Which economies are most likely to be shrinking?
Not just an economic slowdown, but actual, ongoing consistent negative economic growth. In my latest NYT column at The Upshot, I argue for some economies it may happen that living standards fall over the course of a few decades:
In 1750, India accounted for one-quarter of the world’s manufacturing output, but by 1900 that was down to 2 percent. The West became more productive as a result of the Industrial Revolution, and India lost much of its leading export sector, textiles. While the data is fragmentary, the best estimates show that India’s living standards declined through the middle of the 19th century and that its economy retrogressed, even as it borrowed some technological improvements from the West. India just didn’t do enough to move toward production on a larger scale or with better machines.
This story of India’s loss to foreign competition is documented in “Deindustrialization in 18th and 19th Century India,” a paper by David Clingingsmith, an economics professor at Case Western Reserve University, and Jeffrey G. Williamson, an emeritus professor of economics at Harvard.
Economists are accustomed to emphasizing the benefits of international trade, and these arguments are largely correct. But in India, internal regulations and underdevelopment, combined with British colonial depredations, prevented Indian resources from being redeployed productively. The lesson is that a sufficiently large international trade shock can lead to decades of economic decline in a major economy, especially if that economy isn’t geared to mounting a flexible response.
As I explain in the piece, the most likely economies to undergo sustained negative growth today are Italy, France, Croatia, Greece, Portugal, and possibly Taiwan. We should be more optimistic about the United States, but still a similar logic is applying to some parts of our middle class.
Here is my concluding paragraph:
India’s economy started to reindustrialize in the late 19th century, but growth remained subpar until the 1990s — a truly long recovery lag. This may sound strange to say, but when it comes to some parts of the Western world, the Great Depression may offer the cheerier analogy.
Read the whole thing.