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The Great Divergence in World Incomes: Why Are Some Countries Rich and
The Great Divergence in World Incomes: Why Are Some Countries Rich and
Part 1: When did Northwestern Europe pull ahead of the Rest of the
Part 1: When did Northwestern Europe pull ahead of the Rest of the
The Great Divergence Debate
The Great Divergence Debate
The California School has challenged this
The California School has challenged this
I will argue that the California School is wrong and that northwestern
I will argue that the California School is wrong and that northwestern
Measuring real wages requires data on wages and consumer prices
Measuring real wages requires data on wages and consumer prices
The first efforts were for Europe, followed quickly by the Ottoman
The first efforts were for Europe, followed quickly by the Ottoman
Now this research is being extended to Asia:
Now this research is being extended to Asia:
These studies involve comparing:
These studies involve comparing:
Heres how daily wages compared:
Heres how daily wages compared:
Did high silver wages translate into a high standard of living
Did high silver wages translate into a high standard of living
To measure the cost of living:
To measure the cost of living:
A basket is specified for an adult male covering a whole year
A basket is specified for an adult male covering a whole year
The Great Divergence in World Incomes: Why Are Some Countries Rich and
The Great Divergence in World Incomes: Why Are Some Countries Rich and
The Great Divergence in World Incomes: Why Are Some Countries Rich and
The Great Divergence in World Incomes: Why Are Some Countries Rich and
Welfare ratio for a family:
Welfare ratio for a family:
Roman Empire c. 300 AD
Roman Empire c. 300 AD
The problem with this basket is that it is too expensive for most
The problem with this basket is that it is too expensive for most
The Great Divergence in World Incomes: Why Are Some Countries Rich and
The Great Divergence in World Incomes: Why Are Some Countries Rich and
The Great Divergence in Living Standards Happened 1400-1750
The Great Divergence in Living Standards Happened 1400-1750
Workers around the World earned incomes 3  4 times subsistence in
Workers around the World earned incomes 3 4 times subsistence in
The Great Divergence preceded the Industrial Revolution:
The Great Divergence preceded the Industrial Revolution:
Part II: Why did northwest Europe pull ahead
Part II: Why did northwest Europe pull ahead
The immediate explanation is that the high wage economies were
The immediate explanation is that the high wage economies were
Wage was maintained in northwest Europe (W) and fell elsewhere (W1)
Wage was maintained in northwest Europe (W) and fell elsewhere (W1)
Why was northwest Europe more successful
Why was northwest Europe more successful
Agriculture did play an important role: output per worker
Agriculture did play an important role: output per worker
Output per worker is agricultural output divided by the agricultural
Output per worker is agricultural output divided by the agricultural
Standard explanation emphasizes enclosures and capitalist farming:
Standard explanation emphasizes enclosures and capitalist farming:
The Great Divergence in World Incomes: Why Are Some Countries Rich and
The Great Divergence in World Incomes: Why Are Some Countries Rich and
Surviving medieval ridge and furrow
Surviving medieval ridge and furrow
In fact, these institutional changes made only minor contributions to
In fact, these institutional changes made only minor contributions to
Much of the incentive to increase productivity was a response to the
Much of the incentive to increase productivity was a response to the
Sir James Steuart (1767) had the essential insight: a farmer will not
Sir James Steuart (1767) had the essential insight: a farmer will not
If farmers increased output, they could keep up with high wage
If farmers increased output, they could keep up with high wage
The Growth of London created cheap energy:
The Growth of London created cheap energy:
The Great Divergence in World Incomes: Why Are Some Countries Rich and
The Great Divergence in World Incomes: Why Are Some Countries Rich and
The Great Divergence in World Incomes: Why Are Some Countries Rich and
The Great Divergence in World Incomes: Why Are Some Countries Rich and
The Great Divergence in World Incomes: Why Are Some Countries Rich and
The Great Divergence in World Incomes: Why Are Some Countries Rich and
As a result, northern and western Britain had the cheapest energy in
As a result, northern and western Britain had the cheapest energy in
Next challenge: Put these ideas together in a model that separates out
Next challenge: Put these ideas together in a model that separates out
A data base is put together
A data base is put together
Textile productivity is measured as the ratio of input prices (wool,
Textile productivity is measured as the ratio of input prices (wool,
Energy price
Energy price
The Great Divergence in World Incomes: Why Are Some Countries Rich and
The Great Divergence in World Incomes: Why Are Some Countries Rich and
The model is tested by seeing if it replicates the various national
The model is tested by seeing if it replicates the various national
Simulated agricultural TFP
Simulated agricultural TFP
Simulated urbanization rates:
Simulated urbanization rates:
We can use the model to identify the causes of Englands advance
We can use the model to identify the causes of Englands advance
Simulated urbanization
Simulated urbanization
Simulated agricultural TFP
Simulated agricultural TFP
The Great Divergence was mainly the result of English and Dutch
The Great Divergence was mainly the result of English and Dutch
Part III: Why did the early modern Great Divergence lead to the
Part III: Why did the early modern Great Divergence lead to the
The problem is explaining why the steam engine, cotton spinning, coke
The problem is explaining why the steam engine, cotton spinning, coke
Were these technologies invented because of better fundamentals
Were these technologies invented because of better fundamentals
The macro-inventions were made in 18th century Britain because that
The macro-inventions were made in 18th century Britain because that
Invention was an economic activity influenced by factor prices
Invention was an economic activity influenced by factor prices
Micro-inventions
Micro-inventions
The Great Divergence in World Incomes: Why Are Some Countries Rich and
The Great Divergence in World Incomes: Why Are Some Countries Rich and
The Great Divergence in World Incomes: Why Are Some Countries Rich and
The Great Divergence in World Incomes: Why Are Some Countries Rich and
The Great Divergence in World Incomes: Why Are Some Countries Rich and
The Great Divergence in World Incomes: Why Are Some Countries Rich and
The Great Divergence in World Incomes: Why Are Some Countries Rich and
The Great Divergence in World Incomes: Why Are Some Countries Rich and
The British inventions led to modern economic growth because they were
The British inventions led to modern economic growth because they were
The Great Divergence led to Modern Economic Growthnot the other way
The Great Divergence led to Modern Economic Growthnot the other way

