Moreover, countries such as Japan and the United States were able to replace Britain in international markets during the war, allowing them to develop successful agglomerations that undermined British first-mover advantages in activities such as cotton textiles and international lending with the result that Britain suffered a permanent loss of world market share (Cochrane 2009). The trade ratio, (X + M)/Y, fell by about 12 percentage points – which can be expected to have reduced the level of GDP through adverse impacts on investment and TFP (Frankel and Romer 1999). The implication for Britain was a substantial increase in trade costs in the face of increased protectionism (Jacks et al. As Findlay and O’Rourke put it, “World War I brought the liberal economic order of the late 19th century to an abrupt halt” (2007, p. Britain was the leading capital exporter with net property income from abroad of about 9% of GDP, accounted for 27% of the world’s manufactured exports, and had a much higher share of trade in GDP (54%) than other leading economies such as Germany (40%) or the United States (10%). More than any other major country, Britain’s position in the world economy on the eve of World War I was predicated on the globalization of that period. ![]() Sources: Maddison (2010) and Broadberry (2006). Note: real GDP/person comparison is for 1913. Table 1 Labour productivity in the United States (UK = 100) The implications were a substantial rise in equilibrium unemployment, a big squeeze on real earnings and a need for eye-watering primary budget surpluses to preserve fiscal sustainability. The difficulties that beset the British economy in the 1920s came from changes in the world economic environment compared with the pre-war period, from the legacy of the war itself, and from the policy choices made in the aftermath of the war. Yet that was far from the sum of the losses that the Great War inflicted on the British economy economic damage continued to accrue throughout the 1920s and beyond.Īgainst a background of continued weak productivity performance (see Table 1), a number of new problems emerged from a transition to peace that was fraught with difficulty. Britain incurred 715,000 military deaths (with more than twice that number wounded), the destruction of 3.6% of its human capital, 10% of its domestic and 24% of its overseas assets, and spent well over 25% of its GDP on the war effort between 19 (Broadberry and Harrison, 2005). It was a prolonged, brutal, and expensive conflict. World War I was not over by Christmas of 1914.
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