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Stephen Broadberry Nuffield College, Oxford October 2019

THE INDUSTRIAL REVOLUTION AND THE GREAT DIVERGENCE: RECENT FINDINGS FROM HISTORICAL NATIONAL ACCOUNTING. Stephen Broadberry Nuffield College, Oxford October 2019. 1. INTRODUCTION.

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Stephen Broadberry Nuffield College, Oxford October 2019

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  1. THE INDUSTRIAL REVOLUTION AND THE GREAT DIVERGENCE: RECENT FINDINGS FROM HISTORICAL NATIONAL ACCOUNTING Stephen Broadberry Nuffield College, Oxford October 2019

  2. 1. INTRODUCTION • Today I want to discuss a number of findings from HNA that have occurred since Angus Maddison published his 2001 book: The World Economy: A Millennial Perspective • Maddison (2001) made a bold leap, setting out levels of GDP per capita for the world’s major economies over the whole of the second millennium • Working in 1990 international dollars (Geary-Khamis PPPs), Maddison was able to compare living standards across both space and time • However, there was a large amount of “guesstimation” or “controlled conjecture” in Maddison’s work

  3. Introduction • Abundant quantitative information has survived in large parts of Europe and Asia, and there has been a lot of work since 2001 reconstructing historical national accounts covering the last millennium • This work casts new light on the Industrial Revolution: • New estimates of British GDP p.c. show episodes of pre-industrial growth, interspersed with stagnation rather than decline → Industrial Revolution built on prior developments • British economy had already developed ability to maintain living standards while population recovered after 1450; already breaking free from Malthusian constraints

  4. Introduction • New work in HNA also casts new light on the Great Divergence: • Traditional view, embodied in Maddison, saw gap in productivity and living standards between Europe and Asia beginning perhaps as early as 1300 and certainly by 1500 • Pomeranz (2000) saw gap emerging only after 1800 • HNA data suggest Great Divergence began around 1700, at same time as emergence of MEG in GB and beginning of downward trend in Chinese GDP p.c.

  5. 2. THE INDUSTRIAL REVOLUTION • 2.1 BRITISH ECONOMIC PERFORMANCE, 1270-1870 • Broad agreement since 1990s about quantitative dimensions of British economic growth 1700-1870 (Crafts and Harley, 1992) • Growth during Industrial Revolution much slower than suggested by popular imagination and early estimates of Deane and Cole (1962) • This meant GB must have entered Industrial Revolution already richer and more developed than previously assumed • To understand Britain’s transition to modern economic growth, need to examine what happened earlier

  6. FIGURE 1: Real GDP, population and real GDP per head, England 1270-1700 and Great Britain 1700-1870 (average per decade, log scale, 1700=100) • Early episodes of GDP per head growth following Black Death in C14th and Civil War during C17th • Between these two episodes, economy remained on a plateau rather than sinking back to Malthusian subsistence as population recovered

  7. Growing and shrinking • When seeking to understand economic development during Industrial Revolution and subsequently, researchers tend to look for factors leading to an acceleration of the rate of growing during periods of positive growth • But what really mattered was a reduction in the rate and frequency of shrinking (Broadberry and Wallis, 2017) • This phenomenon consistent with difference between todays’ rich and poor economies • Today’s poor economies grow as fast as today’s rich economies when they grow • The problem is that they have more years of shrinking and they have higher rates of shrinking when they experience negative growth

  8. 2.2 STRUCTURAL CHANGE IN BRITAIN • Shift of structure away from dependence on agriculture • Shift out of agriculture occurred earlier than once thought (agricultural revolution) • Traditional analysis focuses on industrialisation, but this understates role of services (commercial revolution)

  9. TABLE 1: Sectoral shares in nominal GDP and the labour force, England 1381-1700 and Great Britain 1700-1870 (%) • Agriculture under 40% of labour force by C18th • Services similar share of labour force as industry • Earlier shift of labour into industry means faster industrial labour productivity growth during Industrial Revolution

  10. 3. THE GREAT DIVERGENCE • New estimates of GDP p.c. in European and Asian economies have recently appeared, showing reversals of fortune within as well as between the 2 continents • European Little Divergence: NW Europe overtook Mediterranean Europe • Asian Little Divergence: Japan overtook China and India • Great Divergence: leading European nation overtook leading Asian region

  11. 3.1 Europe’s Little Divergence • Data sources for NW Europe: • GB: Broadberry, Campbell, Klein, Overton and van Leeuwen(2015) • NL: van Zanden and van Leeuwen (2012) • Data sources for Mediterranean Europe: • Italy: Malanima (2011) • Spain: Álvarez-Nogal and Prados de la Escosura (2012) • FIGURE 1: New estimates available at annual frequency rather than for small number of benchmark years

  12. FIGURE 1: Annual GDP per capita data for western Europe ($1990) Sources: Broadberry, Campbell, Klein, Overton and van Leeuwen (2015), van Zanden and van Leeuwen (2012), Malanima (2011), Álvarez-Nogal and Prados de la Escosura (2013).

