Unfair Trade

Unfair Trade? Globalization, Institutions and Inequality in Southeast Asia, c. 1800-1940

A research project funded by the Dutch Organisation for Scientific Research (NWO).

Summary:

Global trade and colonial institutions are often asserted as key long-run drivers of within-country economic inequality in developing countries. Economic inequality, in turn, has had a notable negative impact on the long-term development prospects of poor countries. Trade and institutional theorists suggest that the way these factors affected inequality depends on initial endowments in the factors of production – land, labour and capital – as well as the type of commodity exported. However, the empirical evidence on which these theories are based is thin and the precise causal mechanisms that underlie these connections remain unclear.

This project is the first to use regional-level data to shed light on the dynamic relationship between globalization, institutions and inequality. It gathers new historical evidence to measure incomes of different population groups (using data on wages, prices, rents, land distribution, and tax records) from colonial archives in order to understand how global trade (the export of various cash crops) and colonial institutions (the laws organizing factor and commodity markets) affected within-country inequality in Southeast Asia between c. 1830 and 1940 (the “first age of globalization”).

The choice of time-period and region provides an unparalleled opportunity to systematically test the theoretical assumptions in the literature because of the large variety in institutional conditions and export specialization. Southeast Asia was one of the areas of the globe most heavily affected by globalization and colonization in the 19th century. The project will employ a comparative case-study approach, focusing on specific regions within Indonesia, Malaysia and Vietnam.

Results

Sweet Equality: Sugar, Property Rights and Land Distribution in Colonial Java. Explorations in Economic History (2023) [with Phylicia Soekhradj]: https://doi.org/10.1016/j.eeh.2023.101513

This article exploits a unique district-level dataset to investigate the relationship between sugar cultivation, property rights systems and land distribution in colonial Java around the turn of the twentieth century. We demonstrate a negative and statistically significant relationship between sugar cultivation and the landholder Gini. An IV strategy, employing a newly computed index of sugar suitability as instrument, suggests that this effect is causal. It is argued that sugar production in the nineteenth and early twentieth centuries stimulated the expansion and persistence of communal landholding. This communal landholding consequently led to more equally distributed plots among landholders in the early twentieth century. We emphasize the importance of local property rights institutions in mitigating the effects of export production on socioeconomic outcomes.

Also available as CEPR Discussion Paper (2022)

The Demographic Effects of Colonialism: Forced Labor and Mortality in Java, 1834-1879. Journal of Economic History (2021) [with Daniel Gallardo-Albarran and Auke Rijpma]. First view: https://doi.org/10.1017/S0022050721000577

We investigate the demographic effects of forced labor under an extractive colonial regime: the Cultivation System in nineteenth-century Java. Our panel analyses show that labor demands are strongly associated with mortality rates, likely resulting from malnourishment and unhygienic conditions on plantations and the spread of infectious disease. An instrumental variable approach, using international market prices for coffee and sugar to predict labor demands, addresses potential endogeneity concerns. Our estimates suggest that without the abolition of the Cultivation System average overall mortality in Java would have been between (roughly) 10 and 30 percent higher by the late 1870s.

Discussed in Dutch newspapers: NRC, Trouw, Reformatorisch Dagblad.

Indonesian Inequality in the Late Colonial Era: New Evidence on Regional Differences. Cliometrica (2021) First view: https://doi.org/10.1007/s11698-020-00220-3.

High within-country economic inequality is associated with poor long-term economic performance, especially in developing countries. Over the past few years, economic history research on inequality has been booming and investigations have now started to establish the degree of inequality in colonial Africa and Asia. Most of these studies, however, are concerned with assessing inequality at the national level, thereby missing substantial regional variations within these countries. This paper gauges the degree of inequality in ca. 30 provinces (called residencies) of colonial Indonesia in the 1920s. It employs statistics from colonial income taxes in combination with figures on wages, land distribution and agricultural production in order to estimate income inequality for the different provinces. The causes of the large differences in inequality between the various provinces are explored by focussing on the role of export trade, urbanization and population density.

A Bitter Epidemic: The Impact of the 1918 Influenza on Sugar Production in Java. Economics and Human Biology. [with Daniel Gallardo-Albarran]. (August 2021) https://doi.org/10.1016/j.ehb.2021.101011

We study the impact of the 1918 influenza on a major export sector in Indonesia: the Java sugar industry. We have developed a new dataset containing annual crude death rates and sugar production for about 50 regencies, drawing on data from the Colonial Reports and the Bulletin of the Civil Medical Service of the Dutch East Indies. Using these data, we document the mortality impact of influenza in 1918 across Java for disaggregated administrative units. On average, our calculations imply that mortality doubled in 1918 with respect to 1917. In addition, we find that this shock persisted until 1922. Second, we use panel data techniques to examine how influenza impacted sugar production. We observe a clear drop in sugar production in 1919 of about 40 percent relative to 1918. However, and contrary to some of the evidence for developed countries, we find that regions with higher mortality did not experience larger decreases in sugar production. In other words, the reduction of sugar production across the island was not systematically related to the health impact of the epidemic, as measured by crude death rates.

