Globalization’s first wave wasn’t all positive

"What I found was that the majority of nations actually lost out as a result of globalization during this short period in history—which astonishingly goes against the widely held belief that globalization generally has a positive impact on the world," says Luigi Pascali. (Credit: "steamship" via Shutterstock)

150 years ago, the steamship made international trade possible for many countries. Only a few countries benefited from this first wave of globalization, however.

Most ended up worse-off, according to a new study.

This is proof that international trade doesn’t automatically lead to economic prosperity, says Luigi Pascali, a professor of economics in the Centre for Competitive Advantage in the Global Economy (CAGE) at the University of Warwick.

Until the mid-1800s, the distribution of goods around the world was determined by sailing vessels, which relied on global wind patterns to get from coast to coast.

But the steamship dramatically changed the way the world did business and led to a marked acceleration in the buying and selling of goods on an international scale—it was the first wave of globalization.

“This is an ideal testing ground in which to observe the effects that globalization can have on economic development—albeit only for a brief period of history,” says Pascali, whose findings are available in a working paper.

“I looked at a novel set of data from the time and used it to make trade predictions focusing on urbanization rates, population densities, and per-capita incomes.

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“What I found was that the majority of nations actually lost out as a result of globalization during this short period in history—which astonishingly goes against the widely held belief that globalization generally has a positive impact on the world.

“What also became clear from the study was that it was only a small set of core nations with inclusive political institutions that benefited from international trade, whilst the negative effect was felt by countries characterized by absolute power—which was the majority at the time,” says Pascali.

“What my study shows is that inclusive political institutions are vital to ensuring globalization results in prosperity and history presents a warning to modern day policy-makers that economic development shouldn’t be taken for granted,” he concludes.

Source: University of Warwick