In this essay I will show the differences between Chile and Italy. Chile has absolute advantage in the production of wheat. The wheat boom began in 1850 due to demand from the Californian and Australian gold rushes, due to the pacific trade routes and fertile soil, while the wheat trade was to become global with England becoming a central importer. The advantage gained by Chile has attracted foreign investment thus led to the introduction of steam ship use in Chile. The wheat trade then began to decline by 1900, as California and Australia were able to produce their own wheat. No matter, Chile was still able to grow due to the export of nitrate. The nitrate boom began in 1880-82, as Chile had gained the entire Atacama Desert region from Bolivia and Peru. Between 1900 and 1930 more than 50% of government revenue came from nitrate and iodine export taxes. However, due to the synthetic production of nitrate, Chile had experienced a rapid boom and bust cycle. It was the specialisation in the extraction of copper that lead to sustained growth, institutional development, and greater market integration within the Chilean economy. Until 1880, Chile had been the world’s largest copper producer, but then experienced a rapid decline in easily available stocks as production fell. After 1910 the Chilean copper sector experienced a substantial transformation, as increasing foreign investment led to greater human and physical capital.
Italy has always been very competitive in low-tech products (leather and textile; cotton fabrics, footwear, glassware, or furniture) and it managed to gain a fairly strong position in medium-tech products (cars and engines) during the 1960s and 1970s. Although the country’s position as a car manufacturer weakened in the 1970s, it recently started to improve again. The country is increasingly exporting intermediate goods for the car industry but also other highly-specialized machinery, including electrical equipment, which keeps the international position in medium-tech industries relatively stable. As there is a significant decline in the export of office machinery accompanied by a huge rise in imports, offset by a rise in exports of telecommunication equipment, it is quite difficult for Italy to improve its international position in the high-tech products. Besides that, Italy also exports medicinal and pharmaceutical products in which those activities performed quite well.
Chile is in the third stage of the demographic transition and is becoming an aging society with declining birth and low death rates resulting in continuing population increase at a slower rate. Over the last two decades, Chile has been able to set its poverty rate lower than most Latin American countries, though its income inequality is actually the worst among fellows of the Organization for Economic Cooperation and Development.
Italy is currently in Stage Four of the Demographic Transition Model. Currently, it has a -0.1 Rate of Natural Increase; caused by a low birth rate and a higher death rates as majority of the population being older. The country is reducing its population growth as there is a rapid emigration within the country. Hence in this case, Italy has completed the demographic transition while Chile has not.
Within the period 1840-1930, Chile was able to escape the Malthusian Trap. As Chile lies upon the North-South axis, the geographical factor enabled Chile to trade, has demand for its exports, and increases its market integration. Chile had a particular trade advantage due to access to the Pacific Ocean and the Atlantic Ocean through the Drake Passage and the Strait of Magellan. In the central and southern zones there is particularly fertile soil for wheat production and grazing.
Italy’s first wave of growth was contributed through the first Industrial Revolution. There were watermills, iron and coal. Meanwhile during the second Industrial Revolution, Italy were working more towards electricity, chemicals and engineering. The activity rate diminished from 59 to 42 per cent between 1861 and 2001 although labour productivity rose by nineteen times. This was a consequence of the rising capital–labour ratio. Also, the increasing technical knowledge was of particular importance as it incorporated both in capital and labour. The improving quality of production factors was more significant than their quantitative growth. In the period of 1951-1973, Italy’s growth in total factor productivity (TFP) was notable.
It is evident that geography, trade openness and institutions are important factors for growth. These three are interconnected and that institutions and trade openness also depend on growth themselves, aside from just affecting it. However, it is fair to say that the impact of institutions is most crucial. It enhances the flow of information and aids to the extent to which resources can be shared in order to reduce risk as well as ensuring sustained levels of wealth.
However, from the Malthus’ argument, the way to escape the Malthusian trap, is the prudence on personal affairs itself rather than the institutional change. Yet, the prudence appears to have its roots in the spread of education and health technologies in which require significant institutional change.
Chile had effectively set up new institutions due to investment into human capital through education. The government realised that education failed to be spread between 1840-1900 due to rural population, poverty, inequality, and inadequate enforcement. As system was nationalised in 1900, creating a development from primary education until university education, vocational education in agriculture, mining, industry, and trade rises. In Italy, the production of high technology goods requires high R&D investments, interaction with research institutions, and highly specialized technical skills, such as optical instruments, and electrical and electronic equipment such as computers, aircraft, or medical products.
It can also be seen that long-run structure of a country’s trade is based on the differences in endowments and productivity, which again, affected by the institutions.
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