The regional impact of an epidemic: socioeconomic and demographic data in Java, 1905-1924. Data in Brief (February 2022): https://doi.org/10.1016/j.dib.2021.107710

This dataset contains data for the island of Java, Indonesia, at the regency-level – comparable to present-day kabupaten. The data concern trends in area of cultivated sugar, total and per-hectare sugar production, crude mortality rates and wages in the period ca. 1909-1924. In addition to this panel dataset, cross-sectional figures were collected about the amount of sawah land (1920), urbanization rates (1905), medical personnel (1919), indigenous population (1905) and areas with communal property with rotating shares. These figures were gathered from primary documents published by the Dutch colonial government and its constituent agencies. These data are relevant for all social scientists (such as economists, demographers or economic historians) interested in Southeast Asia or in the relationship between health indicators and economic development before, during and after an unprecedented pandemic. Historians of Southeast Asia and Indonesia may be interested in these figures as a background against which developments in politics and culture may be sketched. In addition, epidemiologists assessing the health consequences of the 1918 influenza pandemic will find valuable information in this regional dataset. Gallardo-Albarrán and de Zwart (2021) have shown on the basis of this dataset how the 1918 influenza pandemic affected economic activity across Java in this period.

Globalisation, Inequality and Institutions in West Sumatra and West Java, 1800-1940. Journal of Contemporary Asia (2020). DOI: https://doi.org/10.1080/00472336.2020.1765189.

Under what conditions does global trade lead to greater economic inequality? This question is investigated through a comparison of social and economic developments in two regions of colonial Indonesia: Minangkabau (West Sumatra) and the Priangan (West Java) in the period between 1800 and 1940. These two regions were remarkably similar in terms of geography and factor endowments and the Dutch colonial government implemented a comparable system of forced coffee cultivation in both these areas in the nineteenth century. Yet, outcomes in terms of levels of well-being and degrees of economic inequality in these areas differed markedly, mainly as a result of different indigenous institutions regarding property rights and the power of local elites. This paper highlights the persistence of indigenous institutions under colonial rule and their importance for social and economic development in an age of globalization.

Underlying data available @ https://doi.org/10.17026/dans-xfx-7ucx

Commodity Production and Indigenous Institutions in Southeast Asian Long-Run Economic Development. International Review of Social History 65 (3) (2020): pp. 481-494. DOI:10.1017/S0020859020000528

In The Making of the Periphery Ulbe Bosma (2019) makes three important claims. First, commodity export production does not necessarily result in peripheralization, which is defined as economic stagnation, depressed wages and impoverishment. Second, peripheralization is instead influenced by the specific mode of production of export commodities. Third, the mode of production is crucially determined by demographic growth and patron-client relationships. This article investigates these claims using a variety of economic and demographic data on Southeast Asia in the nineteenth and twentieth centuries. It is shown that specialization in primary commodity exports does lower long-term economic growth rates and that indigenous institutions regarding family systems and property rights play an important role in the patterns of economic development.

The Global History of Inequality. International Review of Social History 64 (2019) pp. 309-323 [PDF]. DOI: https://doi.org/10.1017/S0020859019000385. Open access version here.

Inequality is back on the public and academic agendas, with a multitude of interesting studies on inequality appearing over the past decade. These include Global Inequality (2016) and The Great Leveler (2017), both important and well-written works. This article reviews the main claims put forth on the main drivers of long-run trends in inequality. It is argued that a lot of recent work on inequality is overly deterministic. More attention should be given to local conditions and the agency of people in shaping the development of inequality. The consequences of globalization on inequality may be succesfully mitigated by local policies and institutions.

The Future of Economic History: Regional Comparisons to Address Global Questions. TSEG/Low Countries Journal of Social and Economic History, 15(2-3) (2018) pp. 129–142. [PDF] DOI: http://doi.org/10.18352/tseg.1025

Economic history deals with the process of economic development across the globe in the long-run. In this essay, I put forth ideas about what economic historians should be doing in the next 10 years in terms of content, methodology and the scale of analysis. In terms of content, I suggest that prospective research questions should generate what I consider ‘useful knowledge’ and provide two example topics: inequality and globalization. Regarding methodology I argue in favour of the comparative (quantitative) method in order to analyse processes of change in a variety of contexts. The scale of analysis should refocus from the country to the regional level in order to be better able to tease out relevant relationships in a comparative analysis.

Work in progress

The Last Free Traders? Interwar Trade Policy in the Netherlands and Netherlands East Indies. Available as CEPR Discussion Paper (2022) [with Markus Lampe and Kevin Hjortshøj O’Rourke].

There has still been too little detailed work on the protectionism that emerged in the wake of the Great Depression. In this paper we explore the experiences of two countries that have been largely neglected in the literature, the Netherlands and Netherlands East Indies (NEI). How did these traditionally free-trading economies respond to the Depression? We construct a detailed product-level database of tariff and non-tariff barriers to trade based on primary sources. While ad valorem tariff increases in the Netherlands were largely due to deflation, the country protected agriculture and textiles in a number of ways. The NEI quota system was largely geared to protecting Dutch exporters, but the reverse was not true:  Dutch trade policies benefited the metropole more than its largest colony.