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Measuring pre 1820 economic growth How right/wrong are the pre 1820 Maddison estimates? Jan Luiten van Zanden Faculty professor global economic history.

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Presentation on theme: "Measuring pre 1820 economic growth How right/wrong are the pre 1820 Maddison estimates? Jan Luiten van Zanden Faculty professor global economic history."— Presentation transcript:

1 Measuring pre 1820 economic growth How right/wrong are the pre 1820 Maddison estimates? Jan Luiten van Zanden Faculty professor global economic history UU

2 Debate about pre 1800 economic growth, and in particular the Maddison estimates Maddison estimates based on number of ideas/assumptions: Subsistence level is about 400 international dollars 1820 benchmark: Western Europe was much more wealthy than rest of the world Gap between western Europe and the rest was about 1:3 (Average Western Europe: $ 1234; UK: 1706; Netherlands: $ 1838, versus China $ 600, India $ 533, Indonesia $ 612; Latin America $ 691; South Africa $ 415) Growth of European Economy was very gradual: Western Europe in 1000: $ 425, 1500: $ 797, 1600: 906; 1700: 1028 (in fact, growth was almost constant between 1000 and 1800 at 0,126%) On balance: almost no per capita growth in China (and elsewhere): China (China in 1500 also has $ 600, in 1000: 466) Roman Economy was already quite wealthy: Italy in 1 has GDP per capita of $ 809 (Egypt: $ 600)

3 Debate about pre 1800 economic growth, and in particular the Maddison estimates All these estimates & assumptions have been criticized: Subsistence level is about 400 international dollars: no empirical foundation – perhaps much higher (Malanima)? 1820 benchmark: Western Europe was much more wealthy than rest of the world: Great Divergence Debate/California School: no no big gap in 1750/(or 1820) Growth of European Economy was very gradual, at constant rate: Clark: there was almost no growth; Van Zanden/Federico/Prados: growth was slower between 1500 and 1800 (except for Netherlands and England) Substantial growth in China (but by how much? And when?) Roman Economy was already quite wealthy – but Maddison underestimated GDP of Ancient economy (Lo Cascio & Malanima) More in general: what do 1990 dollars mean in 1 or 1500? Can we develop ways to empirically ground those estimates?

4 Overview of new work – and perhaps new approach -New work on real wages and subsistence minimum by Allen and Allen et.al. makes it possible to empirically ground estimates of this minimum -New work on long term growth in England and Holland and other European countries (Spain, Germany, Italy) can help to ground long term growth patterns between 1300 and New work on real wages and GDP estimates for China, Indonesia, India, Latin America and South Africa can help to test Angus ideas about the relative GDP of these countries -New work on urbanisation and literacy/book production, can help to bridge gap between Ancient Economy and Middle Ages (700 and 1300)

5 Fundamental equation/identity Implicit Maddison equation: GDP per capita = C * S S: subsistence minimum = 400 dollars of 1990 C: some kind of measure of complexity/level of advancement of economy, drawn from social tables and/or level of urbanisation (also used by Milanovic, and others)

6 Can we estimate the subsistence minimum? Work by Allen (2001) and Allen et.al. (2010): estimating the current value of a minimum basket of consumption goods, necessary for subsistence, in local currencies, and in grammes of silver Allen: European countries Allen et.al.: China Bassino and Ma: Japan Allen: India & Roman Economy c 300 Arroyo Abad et.al.: Spanish America De Zwart: South Africa Van Zanden: Indonesia

7 What is the subsistence minimum? Initially, Allen for Western Europe calculated a respectable basket, including alcohol (beer or wine), bread, and other luxuries – reflecting the normal consumption standards of working families in Western Europe This did not work for China: consumption basket was much more basic, and a respectable basket lead to extremely low real wages (nobody was able to survive) Introduction of the bare bones basket, with minimum expenditure on cloth, soap etc., and food almost exclusively consisting of cheapest cereals (oats for porridge, for example) Costs of the bare bones basket 35-45% of costs of respectable basket

8 How to relate this to GDP, and to dollars of 1990? For England and Holland: new work on GDP per capita in current prices, going back to late Middle Ages, resulting in estimates of 1.GDP in current prices 2.GDP in 1990 international dollars 3. Barebones and Respectable basket in current prices (work by Allen et.al.) Is possible to calculate the C variable: the ratio between GDP per capita and the costs of the subsistence minimum (1./3.) And to estimate the subsistence minimum in 1990 dollars: (3.*2./1.)

9 GDP per capita expressed in number of barebones baskets, and respectable baskets, England

10 Estimates of the value of the barebones & respectable minimum basket in 1990 dollars, England/UK and Holland

11 Results for Holland and England Minimums are constant and similar between 1270 and 1850 At on average $ 250 (barebones) and $ 580 (respectable) Can this help to ground the GDP estiumates?

