Recovery from financial crises in peripheral economies, 1870–1913

What drives recoveries after financial crises? I address this question for the 1870–1913 “first era of globalization,” focusing on whether trade policy changes or positive movements in commodity prices played a bigger role in stimulating output growth after financial crises in peripheral economies. At this time before governments had modern fiscal and monetary policy tools to use while responding to crises protectionism was one of the few national-level policy options available for shaping economic activity. Improving terms of trade is another major factor that could influence output growth in the commodity-exporting countries included in this analysis. While previous studies of this period have looked at longer-run associations between these explanatory variables and economic growth, I focus on the aftermath of crises, and find that tariff rate increases had a positive impact on GDP per capita growth, while positive terms of trade changes did not have a significant effect on output growth. This suggests that governments played a substantial role in shaping post-crisis recoveries during this period.