: The Great Divergence in World Incomes: Why Are Some Countries Rich and Others Poor. : Allen. : The Great Divergence in World Incomes: Why Are Some Countries Rich and Others Poor.ppt. zip-: 2405 .

The Great Divergence in World Incomes: Why Are Some Countries Rich and Others Poor

The Great Divergence in World Incomes: Why Are Some Countries Rich and Others Poor.ppt
1 The Great Divergence in World Incomes: Why Are Some Countries Rich and

The Great Divergence in World Incomes: Why Are Some Countries Rich and

Others Poor?

Bob Allen Professor of Economic History Nuffield College, Oxford 2008

2 Part 1: When did Northwestern Europe pull ahead of the Rest of the

Part 1: When did Northwestern Europe pull ahead of the Rest of the

World?

3 The Great Divergence Debate

The Great Divergence Debate

The classical economists and most scholars since have argued that Europe was ahead of Asia for a very long time. They try to explain why: Smith: Minimal government and openness to trade Malthus: Differences in marriage patterns Marx: capitalist versus other institutions (Asiatic mode of production)

4 The California School has challenged this

The California School has challenged this

Key books: Ken Pomeranz, The Great Divergence Bin Wong, China Transformed James Lee and Wang Feng, One Quarter of Humanity: Malthusian Mythology and Chinese Realities They claim that income differences between Europe and Asia were small c. 1800 and Asian institutions were adequate for development. Evidence for incomes is very weak.

5 I will argue that the California School is wrong and that northwestern

I will argue that the California School is wrong and that northwestern

Europe pulled ahead of Asia 1500-1750.

I begin by measuring income differences. Maddisons GDP estimates are very unrealiable. Instead I rely on real wages. They measure the incomes of workers and perhaps other people as well.