12 How to relate this to GDP, and to dollars of 1990? We can also estimate another formula for GDP per capita: GDPpc= A * W GDPpc: GDP per capita, expressed in the number of barebones baskets A: measure of complexity W: real wage, expressed in number of barebones baskets

13 GDP: product of real wages and A-factor, England

14 GDP: product of real wages and A-factor, Holland

15 Is it possible to estimate GDP per capita on basis of real wages (nominal wages and estimated A- factor)? A-factor changes very slowly, even in the most dynamic economies of Holland and England Fluctuate around 2 (consistent with the Bairoch rule?), in rapidly developing economies long term tendency is upward, but not very strong If we have estimates of real wages and costs of subsistence only, and if degree of complexity does not change a lot, a first approximation may be GDP per capita (in 1990 dollars) = 250 * ± 2 * Real wage in bare bones baskets Or GDP per capita (in 1990 dollars) = 580 * ± 2 * Real wages in respectable baskets

16 Ancient economy (following Milanovic) Milanovic produced set of estimates of GDP of Ancient Economy in terms of barebones subsistence, ranging from 2.14 times barebones (or, at $ 250: $ 535) in Italy in 14, to 1.04 (or $ 260) in Roman Britain in This is probably too low: average income is barely as high as real wage Allen: real wage Roman Italy in 300 is 1.2 * barebones subsistence; which would imply, using the formula developed here: 250 * 1.2 * 2 = $ 600 Applying estimates Ward-Perkins/Milanovic would bring range of Ancient economy GDP estimates from $ 470 in Roman Britain to $ 970 for Italy in 14

17 How to fill the gap between 700 and 1300? Estimates of GDP per capita for (in 1990 dollars) Italy Broadb France Prados Spain Prados Greece/Turke y/Byzantium (in 1500: Br.) Britain Br. Holland vZ/vL

18 Problems? Enormous growth if Italy (and France) between 700 and 1300 – is this acceptable, or is GDP in 1300 overestimated, or in 700 underestimated? Very high levels of GDP per capita in Western Europe from c 1200 onwards Comparison with Maddison: this new evidence points to growth being faster (Italy: 0.2% per annum), and growth being much less spectacular (growth of GDP per capita is about half the rate estimated by Maddison: 0,07% for Western Europe); this would be consistent with criticism of Maddison estimates by Federico (2002) and others

19 Gap between Western Europe and Asia/China? Pomeranz (2000): China at about 1750 at parity with Western Europe; Maddison overestimated gap between them Bozhong Li and Van Zanden (2010): comparison GDP per capita in Netherlands and Yangtze Delta; GDPp.c. in the Netherlands 86% higher than in Yangtze delta (c versus 988 $); Yangtze delta had higher GDPp.c. than the rest of China; difference Yangtze/China was %; China as a whole (in 1820) about $, % higher than Maddison estimate Allen et al estimated welfare ratio (barebones basket) for Suzhou, Beijing and Canton, in 1811/20 about.86 (Beijing about 1, other cities about.8), less than one third of the level in London and Amsterdam (3.4 and 3.0); suggests a GDPp.c. gap of at least 3 : 1 –

20 Does this approach help to quantify the difference between Western Europe and Asia? -Similar work on Indonesia, India and Japan confirms large difference in real wages between North Sea area and these countries (Allen et.al. 2010) -Suggests similar large differences in GDP per capita -Example Indonesia: real wages and GDP per capita -Conclusion: The gap between Asia and Western Europe as estimated by Maddison of more or less correct

21 GDPp.c.: comparison between Netherlands, England and Java/Indonesia

22 Real wages (in barebones baskets) in Engeland and various parts of Asia

23 Adding Java, the Netherlands and Leipzig to the picture,

24 Real wages as starting point for estimating GDP per capita: Latin America,

25 Latin American growth Mexico: population decline lead to relatively high wage levels in 17th and 18th centuries Peru/Potosi/Chile: 18th century real wages (much) above subsistence minimum Argentina: post 1770 wage data also suggest very high real wages Around 1820: real wages in Mexico, Peru, Chile and Bolivia have declined to subsistence minimum, but not in Argentina (about 3 times subsistence) Pattern of growth perhaps similar to t England after 1348 Different timing of GDP growth: population decline and labour scarcity

26 Assessment Maddison estimates based on number of ideas/assumptions: Subsistence level is about 400 international dollars: probably incorrect: better to distinguish two different minimum baskets 1820 benchmark: Western Europe was much more wealthy than rest of the world: is probably correct Growth of European Economy was very gradual: is probably incorrect: growth was more rapid before 1500, and rather slow between 1500 and 1800 On balance: no per capita growth in China (and elsewhere): China (China in 1500 also has $ 600, in 1000: 466) – we do not know (yet) Roman Economy was already quite wealthy: Italy in 1 has GDP per capita of $ 809 (Egypt: $ 600) is correct, but the recent tendency to raise these estimates to much higher levels…..

27 Conclusions Linking Maddison project to Allen et.al. Project on real wage developments is promising Estimates of subsistence minimum Estimates of range of possible GDP per capita – first approximations Timing European growth is probably somewhat different from current Maddison estimates: less growth , more growth ; unexplained and perhaps problematic growth spurt Gap between Western Europe and Asia at about 1820 more or less correctly estimated by Maddison Real wage studies may help to refine our picture of growth in Latin America, (South) Africa, North America, Russia etc…

28 New datasets to be integrated Development of urbanization: Europe and Middle East Under construction: new dataset of urbanization in whole world New dataset on book production Europe ; similar estimates for other parts of the world can perhaps be made…. Pre 1800 estimates based on real wages, urbanization (and based on this, via the Wrigley approach: agricultural productivity), and book production


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