  13. Revising Maddison • FIGURE 2: For comparison with Maddison, new estimates plotted on decade average basis

  14. FIGURE 2: Maddison dataset and new estimates of GDP per capita in Europe, 1000-1870 ($1990) New estimates Maddison • Medieval Europe richer than Maddison thought • No trend growth outside NW Europe • Little Divergence: Black Death + new trade routes

  15. Other European data • Annual data also now available for other European countries: • France back to 1300: Ridolfi (2017) • Sweden back to 1300: Schön and Krantz (2012; 2015) • Portugal back to 1500: Palma and Reis (2019) • Poland back to 1400: Malinowski and van Zanden (2015) • Some linked benchmarks available for Belgium and Germany: • Belgium back to 1500: Buyst (2011) • Germany back to 1500: Pfister (2011) • FIGURE 3: Confirms picture of North Sea area as forging ahead of rest of continent from around 1500, led initially by NL, then GB

  16. FIGURE 3: GDP per capita in other parts of Europe, 1270-1870 ($1990) • Stagnation outside NW Europe

  17. 2.3 Asia’s Little Divergence • Data sources for Asia: • China back to 980: Broadberry, Guan and Li (2018) • India back to 1600: Broadberry, Custodis and Gupta (2015) • Japan back to 730: Bassino, Broadberry, Fukao, Gupta and Takashima (2019) • New estimates available on decadal basis for China and for India from 1800, but only for benchmark years in case of India before 1800 and Japan for the whole period • FIGURE 4: Britain included here for comparative purposes • As in Europe, new estimates revise upwards substantially Maddison’s estimates of GDP p.c. for Asia

  18. FIGURE 4: Maddison dataset and new estimates of GDP per capita in Asia, 1000-1870 ($1990) Maddison New estimates • China much richer than Maddison thought during Northern Song and Ming, then Qing decline. India also richer in 1600 • Japan richer in late C19th. Asian Little Divergence

  19. 2.4 The Great Divergence • FIGURE 5: Put together the European and Asian data to examine the timing of the Great Divergence

  20. FIGURE 5: GDP per capita in Europe and Asia, 1000-1870 ($1990) • China richest country in 1000 • By 1300 Italy already ahead of China and by 1600 NL & Italy significantly ahead

  21. Interpretation • But must be careful here before concluding Great Divergence began by 1600, since China much larger than any individual European country: • Chinese population in 1600 was 160m compared with just 13.1m in Italy, 4.2m in GB and 1.5m in NL, and only 18.5m in France, largest nation in western Europe • While GDP p.c. gap between leading NW European nations and China remained small, as it did until C18th, smaller region of China (e.g. Yangzi delta) may still have been on a par with richest parts of Europe

  22. Great Divergence • Li and van Zanden(2012) find p.c. incomes in Lower Yangzi about half level of NL in 1820s, suggesting p.c. GDP of c. $1,000, compared with $600 in China as a whole • FIGURE 6: Yangzi series projects this ratio back to 980 • This is compared with the European leader, based on Italy until 1540s, then NL until 1800s, then GB

  23. FIGURE 6: GDP per capita in the leading regions of Europe and China, 1300-1850 (1990 international dollars) Great Divergence begins around 1700

  24. Great Divergence • Low Yangzi (L) estimate based on projecting back from an alternative mid-C19th benchmark from Xu et al. (2017), which yields a lower GDP p.c. figure for China in 1840 • Even with the lower bound series, although Europe appears to start forging ahead in C16th, Yangzi GDP p.c. still at 93% of leading European country in 1700, so 1st half of C18th remains a critical juncture

  25. Great Divergence • 1sthalf of C18th has emerged as new consensus for timing of Great Divergence, accepted by Pomeranz (2011) as well as quantitative economic historians using real wages & urbanisation rates (Allen et al., 2011; Broadberry & Gupta, 2006) • California School were right to point to importance of regional variation within both Asia and Europe, but a bit too optimistic about performance of richest parts of Asia during C18th

  26. 4. CONCLUSIONS INDUSTRIAL REVOLUTION • C18th Britain was first economy to make transition to modern economic growth, but this breakthrough built upon earlier episodes of growth after Black Death in C14th and after Civil War in C17th • Between these 2 episodes, economy remained on a plateau rather than sinking back to Malthusian subsistence as population recovered • As a result, GB improved its position relative to rest of Europe (Little Divergence) and relative to Asia (Great Divergence)

  27. Conclusions • TIMING OF GREAT DIVERGENCE • Europe first began to forge ahead of Asia in terms of GDP per capita during early C18th • Whilst this is a century earlier than first claimed by Pomeranz (2000), it is also several centuries later than suggested by older “Eurocentric” economic history that California School were challenging

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