6 Measuring real wages requires data on wages and consumer prices

Measuring real wages requires data on wages and consumer prices

These are available for many European cities in price histories. Many have been written in last 150 years Historian finds an institution that has lasted hundreds of years and copies prices of all transactions. Published in books I have computerized these Weights and measures converted to metric Money converted to grams of silver This work is being extended to Asia

7 The first efforts were for Europe, followed quickly by the Ottoman

The first efforts were for Europe, followed quickly by the Ottoman

Empire:

Jan Luiten van Zanden, Wages, and the Standards of Living in Europe, European Review of Economic History, 1999, 175-98. Robert C. Allen, The Great Divergence in European Wages and Prices, Explorations in Economic History, 2001, 411-447. S. ?zmucur and S. Pamuk, Real Wages and Standards of Living in the Ottoman Empire, Journal of Economic History, 2002, 293-321.

8 Now this research is being extended to Asia:

Now this research is being extended to Asia:

D Ma and J-P Bassino, Japanese Unskilled Wages in International Perspective, Research in Economic History, 2005. RC Allen, J-P Bassino, D Ma, C Moll-Murata, J-L van Zanden, Wages, prices, and Living Standards in China, Japan, and Europe, 1738-1925 RC Allen, India in the Great Divergence, in Hatton, ORourke, Taylor, eds., The New Comparative Economic History: Essays in Honor of Jeffery G. Williamson, 2007, pp. 9-32.

9 These studies involve comparing:

These studies involve comparing:

Wage rates, which are usually expressed in grams of silver per day. Consumer prices: usually the cost of a basket of goods. Welfare ratio: a full years earnings divided by the cost of maintaining a family for a year.

10 Heres how daily wages compared:

Heres how daily wages compared:

11 Did high silver wages translate into a high standard of living

Did high silver wages translate into a high standard of living

The answer depends on the cost of living!

12 To measure the cost of living:

To measure the cost of living:

Collect prices of all of the important consumer goods. These must be converted to grams of silver per metric unit. A basket of goods must be specified and its cost computed.

13 A basket is specified for an adult male covering a whole year

A basket is specified for an adult male covering a whole year

Various standards of comfort could be chosen. My first basket was what I now call the European respectability basket. This is supposed to represent total, annual spending for a man. This supplies 1940 kcalories per day. It was inspired by eighteenth century budgets and poor house diets. Bread is the main carbohydrate. Beer or wine and meat are included. Non-foods are included. Rent at 5% is added on.

14 The Great Divergence in World Incomes: Why Are Some Countries Rich and
15 The Great Divergence in World Incomes: Why Are Some Countries Rich and
16 Welfare ratio for a family:

Welfare ratio for a family:

WR=Annual income/annual cost of subsistence Annual income = mans annual income assuming full time, full year work Annual cost of subsistence = 3 times cost of basket (including 5% for rent). This annual subsistence cost includes man, woman, and children If WR=1, income is just enough to buy the specified basket or standard of living.

17 Roman Empire c. 300 AD

Roman Empire c. 300 AD

18 The problem with this basket is that it is too expensive for most

The problem with this basket is that it is too expensive for most

people in the world!

Therefore, I constructed a bare bones minimum basket. This is supposed to represent total, annual spending for a man. This also supplies 1940 kcalories per day, mainly from the cheapest grain. Small amounts of meat, beans, butter, or oil to supply protein and fat in keeping with local diet. Small quantities of non-foods are included. Rent at 5% is added on.

19 The Great Divergence in World Incomes: Why Are Some Countries Rich and
20 The Great Divergence in Living Standards Happened 1400-1750

The Great Divergence in Living Standards Happened 1400-1750

21 Workers around the World earned incomes 3  4 times subsistence in

Workers around the World earned incomes 3 4 times subsistence in

1400.

Some of the surplus was spent on more calories. Much of the surplus was spent on better quality foodmeat, alcohol.

