Page 72 - DECO503_INTERNATIONAL_TRADE_AND_FINANCE_ENGLISH

International Trade and Finance

Notes led the rest of the Americas in providing education on a broader scale. Education is an important factor
to improve technology in order to boost productivity, which is the reason that US and Canada surpassed
the others. Greater access to education allowed for greater investment in human capital, which increases
productivity and contributed to the United States and Canada's economic growth. According to Sokoloff
and Engerman's article "History Lessons: Institutions, Factors Endowments, and Paths of Development
in the New World," not only the United States had relatively equal distribution of wealth, it had relatively
homogeneous population, political power and human capital. United States and Canada's relatively
equal distribution of wealth, amount of human capital and political power utimately affected
development of institution, extent of franchise, and public education that persist and influence growth
of the country. The open franchise brought elimination of wealth and literary requirement by 1940 in
Canada and the United States (literacy requirement was still enforced in US southern regions only).
Again, the open franchise was possible because the United States endowed a land suitable for wheat
growing thus had a large body of middle class unlike Brazil and Cuba where they exhibited small
elites, some overseers and large slave population. United States, then, outgrows other New World
countries and eventually diverged from Cuba and Brazil in the late 18th and early 19th centuries.

The open franchise in the United States and Canada was possible due to the large voting
body of middle class and small elites.

Sokoloff and Engerman hypothesize that in societies founded with greater inequality, the elites gained
more power to influence the choice of legal and economic institutions. In those countries which are
inequal, small elites restrict majority people's rights, such as education and votes, to perpetuate the
social structures and continue to make themselves "elites." The U.S. began its economic growth largely
through slave labor and trade of the output of that labor. As the elites enacted policy to generate
more economic equality, for example by increasing literacy rates, the U.S. GDP per capita pulled
ahead of other long-since established countries along with the literacy rates. It is essential to note that
factor endowments played a crucial role in shaping the colonies institutions and economic growth;
colonies with a richer quality of soil grew cash crops such as sugar, coffee, and cotton, which were
most efficiently grown using plantation systems. As such, the demand for not only slave labor but
also peonage within these colonies grew. Due to the vast inequality that the society developed due to
a small elite population in comparison to the vast laborer population, they were able to maintain the
wealth and power within the elite class via establishing a guarded franchise. The inequalities within
the cash crop colonies resulted in their economy not being able to expand and grow as fast as the U.S
and Canada, due to restrictive policies. Those policies in inequal countries curb the intellectual
development of most people who are only required to do simple manual jobs; however, US and
Canada encourage their people to take part in education. As a result, US and Canada excel with
higher productivities which are supported by advanced technology.
Self-Assessment
1. Choose the correct options:
(i) Dynamic factors in trade theory refer to changes in
(a) factor endowments, (b) technology,
(c) tastes, (d) all of the above.
(ii) If a nation’s technology remains unchanged but its supplies of labor and capital grow in the
same proportion, then the nation’s production possibilities curve shifts outward
(a) evenly along its entire length,
(b) more along the axis measuring the L-intensive commodity,
(c) more along the axis measuring the K-intensive commodity,
(d) any of the above is possible.

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