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EH1: SB TOPIC 1

EH1: SB TOPIC 1. Economic Growth, 1000-1870. OVERVIEW. This part of the course aims to provide an overview of the Great Divergence of productivity and living standards between Europe and Asia

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EH1: SB TOPIC 1

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  1. EH1: SB TOPIC 1 Economic Growth, 1000-1870

  2. OVERVIEW • This part of the course aims to provide an overview of the Great Divergence of productivity and living standards between Europe and Asia • Emphasis is placed on the need to establish firmly the historical “facts” that are to be explained as well as on providing a satisfactory economic explanation

  3. TOPICS • 1. Economic Growth, 1000-1870 • 2. Wages, Prices and the Great Divergence • 3. Cotton Textiles and the Great Divergence • 4. Accounting for the Great Divergence

  4. TOPIC 1: ECONOMIC GROWTH, 1000-1870LECTURE OUTLINE • A. HISTORICAL NATIONAL ACCOUNTING • 1. The Maddison Data Set • 2. Basis of the Population Estimates • 3. Basis of the Income Estimates • 4. International Comparisons • 5. International Comparisons before 1870: The Great Divergence Debate • 6. Improving on Maddison

  5. A. HISTORICAL NATIONAL ACCOUNTING • Until surprisingly recently, there was no systematic quantitative overview of the basic contours of long run economic development • Although there were a few isolated studies with data on individual parts of a number of European economies, there had been no attempt to pull them together • The pioneer here was Angus Maddison, who spent a lifetime developing an approach known as “Historical National Accounting”

  6. Historical National Accounting • I will end up suggesting that Maddison’s estimates are seriously misleading and are in the process of being replaced • But that should not take away from the magnitude of his achievement. He was unambiguously the pioneer of a great project, which remains to be completed

  7. 1. THE MADDISON DATA SET • Quantification of world economic history received a major boost with the publication of Maddison’s (2001), World Economy: A Millennial Perspective • Until the early 1990s, data on comparative levels of per capita income were largely restricted to the “Maddison 16” of rich industrialised countries and covering only the period since 1870

  8. The Maddison data set • Following an explosion of interest in the production of historical national accounts, by 1995 Maddison was able to extend estimates back to 1820 for many rich industrialised countries and back to 1870 for many other countries • Maddison’s 2001 volume is much more ambitious, and aims to provide global coverage for the period back to 1820 and rough estimates back to 1000 for selected economies • Final version from 2010 available on GGDC website

  9. What Maddison’s data show • TABLES 1 & 2: Between 1000 and 1998, population rose 22-fold, per capita income rose 13-fold. In previous millennium, population increased by one-sixth and per capita income fell slightly. • Two distinct epochs in 2nd Millennium: • Between 1000 and 1820, p.c. income increased by 50%, population rose by a factor of four. Growth was largely extensive • Since 1820, more intensive development (g of p.c. income > g of pop). Pop increased by factor of < 6, p.c. income increased by factor of > 8

  10. TABLE 1: Level and rate of growth of population: World and major regions, 0-1998 A.D.

  11. TABLE 2: Level and rate of growth of GDP per capita: World and major regions, 0-1998 A.D.

  12. What Maddison’s data show • Wide disparity in performance across regions: • Group A: W.Europe, W. Offshoots, Japan • Group B: Latin America, E.Europe & Former USSR, Asia (except Japan), Africa • Growth of p.c. income 4 times as fast in Group A as in Group B. • Group B was ahead in 1000 (after fall of Roman Empire). • By 1820 p.c. income in Group A twice level in Group B. • By 1998 ratio had increased to 7:1 • In 1998, p.c. income ratio between W.Offshoots and Africa more than 19:1. Africa today at W.European level of 1820

  13. What Maddison’s data show • For Group A countries, at least, Malthus was clearly too pessimistic about the possibility of increasing living standards in the long run • TABLE 3: Changing regional shares of GDP: • In 1000, Asia produced two-thirds of world GDP and W.Europe less than 9% • By 1820, W.Europe’s share 24%, Asia’s share 56% • By 1998, Asia’s share 30%, W.Europe and W.Offshoots 46%

  14. TABLE 3: Level and rate of growth of GDP: World and major regions, 0-1998 A.D.

  15. Europe’s Little Divergence, 1500-1820 • Maddison’s data break down developments within Western Europe from 1500. Pattern is sometimes described as the Little Divergence • Italy had highest per capita income during 1000-1500 • After “voyages of discovery”, brief Iberian boom, but opening up of Atlantic economy led eventually to economic leadership of NW Europe: first NL, then GB