22 The Great Divergence preceded the Industrial Revolution:

The Great Divergence preceded the Industrial Revolution:

English and Dutch workers still earned 3 4 times subsistence. They provided the mass market for the consumer revolution. Workers in India, China, and south and central Europe earned only enough to survive (Welfare Ratio = 1).

23 Part II: Why did northwest Europe pull ahead

Part II: Why did northwest Europe pull ahead

24 The immediate explanation is that the high wage economies were

The immediate explanation is that the high wage economies were

economically more developed:

25 Wage was maintained in northwest Europe (W) and fell elsewhere (W1)

Wage was maintained in northwest Europe (W) and fell elsewhere (W1)

26 Why was northwest Europe more successful

Why was northwest Europe more successful

Legal, constitutional, institutional development? Culture? In keeping with the assessment of Marxism, I investigate: Agrarian structure? No Commercial expansion? Yes I will review evidence about agriculture and about energy to argue that urban growth was a cause of these developments.

Agricultural revolution

Urban growth

Commercial expansion

Cheap energy (coal)

High wages

27 Agriculture did play an important role: output per worker

Agriculture did play an important role: output per worker

28 Output per worker is agricultural output divided by the agricultural

Output per worker is agricultural output divided by the agricultural

population from earlier population breakdown.

Agricultural output is calculated from a demand curve. Other investigators have used this procedure for Spain, the Netherlands, and Italy. This procedure makes per capita consumption of agricultural products a function of income and price. Q = P-.6W.5M.1N P = price, W = wage income, M=price manufactures, N=population Estimates of net agricultural exports must be added to go from consumption to production. The output estimates are consistent with direct calculations for England and the Netherlands.

29 Standard explanation emphasizes enclosures and capitalist farming:

Standard explanation emphasizes enclosures and capitalist farming:

30 The Great Divergence in World Incomes: Why Are Some Countries Rich and
31 Surviving medieval ridge and furrow

Surviving medieval ridge and furrow

32 In fact, these institutional changes made only minor contributions to

In fact, these institutional changes made only minor contributions to

productivity growth:

33 Much of the incentive to increase productivity was a response to the

Much of the incentive to increase productivity was a response to the

growth of cities:

34 Sir James Steuart (1767) had the essential insight: a farmer will not

Sir James Steuart (1767) had the essential insight: a farmer will not

labour to produce a superfluity of grain relative to his own consumption, unless he finds some want which may be supplied by the means of the superfluity.

Sixty years later, Gibbon Wakefield spelled out the global context: In England, the greatest improvements have taken place continually, ever since colonization has continually produced new desires amongst the English, and new markets wherein to purchase the objects of desire. With the growth of sugar and tobacco in America, came the more skillful growth of corn in England. Because in England, sugar was drank and tobacco smoked, corn was raised with less labour, by fewer hands.

35 If farmers increased output, they could keep up with high wage

If farmers increased output, they could keep up with high wage

economy:

36 The Growth of London created cheap energy:

The Growth of London created cheap energy:

London population 1500: 50,000 1600: 200,000 1700: 500,000 1800: 1,000,000 This growth created the British coal industry, which was unique in the world. The British coal industry gave Britain the cheapest energy in the world. Cheap energy led to invention of energy using technology and the expansion of energy using industries.

37 The Great Divergence in World Incomes: Why Are Some Countries Rich and
38 The Great Divergence in World Incomes: Why Are Some Countries Rich and
39 The Great Divergence in World Incomes: Why Are Some Countries Rich and
40 As a result, northern and western Britain had the cheapest energy in

As a result, northern and western Britain had the cheapest energy in

the world.

41 Next challenge: Put these ideas together in a model that separates out

Next challenge: Put these ideas together in a model that separates out

the causes of success and failure in the early modern economy:

Things to explain (endogenous variables) Real wage Urbanization Agricultural productivity Proto-industrialization Explanatory factors (exogenous variables) population Agricultural land Productivity in textiles (new draperies) Intercontinental trade (result of imperial policy) Price of energy Prince or republic literacy

42 A data base is put together

A data base is put together

Countries at fifty or one hundred year intervals Uses earlier occupational distribution data Agricultural total factor productivity estimated from output, land, and labour Other variables like textile productivity, literacy, trade data are calculated.

