International Economics and Business History
0. INTRODUCTION
Economic History
• Provides a background of the most important economic facts and processes.
• It is useful to relate abstract economic theory with present and past economic facts.
• Present decisions are conditioned by the past (path dependency).
• Different economic schools:
– Divergent explanations of historical facts.
– Changing ideological and theoretical background for economic policies.

Business History
• Variables like space, time, culture, and technology have an impact on companies’ shapes.
• The historical context influence firms and entrepreneurial actions, providing opportunities and putting constraints on entrepreneurs and enterprises’.
• Firms’ strategies have change along history.
Economic growth vs. economic development
• What is economic growth?
– It is the process of constant and self-sustaining
increase of income per capita.
– It is a multidimensional process (Todaro, 1985):
• Reorganization of economic and social systems, not limited to the increase of income and production.
• Essential transformation of institutional, social and administrative institutions.
• Modification in people attitudes, even habits and beliefs.
• Its diffusion may involve a transformation of the international economic and social system.
Economic growth vs. economic development
• When did it take place?
– United Kingdom, end of 18th century.
– It spread during 19th and 20th centuries.
• It is a regional phenomenon:
– Limited to Western World and Japan until 1950. – Diffusion, mainly to Asia, after 1950.
• How do we measure it? GDP and GDP per capita
– Problems: GDP fetishism (Stiglitz).
• What is economic development?
“...development can be understood (...) as a process of expansion of capacities and real freedom that individuals can enjoy.” (Amartya Sen)
What “freedom” or “capacities”? Political freedom.
Economic freedom.
Social opportunities (education, health)
• How do we measure development? Human Development Index (HDI). Elements:
– Income per capita.
– Life expectancy, mortality, infant mortality.
– Literacy rate and schooling rate.
• From 1993 it includes political and civil rights (Quality of life index ).
• It is correlated to income but this correlation is not perfect.
World economic growth World GDP per capita (1990 US dollars)
[pic 1]
• 1500-1820: Annual growth rate: 0,05%.
• 1820-2000: Each generation has enjoyed a 1/3 higher income (in average) than the previous generation.

Has all the world grown the same?
[pic 2]
[pic 3]
- EUROPEAN PREINDUSTRIAL ECONOMIES
Organic economies
• In an agrarian economy agriculture generates the majority of the added value and the main part of income is spent in agricultural products.
• Agrarian economies are organic economies.
• In an organic economy, production of any good is based in organic raw materials, energetic sources and transport systems, this is, obtained directly or indirectly from the conversion of solar radiation in bio-mass through photosynthesis.

Limits to growth
• Production of different goods competed for fertile land.
• Limits to growth: the amount and quality of the available soil.
• Diminishing returns: in an organic economy, an increase in production entailed diminishing returns: production increased less than proportionally than the increase in factors of production.
• Classical economists: In the long term, the existence of diminishing returns leads to a stationary stage.
• “In a country which had acquired that full complement of riches which the nature of its soil and climate, and its situation with respect to other countries allowed it to acquire; which could, therefore, advance no further, and which was not going backwards, both the wages of labour and the profits of stock would probably be very low.” Adam Smith, The Wealth of Nations, 1776
• “But when poor lands are taken into cultivation, or when more capital and labour are expended on the old land, with a less return of produce, the effect must be permanent. [...] Each man may, and probably will, have a less absolute quantity; but as more labourers are employed in proportion to the whole produce retained by the farmer, the value of a greater proportion of the whole produce will be absorbed by wages, and consequently the value of a smaller proportion will be devoted to profits. This will necessarily be rendered permanent by the laws of nature, which have limited the productive powers of the land.” David Ricardo, Principles of Political Economy and Taxation, 1817