The steamship and global trade

by on September 2, 2017 at 3:49 am in Data Source, Economics, History, Science | Permalink

The formal title of this important paper is “The Wind of Change: Maritime Technology , Trade , and Economic Development.”  One of the major findings is that if you consider 1850-1905, using conservative estimates, the introduction of the faster and more reliable steam ships was responsible for least half of the world trade boom during those years.

That was just published in the AER by Luigi Pascali.  Here is the abstract:

The 1870–1913 period marked the birth of the first era of trade globalization. How did this tremendous increase in trade affect economic development? This work isolates a causality channel by exploiting the fact that the introduction of the steamship in the shipping industry produced an asymmetric change in trade distances among countries. Before this invention, trade routes depended on wind patterns. The steamship reduced shipping costs and time in a disproportionate manner across countries and trade routes. Using this source of variation and novel data on shipping, trade, and development, I find that (i) the adoption of the steamship had a major impact on patterns of trade worldwide; (ii) only a small number of countries, characterized by more inclusive institutions, benefited from trade integration; and (iii) globalization was the major driver of the economic divergence between the rich and the poor portions of the world in the years 1850–1900.

Here are ungated copies.

1 Kris September 2, 2017 at 4:11 am

The 1870–1913 period marked the birth of the first era of trade globalization.

Wouldn’t the spice and textile trades of the 17th and 18th centuries count? And given that it was often financed by American silver?

2 dearieme September 2, 2017 at 10:04 am

Hush, how dare you point out the historical ignorance of economists?

3 prior_test3 September 2, 2017 at 10:32 am

Or any ignorance at all, for that matter.

4 dan in euroland September 2, 2017 at 11:39 am

Look at fig 1.

Yeah I get everyone is a critic. But at least try to be a good one.

5 dan1111 September 2, 2017 at 4:23 am

That article was obviously about recent history.

6 prior_test3 September 2, 2017 at 6:22 am

‘recent history’

Certainly, in part.

And in part, it makes sweeping generalizations like this – ‘The equation takes varied forms, but a simple variant suggests that, once we have adjusted for the gross domestic product of countries and some other control variables, trade is on average inversely proportional to distance. More concretely, the U.S. trades much more with Canada than with Australia, even though the economic profiles of Canada and Australia are relatively similar.’ (Which is not exactly true – a significant component of American imports from Canada is oil, something Australia does not export). One can reasonably assume that during the steamship era (and noting this is not a one to one comparison between 1890 and 1990 in significant ways), UK imports from Australia likely rose more than UK imports from Canada.

And the end of the article – ‘When trying to understand globalization looking forward, we must resist the temptation to believe the most puffed up reports about what we achieved in the past. The bright side is this: The continuing relevance of distance may be part of what is keeping our current world stable.’ would seem to dismiss the revolution that steamships (particularly in combination with railroads) actually brought to world trade over global distances. Something that Prof. Cowen is apparently now attempting to highlight in this ‘important paper,’ even when previously, he seemed to dismiss the very idea that increased distance means increased trade.

Obviously, a major part of the world trade that developed in the steamship era were things we now essentially consider commodities – coffee and chocolate, to name two. And there, the distance involved is due to the fact that coffee or chocolate require certain conditions to grow, and one must travel that basic distance regardless of the GDP of the nation growing coffee or chocolate.

7 dan1111 September 2, 2017 at 6:37 am

The article you linked to primarily argues “distance is (still) important for trade” but you seem to be misreading it as “distance is not important” and then claiming this is a contradiction with the current article. Well, no.

8 prior_test3 September 2, 2017 at 7:07 am

This is a direct quote, now highlighted – ‘trade is on average inversely proportional to distance.’ Of course Prof. Cowen might only be referring to the last 3 decades, though this is also worth highlighting when suggesting that Prof. Cowen is looking at a bit more than the world since 1987 – ‘the most puffed up reports about what we achieved in the past.’

The steamship revolution led to a globalized world, one where trade was most definitely ‘not inversely proportional to distance.’ But as noted in the comment below referring to the first ungated copy of the paper, this then leads to a discussion involving the terms imperialism and colonialism, as 1870-1914 reflects pretty much the height of that era.

Opinions can differ, of course – Prof. Cowen’s often do.

9 Steve Sailer September 2, 2017 at 6:03 am

Sailing ships had remarkable range but they couldn’t be relied upon arrive at a particular date, being beholden to the vagaries of the winds.