43 Textile productivity is measured as the ratio of input prices (wool,

Textile productivity is measured as the ratio of input prices (wool,

labour) to cloth price:

44 Energy price

Energy price

45 The Great Divergence in World Incomes: Why Are Some Countries Rich and
46 The model is tested by seeing if it replicates the various national

The model is tested by seeing if it replicates the various national

histories. Here is the simulated wage:

47 Simulated agricultural TFP

Simulated agricultural TFP

48 Simulated urbanization rates:

Simulated urbanization rates:

49 We can use the model to identify the causes of Englands advance

We can use the model to identify the causes of Englands advance

Can we turn England into France? Here are simulated wages:

50 Simulated urbanization

Simulated urbanization

51 Simulated agricultural TFP

Simulated agricultural TFP

52 The Great Divergence was mainly the result of English and Dutch

The Great Divergence was mainly the result of English and Dutch

success in the world economy.

To a significant extent, this was successful mercantilism. England and the low countries were the high wage part of the world. England was also the cheap energy region of the world.

53 Part III: Why did the early modern Great Divergence lead to the

Part III: Why did the early modern Great Divergence lead to the

Industrial Revolution?

54 The problem is explaining why the steam engine, cotton spinning, coke

The problem is explaining why the steam engine, cotton spinning, coke

smelting, etc., were invented and adopted in Britain in the 18th century.

These were macro-inventions Radically changed factor proportions (biased technical change) Great potential for elaboration Ideas came from outside industry Despite their revolutionary potential, they were barely viable commercially even under the most favourable circumstances.

55 Were these technologies invented because of better fundamentals

Were these technologies invented because of better fundamentals

Better property rights or limited government? No Better culture? No Better science? No Better geography? Not better agricultural resources Britain had developed coal but other countries had it.

56 The macro-inventions were made in 18th century Britain because that

The macro-inventions were made in 18th century Britain because that

was the first time and place that it paid to invent them.

The macro-inventions were biased technical changes. They used inputs that were cheap in Britain and saved inputs that were dear. Even under British conditions, they were barely profitable to operate. They were not profitable to use elsewhere.

57 Invention was an economic activity influenced by factor prices

Invention was an economic activity influenced by factor prices

Invention is 1% inspiration and 99% perspiration. (Edison) Inspiration for macro-inventions came from outside the industry (science, copying, and so forth) Sometimes banal Perspiration refers to R&D. Perfecting the engineering was most of invention. This entailed costs. Factor prices determined adoption Adoption determined benefits Benefits necessary for R&D Therefore, factor prices affected invention.

58 Micro-inventions

Micro-inventions

Realized the potential of the macro-inventions Came from local learning Tended to produce neutral technical change Unleashed path dependent trajectory of improvement. Eventually cut costs enough to make the adoption of the macro-inventions profitable outside of Britain When the tipping point occurred, the Industrial Revolution spread abroad.

59 The Great Divergence in World Incomes: Why Are Some Countries Rich and
60 The Great Divergence in World Incomes: Why Are Some Countries Rich and
61 The Great Divergence in World Incomes: Why Are Some Countries Rich and
62 The Great Divergence in World Incomes: Why Are Some Countries Rich and
63 The British inventions led to modern economic growth because they were

The British inventions led to modern economic growth because they were

more transformative.

Cotton was a global industry Demand for British cotton was very price elastic Technical improvements led to enormous output growth This led to Manchestervast urbanization Also a very large demand for machinery Steam engine and iron industries allowed General mechanization of industry, railway, steam ship Basis of 19th century global economy Account for almost half of growth in British labour productivity in 19th century. Engineering industry was the most important creation of British industrial revolution.

64 The Great Divergence led to Modern Economic Growthnot the other way

The Great Divergence led to Modern Economic Growthnot the other way

around.

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