export earning of famous sectors. Other manufacturing exports expand. 19

18 Industry Industry Mid 17 th Century (per caput) Economic Equilibrium (per caput) Production with trade Consumption with trade Equilibrium without trade Agriculture 20

19 Economic Equilibrium, Ind. Revolution Industry Economic (per Equilibrium caput) (per caput) Production with trade 18 th C. prod. Consumption with trade 18 th C. cons. New Production Possibility Frontier Agriculture 21

20 IR, trade, large open economy IR Industry (immizeration) B C A Rest of Economy 22

21 British terms of trade, Source: Imlah 1958, pp

22 Cotton exports and welfare Cotton production and consumption, Effects of terms of trade Quantities: Prices: Output Raw Cotton Consumption: Cotton Imports Aggregate Consumption Index, 1815 = prices prices

23 Industrial Revolution trade led? Rising share of constant value (1801 prices) industrial exports in constant value industrial output A prime facie case for export led growth? Cuenca Esteban, (1997) 25

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25 Economics of trade growth Demand led growth should be accompanied by improved terms of trade Supply led growth should be accompanied by deteriorating terms of trade British terms of trade deteriorated In current prices exports did not grow relative to national income 27

26 America, the Ind. Rev. and trade Cotton and expansion west. Industrial protection. Other land intensive goods. 28

27 Cotton production

28 North American frontier, backup Regina Winnipeg Kansas City Minneapolis Chicago Cincinnati New York Memphis Atlanta Charleston New Orleans 30

29 US Cotton exports Grew rapidly after discovery of the cotton gin in the 1790s driven by the expansion of cotton textile production. Output: ,000 bales ,000 bales million bales Made up more than half of US exports by value by 1840 and 57.5 percent in Spearheaded the expansion of settlement into the Southwest. 32

30 Tariff and American industry American economy highly protected in 19 th century. Gains from trade and welfare loss of tariff (standard trade theory diagram). America as a customs union of differing regions. Large gains from trade for staple producers. Small gains for north east. Tariff in customs union. 33

31 % American tariff, Tariff revenue /dutiable imports Tariff revenue /imports

32 Tariffs undoubtedly stimulated Cotton textiles American Industry Second largest in world by Appears almost completely dependent on tariff. Iron industry Grew rapidly with mixture of coke and charcoal. Railways imported large amounts. Became competitive with discoveries of coal and iron ore after mid century. 35

33 Gains from trade and loss from tariff Manufactures Consumption Consumption M 1 Production M 0 Production A 1 A 0 Agriculture 36

34 American regional trade, no tariff Northeast South and West Manufactures Manufactures Consumption Consumption Production Production Agriculture Agriculture 37

35 Regions with tariff Northeast South and West Manufactures Manufactures Production Consumption Consumption Production Consumption Consumption Production Production Agriculture Agriculture 38

36 Welfare impact of removal of US Tariff, various groups,

37 Effect of tariffs on exporters Decreased imports implies decreased exports in equilibrium. Relatively little effect on cotton because of dominant position in world supply. Temperate agricultural exports competed with other sources and the tariffs undoubtedly slowed expansion. 40

38 Effect of Ind Rev elsewhere Continental Europe Suffer from competition from British firms. But some gain. Weavers in Germany. Railways after 1830 initially used British iron and machinery. Often respond with tariffs. Industries depended on tariffs in early years. India Deindustrialization as looses cotton textile export market and then faces competition from imports. 41