The reliability introduced by steamships is central to Jules Verne’s 1873 novel “Around the World in 80 Days.” Phineas Fogg bets that the new transportation technology is reliable enough to allow him to make his connections on time.

10 T6G September 2, 2017 at 9:01 am

… so we now discover in this 21st Century that improved transportation improves commerce and economic growth. Brilliant insight. Why did this go unnoticed for so long?

11 Jon September 2, 2017 at 9:34 am

Sure but the great merit of this paper is that it uses careful and novel methodology and new data to arrive at a credible estimate of the impacts that this technological innovation had. Of course everyone understood that stream ships changed the world, but how much, in what places and why? This is elegant and interesting work.

12 prior_test3 September 2, 2017 at 10:03 am

And in at least one ungated version, manages to completely avoid using the words imperialism and colonialism even while both reached their peak during the time being explored.

13 T6G September 2, 2017 at 10:31 am

¬ “…new data to arrive at a credible estimate of the impacts that this technological innovation had.”

OK, but this “credible estimate” has no practical value.

It’s in the same realm as ‘Butterfly Collecting’ — an interesting piece of obscurity only to those very few persons amused by such specialized trivia… and still of no practical value, except perhaps to sell the trivia to the few other trivia-enthusiasts of that category.

14 dan in euroland September 2, 2017 at 11:42 am

T6G,

I’m sure the author is worried that he did not mean your standards of value. No doubt he will try harder next time.

15 Harun September 2, 2017 at 1:18 pm

Oh, there might be useful knowledge in this. Perhaps some insights into who gained, which could then be applied to developing countries. Or could allow better prediction of future GDP growth.

I probably wasn’t that expensive to research. How many median taxpayer years’ of taxes?

16 mkt42 September 3, 2017 at 11:41 pm

“No practical value”?

The question of global trade and who wins and who loses from it is not only a primary economic question, it was one of the most crucial political questions in the last US presidential election.

17 Ray Lopez September 2, 2017 at 10:37 am

Sailer is right for once about nautical stuff, and I’ll point out that fast clippers like the Cutty Sark (https://en.wikipedia.org/wiki/Cutty_Sark) which featured a white woman on the prow, were actually, if the winds blew right, *faster* than steamers. But they did not have the volume of steamers.

Bonus trivia: the draft of paddlewheels is really tiny, like less than a foot of water will float these huge Mississippi steamboats, amazing to me, but they are slow since lots of friction due to the low draft and of course in the ocean they’d be unstable.

Bonus trivia II: the figurehead of the Cutty Sark was the logo of an obscure South African putative maritime research organization that was widely believed in the 1960s to be a front for white supremacist mercenaries dedicated to white rule in Rhodesia and South Africa and implicated in various political murders including that of the Congo firebrand Lumumba (who even Eisenhower and arguably Kennedy wanted offed). This mysterious organization technically still exists today, and I’m not sure even now, from their web page, how much marine research they actually do. Sailer, what do your sources say?

18 chuck martel September 2, 2017 at 11:43 am

A passenger on the Titanic or the General Slocum might disagree on the reliability of steam ships.

It’s notable that there’s a perception that wages were high in colonial America and that immigration should have been limited to maintain that situation.

The reality is that the colonial economy was heavily invested in maritime commerce focused on transport by sailing ships. The life of a deep water sailor was the essence of “nasty, brutish and short” as well-depicted in Melville’s classic “White Jacket”. Climbing up in the rigging in total darkness at night, reefing sails during a gale in freezing rain on a pitching mast, eating terrible food and drinking foul water, stuffed into a forecastle with stinking shipmates for months on end would seem to indicate that 18th century Americans were willing to accept the most undesirable work in order to survive. It would be impossible to assemble a crew for such a journey now with even spectacular wages.

19 improbable September 2, 2017 at 1:25 pm

It’s my understanding that American ships of this period had smaller crews than anyone else, for the same cargo. Since the labour was expensive, it was worth investing in better ships.

Compared to today of course most jobs were a bit shit. But immigrating to the bright future unfortunately comes with a serious degradation of human capital…

20 chuck martel September 2, 2017 at 2:50 pm

According to the Bulletin of the United States Bureau of Labor Statistics, No. 499: The pay per month on a ship sailing from Norfolk in 1695 was: Sea­men, £2 4s. ($7.33);

…bargain was made in Virginia in 1697 by a woman already in the colony who “ was to receive remuneration for her work during a period of two months and a half, at the rate of five pounds,
sixteen shillings and six pence [$19.42] 4 a month,” a rate which, it is added, was “ probably not considered extraordinary.”

