Economic History of the World

My review of Jared Diamond’s Guns Germs and Steel (in Croatian) can be read here. If there’s still someone who hasn’t read it: it’s a great book and I recommend it if you are interested in global history. My objections are minor (more about them in the review). Anyway, it is a popular book, but be warned: it doesn’t read like a thriller and isn’t packed with action and humor. Mostly facts and careful interpretations. Diamond is a scientist after all, and scientists are careful about what they say

I found some useful charts to further illustrate the performance of the countries from my previous article. The source is Prospects of Economic Integration: Are the New Member States Ready to Catch-Up in the Wider EU? (1.7 MB .ppt presentation). Here they are:

Among the candidates for entry into European Union there is a common perception that membership in the EU is going to accelerate economic growth of the aspiring member. Only two years have passed since ten countries have entered EU in 2004, too short a period to make any meaningful observations.

Instead, I attach the data about GDP/capita levels in members that have joined EU earlier (it was then called European Economic Community). Ireland became a member in 1973, Greece in 1981, Spain in 1981 and Portugal in 1986. Greek part of Cyprus joined in 2004.

The new members are supposed to benefit from at least two things:
1) integration into the huge free trade zone that EU is and
2) adjustment funds from the richer members

All countries mentioned were below 75% of EU average in GDP/capita and thus eligible for funds that would allow them to converge to it. Have they suceeded?

Ireland, known because of its later growth as the Celtic tiger, only picked up with growth in the last decade of the 20th century. This is despite being a destination of EEC adjustment funds for longer time than any other member.

Spain expirienced solid growth after its EEC membership, which is often mentioned as case in point of membership accelerating economic growth.

Portugal has started from a very low level, had some good growth which seems to have dissapeared in 2000. I don’t know the cause, but until then Portugal and Spain seemed to follow a similar growth pattern.

Greece not only failed to converge to the EU average, but actually diverged for a period. This has been a mystery for analysts. Greece has had relatively large military and social expenditures and it accumulated a lot of debt under the socialist government but that is not enough to explain the lag. Greece has also been a reciever of generous EU funds.

Cyprus is the control country . It especially lends itself to comparisons with Greece. Whatever be the cultural influences on economic growth they cancel each other in this case since both countries are populated with Greeks. The difference in economic performance can most likely be attributed entirely to differences in economic policy.

What can one conclude from all this? Not too much, of course. Every country has its own story to tell (I might cover some of them in more depth in subsequent posts) but the least we can say is that strong economic growth is possible for a European country without membership in the European Union. As for how much the membership helps growth, I’d say that the jury is still out. EU has literally thrown billions at Ireland, Portugal and Greece (my favourite example, thank you Greece for not growing for a period ), with mixed results. Ireland is now at 40% above the average EU GDP/capita, but the case of Portugal and Greece (both at about 20-25% below it) is far from spectacular.

I have uploaded my review of Freakonomics in Croatian. I like the title of the book but I was underwhelmed by the content, possibly because I was exposed to most of the issues discussed prior to reading it. The only really cool insight is the point about Roe vs. Wade ruling in the 1970s decreasing the crime rates across the US in the 1990s. Levitt’s proof seems fairly convincing but then again, I haven’t read the refutations (I know that there are quite a few).

Statistics are essential in the study of economic history. Unfortunately, there is a huge problem concerning historical statistics: for most of human history we have none. Writing has been invented most likely for the purpose of keeping accounts (most Sumerian texts still being dug out are inventory lists) but national accounts are a more recent invention. That means that in estimating economic performance for periods before modern states we have to do a lot of guessing. A combination of preserved documents (censuses, church records…) and archeological evidence is used to make those guesses as educated as possible. The task is very difficult and the margin of error can be fairly large.

I want to point to an excellent source of historical statistics.

Angus Maddison has done enormously useful work in this area. He has compiled tables with data on population and economic performance. He did it for for all regions of the world and an impressive period - two millenia! Thanks to this excellent effort, we can now compare regions of the world at a glance. If you’re into quantifying things like I am, the very idea should make you warm around the heart. I’m so impressed I’ve ordered Maddison’s book The World Economy: Historical Statistics from Amazon.

But what I’m getting at is that much of this data is also available online. Here is the link to the main table:

World Population, GDP and Per Capita GDP, 1-2006 AD (xls)

Angus Maddison’s web page also gives some sneak peaks at his other books, as well as sample tables and charts from them.

I like the default title of the first post. Hello, world

Why this log?

My interest in economics comes from my surroundings. I live in a well positioned country endowed with much natural beauty, a moderate share of natural resources, and fairly resourceful people. Yet in year 2006. AD Croatia is one of the poorer countries of Europe.

I have to ask: why? Where exactly in comparison to other countries is Croatia anyway? How come it’s exactly where it is, and not any more or less developed? Will we catch up to the advanced economies of the world? When will we catch up? How?

I am not a trained economist, but for me, economics is a world of wonder and discovery. I enjoy asking the “why” questions, looking for patterns and constructing hypotheses, even if they hold for only a little while. I believe that history can give us some interesting clues about policy questions that are relevant today.

In this log, I’m going to keep notes of what I read. I’m also going to throw around some thoughts and try to see how some theories and common beliefs hold against data.

There is also the comments feature through which readers can participate. Wellcome!