  16. TABLE 4: GDP per capita in UK and selected countries, 1500-1820 (1990 international dollars)

  17. 2. BASIS OF THE POPULATION ESTIMATES • Data from the past exist largely as a result of government efforts to raise taxes • China: bureaucracy kept population registers going back more than 2000 years. Designed to assess taxable capacity, also included information on cultivated area and crop production • Roman Empire: conducted censuses for fiscal purposes

  18. Population • England: Domesday Book 1086 extraordinarily detailed survey of whole country, broken down by estate. • A number of economic historians have used Domesday data to estimate English population in 1086 (Russell, 1948; Darby, 1977) • Others have also used Domesday Book to estimate national income for England in 1086 (Snooks, 1995; Mayhew, 1995; Walker, 2015)

  19. Population • Parish registers in many countries record births, marriages & deaths • Decadal censuses now the norm in many countries • Scope for disagreement small after 1700 • Even between 1000 and 1700, fair amount of agreement between scholars • There is some scope for improving on Maddison’s population estimates, but it is probably more about increasing the frequency of observations than changing the trends

  20. 3. BASIS OF THE INCOME ESTIMATES • For many countries, historical national accounts have been reconstructed since about 1870 • Going back further in time, for “core” countries there is quite a lot of hard evidence that can be derived from archives: • cultivated land use, crop yields and animal numbers from farm accounts and tithe receipts • population living in towns and labour force occupations • extent of foreign trade • wages, prices and real wage trends • government spending and revenue

  21. Basis of the income estimates • However, despite encouraging economic historians to produce GDP estimates based on hard data, Maddison preferred to rely largely on “guesstimates” for the pre-1870 period • His approach was to use some basic assumptions, particularly about the subsistence level of income, and make some freehand adjustments on the basis of the qualitative literature • This is best understood if we consider how Maddison made his international comparisons and established the subsistence level of income

  22. 4. INTERNATIONAL COMPARISONS • It is important to compare wages and GDP per capita at Purchasing Power Parity (PPP) • British wages will be in £, while US wages will be in $ • Cannot simply compare at the exchange rate, which may move to clear international asset markets, rather than reflecting the price of goods and services that people living in the 2 countries buy

  23. International comparisons • Compute the PPP by comparing prices of individual products, weighted by their importance in the GDP of the 2 countries • Would get a different PPP if use UK weights rather than US weights • A compromise estimate is obtained by using the geometric mean of UK and US weights • However, a series of bilateral comparisons made this way may not be transitive

  24. International comparisons • Maddison therefore chose to use a set of international weights for comparing all countries • Most international comparisons are now carried out in 1990 GK international dollars (named after Geary and Khamis who derived the weighting scheme)

  25. 1990 international dollars • Using PPPs for 1990, we can convert GDP per capita for all countries to 1990 international dollars • This provides a convenient standard for comparing per capita incomes over space and time • World Bank standard in 1990 suggested “bare bones subsistence” is $1 per day, or $365 per year • Since any society has a rich elite, minimum average per capita income for any society likely to be around $400 • This is widely regarded as “bare bones subsistence”

  26. 1990 international dollars • Now look at the early observations in the Maddison data set and notice how many are at or very close to $400 in the early years • Better off economies are put slightly above this level, at $425 or $450 • Observations between 1000 and 1820 are then more or less drawn in freehand, so as to conform to Maddison’s views on the major controversies in global economic history

  27. 5. INTERNATIONAL COMPARISONS BEFORE 1870: THE GREAT DIVERGENCE DEBATE • A central issue in international comparisons before 1870 concerns the Great Divergence of living standards between Europe and Asia • But which Asian regions should be compared with which European countries? • Maddison compares W.Europe with China, but the Yangzi Delta region of China may not have been so far behind even by 1800

  28. Maddison’s Great Divergence • Pomeranz claims the Yangzi delta was on a par with GB & NL in 1800, but this has not been widely accepted • Maddison’s figures for W.Europe and China show a more conventional picture (TABLE 5): • After the fall of the Roman Empire, W.European p.c. income fell to a low point circa 1000. • Chinese incomes were stagnant, so W.Europe fell behind

  29. TABLE 5: Comparative levels of GDP per capita in China and Western Europe, 400-1998 A.D. (1990 international dollars)

  30. Maddison’s Great Divergence • P.c. income in W.Europe began to grow from C11th, led by N.Italian city states (esp. Venice), then Portugal & Spain, then NL, then GB • A growth rate of 0.14% p.a. was not very fast but by 1820 p.c. income in W.Europe had tripled (compound interest) • Chinese p.c income also grew between 1000 and 1300, but more slowly than W.Europe. So W.Europe caught up with China by C14th