21 Steve Sailer September 2, 2017 at 6:46 pm

The death rate on Age of Exploration sailing voyages could be horrifying: e.g., 18 survivors out of Magellan’s five ships.

How did they recruit? Or did they just impress sailors?

22 prior_test3 September 2, 2017 at 7:51 am

Apparently, dan1111, opinions cannot differ.

23 dan1111 September 2, 2017 at 10:19 am

Oh, the injustice that your constant personal attacks on the blog authors are usually tolerated but occasionally not!

24 prior_test3 September 2, 2017 at 10:46 am

Personal attacks? As you wish for the first thread. But the comment concerning how only a small number of nations could build steam ships and maintain coaling stations, along with noting the absence of the terms imperialism and colonialism in the paper was not anything that could be construed as an attack, much less a personal one, on those responsible for the comment section here.

And the comment you are currently replaying to was in reference to whether you were able to read the response to your second comment about the article concerning the recent past. By this point, all loyal readers are thoroughly aware of how things work here – there is no injustice about it at all (as should be clear after all the comments made concerning the 1st Amendment, and how it does not apply to private people). Though a bit of irony is certainly possible to discern concerning all the recent hand wringing regarding how private entities can influence conversations hosted on their own properties.

25 msgkings September 2, 2017 at 1:51 pm

dan1111 just crushes old passive_aggressive3 here. Made him into quite the puffin.

26 Anonymous September 2, 2017 at 9:48 am

So what do we need to invent next for a similar boost?

Someone said that every state that gave relocation inducements to business should have spent that money on research universities instead.

That would be one way to make broad investment.

27 dearieme September 2, 2017 at 10:08 am

Research universities? I suspect they’re past the point of diminishing returns. On this site I suppose I ought to say diminishing marginal returns, but I’d rather not insult the intelligence of most of the readers.

28 Anonymous September 2, 2017 at 10:18 am

That’s a funny comment, because it shotguns “research.”

And so all I have to do is name one hanging problem in the political economy:

Network security, including all losses related to cyber crime, economic and political.

29 Anonymous September 2, 2017 at 10:32 am
30 Anonymous September 2, 2017 at 10:25 am

This 2015 list is pretty good, but no steamship sized innovations from what I could see.

http://blog.ventureradar.com/2015/12/08/the-top-10-u-s-university-spin-offs/

31 Art Deco September 2, 2017 at 10:46 am

If I were a TV character I’d be Cliff Cuxtable.

32 mulp September 2, 2017 at 1:15 pm

Same for steam wagon trains, ie, railroads.

The silk road and the East-West trade in the US were roughly the same distance and difficulty as it applies to China. China’s economy was bigger than the US economy until the US completed rail links spanning the US making the US West coast more accessible to Europe than China to Europe, and the UK controlled commerce from China to Europe for the 19th century.

Rail can operate year round while the land and water alternatives are seasonal, even today.

33 Harun September 2, 2017 at 1:21 pm

Show me the seasonal schedule for Cosco from Tianjin to West Coast.

Or from Hong Kong to Felixstowe.

Right…there are no seasonalities. Maybe a storm delays you here or there, much like an earthquake could wreck a track, but nothing much.

The main seasonality is cost. There is mysterious price increase in freight for the Christmas season. I assume trains won’t be affected.

34 Harun September 2, 2017 at 1:48 pm

granted, maybe some icebound ports exist but I doubt they are used much except for specialized cargos.

35 jorod September 2, 2017 at 10:13 pm

Nonsense.

36 DJK September 3, 2017 at 6:36 am

Kipling is appropriate here:

“Farewell, Romance!” the Traders cried;
“Our keels ha’ lain with every sea;
“The dull-returning wind and tide
“Heave up the wharf where we would be;
“The known and noted breezes swell
“Our trudging sail. Romance, farewell!”

“Good-bye, Romance!” the Skipper said;
“He vanished with the coal we burn;
“Our dial marks full steam ahead,
“Our speed is timed to half a turn.
“Sure as the ferried barge we ply
“’Twixt port and port. Romance, good-bye!”

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