The Transportation‐​Communication Revolution: 50 Years of Dramatic Change in Economic Development

Paper in Cato Winter 2020 Journal:

The Industrial Revolution transformed subsistence living into sustained growth, but only for about 15 percent of the world’s population. Throughout the rest of the world, change was minimal. In 1950, the real per capita income for developing countries outside of Africa was slightly less than $4 per day, approximately the same as that of the high‐​income, developed countries at the onset of the Industrial Revolution. But income levels in the developing world have increased dramatically during the past half century, particularly for the 70 percent of the world’s population living in less geographically disadvantaged developing countries.

The huge reductions in transportation and communication costs over the past half century provided the foundation for the remarkable increases in economic development and worldwide income. The Transportation‐​Communication Revolution triggered four changes that have altered life in the developing world: gains from large increases in international trade; gains from higher rates of entrepreneurship and expanded opportunities to borrow successful technologies and business practices from high‐​income countries; improvement in economic freedom; and the virtuous cycle of development.

Our empirical analysis of the annual growth rate of real per capita GDP since 1960 indicates that the expansion of international trade, higher rates of economic freedom, and increases in the share of the global population in the prime working‐​age category have exerted a strong and highly significant impact on economic growth. Due to the sharp reductions in transportation and communication costs, the volume of international trade has risen sharply in recent decades. The growth of trade in less geographically disadvantaged developing countries has been particularly remarkable. Measured in real dollars, the size of the international trade sector in these countries was 44 times higher in 2017 than it was in 1960. This astonishing rate of growth in international trade was approximately 2.5 times higher than it was in high‐​income and more geographically disadvantaged countries over the same time frame. Propelled by the growth of trade, the real per capita GDP of the five billion people living in the less geographically disadvantaged developing world has grown at nearly twice the rate of high‐​income countries in recent decades. The historically high rates of economic growth have transformed these developing countries even more rapidly than the Industrial Revolution transformed the West between 1820 and 1950.

While the Industrial and Transportation‐​Communication Revolutions exerted a similar impact on the lives of those most affected, they differ in three major respects. Compared to the earlier economic revolution, the more recent revolution has been broader, generated more rapid rates of economic growth, and reduced income inequality rather than enlarged it. Both the general populace and the academic literature show an appreciation of the human progress that accompanied the Industrial Revolution. It is now time for both groups to recognize the remarkable human progress brought about by the Transportation‐​Communication Revolution.

 

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