  31. Maddison’s Great Divergence • Chinese p.c. income then stagnated until 1820. Initially due to internal policies and institutions (e.g. self-imposed isolation), then reinforced by colonial exploitation by West • China fell far behind as W.Europe continued to grow. By 1820, p.c. income in W.Europe twice Chinese level • From early 19th to mid-20th century, Chinese p.c. income fell, while W.European growth accelerated

  32. Maddison’s Great Divergence • By 1950, W.Europe’s p.c. income more than 10 times Chinese level • Since 1950, and esp since 1973, China has been catching up. By 1998, W.European income level less than 6 times Chinese level

  33. 6. IMPROVING ON MADDISON • Many of Maddison’s GDP per capita observations before 1820 are “guesstimates”, but it doesn’t have to be this way • Since Maddison died in 2010, the Maddison Project has begun the process of improving upon the original Maddison data set • Bolt and van Zanden (2014) represents the first round of improvement, and incorporates a number of series for the pre-1820 period based on hard data • Table 6 shows the results for 4 European economies

  34. TABLE 6: GDP per capita levels in Europe (1990 international dollars) Sources: Broadberry et al. (2015); van Zanden and van Leeuwen (2012); Malanima (2011); Alvarez-Nogal and Prados de la Escosura (2013)

  35. Improving on Maddison • The most obvious change is that levels of per capita income were substantially higher in 1500 than suggested by Maddison • Projecting back further suggests that per capita incomes in Western Europe were already well above bare bones subsistence in the 13th century, and indeed even earlier • English p.c. GDP in 1086 was about the same as in 1300

  36. Improving on Maddison • In the second half of this lecture, we will explore the new British historical national accounts: • Explain where the estimates come from • Explore the implications for understanding the transition to modern economic growth

  37. TOPIC 1: ECONOMIC GROWTH, 1000-1870LECTURE OUTLINE • B. BRITISH ECONOMIC GROWTH • 1. Real GDP • 2. Population and GDP per capita • 3. Consumption and Output • 4. Income and Output-Based Measures • 5. Britain in a Comparative Perspective

  38. B. BRITISH ECONOMIC GROWTH • Broadberry, Campbell, Klein, Overton & van Leeuwen (2011; 2015): Reconstruction of national income in Britain, 1270-1870 • GDP estimates combined with population data to derive per capita GDP • Provides a unified framework for addressing the key issues of British economic history before and during the transition to modern economic growth

  39. Results • Annual growth rate of GDP per capita 0.17% 1270-1700 cumulates to doubling of living standards • Annual growth rate of GDP per capita 0.48% 1700-1870, cumulates to a further doubling of living standards • If project back from 1850 level, per capita income in late Middle Ages around $1,000 in 1990 prices, well above “bare bones subsistence” ($400) • High share of livestock agriculture already in late Middle Ages, providing varied diet rather than high level of kilocalories

  40. 1. REAL GDP AGRICULTURE • Effect of Black Death from 1348: arable output declined with population, livestock output remained flat • Rising share of livestock sector, but with setback during period 1450-1650 • Note very high share of livestock sector already by late medieval period (c. 50%) • Although kilocalories per person not particularly high, expensive kilocalories (meat, dairy produce, ale)

  41. FIGURE 1: Indexed output in English arable and livestock agriculture (log scale, 1700=100)

  42. TABLE 5: Output shares in English agriculture, in current prices, 10-year averages (%)

  43. INDUSTRY • Sharp decline of industrial production across Black Death, but stability as population declined further • Return to strong growth after 1500 • Output growth accelerated from 1760s to 1830s before tapering off

  44. FIGURE 2: Indexed output of agriculture, industry and services, England (1270-1700) and Great Britain (1700-1870), (log scale, 1700 = 100)

  45. SERVICES • Services trended down with population after Black Death before picking up strongly between 1500 and 1650 • Increase in growth rate from 1780s

  46. Real GDP • Sectoral weights provided for benchmark years where labour force data also available for cross-checking • Agriculture’s share declined, while services increased the most, particularly after 1700 when relative price of industrial goods fell sharply • But industry grew fastest in constant price terms, both before and after 1700

  47. TABLE 9: Sectoral shares in current price GDP, 1270-1870 (%)

  48. 2. POPULATION AND GDP PER CAPITA • ENGLISH POPULATION • English population before 1541 controversial • We use data on trends in individual manors or parishes c.1317-1541, building on the approach of Hallam for the period 1086-1317 • Peak medieval population 4.81 million in 1348, above Overton and Campbell’s estimate of 4.0 to 4.5 million but well below Richard Smith’s 6 million • National accounts perspective: difficult to see how many more could have been fed, given food availability

  49. English population, 1250-1700

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