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ECO435H1 Study Guide - Final Guide: World Trade Organization, Spinning Wheel, Autarky

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Loren Brandt
Study Guide

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Maddison: In the Sung dynasty, the economy was bureaucratic and in 1700s China cut itself off from the
Western world.
The SUNG DYNASTY was characterized by growth in many aspects:
1. Population Growth, as the centre of gravity shifts to the south
2. Increase in rice growing and expansion of agriculture
3. Printing books, increase transfer of knowledge
4. Shipbuilding, compass, and gun powder advancements
In the MONGOL rule, population fell by 1/3 due to war and the plague. Then, GDP stayed stable.
In 1890, agriculture was 68% of GDP and 80% of the labour force. **URBANIZATION depends on the
surplus of workers not in the primary industry. That’s why China had a slow development.
There was a land shortage because only 10% of land was arable, thus crops was the focus, not cattle
because they need to eat too. Focus on double cropping, grains, and textiles to increase
Intensive growth (Modern Economic Growth) increase in technology, higher productivity
Extensive growth (Smithian, traditional growth) more resources or people, but per capita is still the
Mokyr: China had improvements on irrigation, cast iron furnaces, spinning wheel, paper, wheelbarrows,
After the 14th century, growth slowed (extensive growth). By the 19th century, shipbuilding stopped, silk
and coal mining became primitive, and nothing was developed further.
Taoist ideology about the peacefulness of man and nature, ambiguous use of logic, cultural
influences (dismissed by Mokyr)
Needham believes it’s the imperial bureaucracy and lack of incentives for entrepreneurs that
led to the slowdown of the economy
Exploration stopped, so resources were not abundant
How was GDP measured? Population and Land, and data was hard to collect since boundaries shift all
the time, and landlords concealed land to avoid tax. Some data was made up, and the very concept
of GDP wasn’t developed in China til 1940.
China was a meritocracy emperor delegated to the bureaucracy by taking exams. Leaders are
rotated so you don’t get too close with the locals (Law of Avoidance).
Degree of urbanization was low
Perkins 600 years of agriculture, not a lot of technological change
China was a unified state, so lack of political competition. People didn’t have the freedom to
migrate, thus if one idea wasn’t accepted, they couldn’t move to a place that did
Social stability….technology can be socially disruptive, especially if it decreases jobs
How important is technology in yield increases? Not very! Since it’s very labour intensive

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Innovation requires incentives, property rights, a low tax rate, education and external interaction (to
expand the market and garner ideas), resources/savings/capital
Perkins: Transport costs stunted economic growth, and some commodities could only be produced in a
few regions. A province without waterways couldn’t do trade.
Government was inadequate in capital formation and tech change.
No modern banking system, and interest rates were high because they had to borrow from the wealthy
(30-40% interest, while England was 6%)
The great divergence Pomeranz said that 250 years ago, China and Europe were similar, but then
diverged. Reciprocal comparisons look at England and see what was missing in China, and
similarly, we can look at China to explain what happened in England.
Population density are high in both areas, and resource restraints limited family size
In moderm countries, the opportunity cost of having kids is high, and returns to human capital
is high, so focus more on quality than quantity of kids
England was diverging by having less kids and regulating family size (pre-modern rates)
China had a bias towards boys, and due to infanticide there were more boys (fertility control)
Similar in standard of living (proto-industrialization)
Green Revolution New variety of crops, chemical fertilizers and irrigation. Trying to sub labour and
capital for land, which was the binding constraint (CHINA)
England got raw materials from US and Canada, colonized places to relax that constraint.
The MING DYNASTY closed trade with other countries. Douglas North argued that it’s about the
constraints that led to the great divergence, not politics.
In the 1830s, China lost the Opium Wars, so treaty ports forced China’s market to open. Good because
of capital inflow. Even though imports were a threat to the local economy, the transfer of
knowledge and technology was good. Although this should make China similar to England, the gap
widens. WHY? Social upheavals…Industrial Revolution?
Perkins Government plays a role in terms of laws, banking, and tax reforms to boost the economy.
Mindshift on what the priority is: revolution vs. economic development
Government should regulate, provide education, and stability to encourage investment.
Brown technology failed because people argued china needs labour intensive work (cheaper) than
capital intensive work (with new technology). However, the real reason of the failure is due to
people in power, such as monopolists and guilds (for cocoons and soybeans). Due to local interests,
these foreign technology was shunned.
CHINA grew at 8% a year after 1895 to 1930s. In the 1900’s, China begun to experience modern
economic growth. The growth in 1978 and after was a result of what happened in history.

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Fluctuations in the economy due to political turmoil, warfare, and natural disasters. Redistribution of
land and products, but resources were scarce.
Chinese data was secret til 1960, but people believe industrial products were overvalued compared to
agricultural. MEANS Government profited from industrial goods, while keeping raw material
costs and wages low.
Rate of capital formation was extremely high (over 20%), but no increases in wages, a closed economy
“demonstration effect”. Low urbanization and consumption.
People’s Republic of China formed in 1949, and the soviet union was its primary model. Socialism.
BIG PUSH Industrialization heavy industry, invested 26% of GDP…items like steel that can go
downstream or upstream. JK and TW produced light industry like consumer goods.
Command Economy
Government owned factories, transport, communications
Assigned production targets and allocated resources
Set prices and the Party controlled career paths.
Material Balance Planning technique of running the economy by assigning quantities for producers
and artificially manipulating demand and supply.
1953-57: Five Year Plan
1958: Hundred Flowers Open political discussion, but was suppressed by Mao
Great Leap Forward (characterized by communes to control farm workers, no free markets,
decentralized decision making, and simple technology)
Gov’t cut production and increased industry.
Antirightest campaign was unleashed to those in the party
1960s food shortage! 25-30 million deaths
Soviet advisors left China as a signal to stop the mass starvation but this only intensified the rift
between the countries
1964-66: THIRD FRONT build factories in interior regions
Cultural Revolution: Students called red guards to overthrow entrenched communist leaders, aside
from Mao. However, this didn’t disrupt the economy too much.
Guomingdang was overthrown to TW and Communist party took over.
*When countries fight, taxes increase, and this leads to hyperinflation (GMD). The government can’t
borrow beause people are afraid of bad debt. Hyperinflation ends by setting reforms to become
credible so people believe the value of money will be stable. Thus, inflation will go down.
In 1988, there was inflation in China.
Land reform redistribution of land from rich to poor.
Focus on industry, so they can produce weapons and respond to any threats from the US.
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