Development and globalization theory

The first wave of globalization, commonly dated from 1870 to 1913, was not only a more gradual phenomenon throughout the 19th century, but closely related with the emergence of most the Western European Offshoots (USA, Canada, Australia and New Zealand) as developed economies. The massive transfer of human capital and transplant of European institutions to the Offshoots is a natural experiment of the relevance of those factors to economic growth-cum-globalization, which has been overlooked by the literature. The rise of the US as a leading industrial economy and its role in international trade proves how important are these factors in the so called transplant economies. Simultaneously, there was a large expansion (about a third) in the world production possibility set due to the land and natural resources coopted into the world economy, as well as one of the highest rates of world technological progress. Another major contribution of our paper is to give an integrated index of trade costs at national and international level that reflects technological progress. Coupled with the increasing differentiation and geographical reallocation in factor endowments across the world, they fully explain globalization. The analysis calls for further integration of growth and trade theories.