Lecture 5 - The Great Divergence: Why

• Reasons that Europe diverged from Asia: China had different demographic characteristics, China had
poor government institutions, China was less urban and commercialised, China had less productive
agriculture and China had poor informal institutions.
Demography
• China had universal marriage. Births and deaths were higher in China. Chinese demographic
characteristics did not change in this period.
• Europe was first to undergo a 'Demographic Transition'. Europe differed from the rest of the world as
fertility was the central feature. England differed from the rest of Europe as nuptiality was the central
feature.
• Population growth,
Natural Rate of Increase = Crude Birth Rate - Crude Death Rate.
Crude Birth Rate CBR is determined by fertility rates of married and unmarried womem,
the marriage rate and female age of first marriage. It is traditionally in a tradtional community.
Crude Death Rate CDR is determined by war, famine and plague.

The female age of first marriage

was high in England (23.1 from
1800-1837 vs. 16 for Bangladesh in
1970. Celibacy was high (10-15%
vs. close to 0% for 20th century
LDCs). Illegitimacy was low.
Fertility was linked to wages
before the 18th century but
fertility became disconnected from
income in the 18th century.

• Equilibrium forces on population. 'Positive' checks: events that increase mortality (war, plague and
famine) and the mechanism of lower average income societies. Malthus argued that Asia relied on
'positive' checks. 'Preventative' checks: events that lower fertility (abstinence and delayed marriage)
and the mechanism of higher average income societies. Malthus argued Western Europe relied on
'preventative' checks.
• According to Hajnal's empirical study, Western Europe had a lower marriage rate and higher FAFM.
Western Europe relied on preventative checks. The area separating Western Europe from the rest of
the world was called the 'Hajnal Line'. Northwest Europe was distinct from the rest of Europe as it
limited nuptiality.
Allen (2009) argues that a more elastic CBR was key in
European success. Western Europe had higher wages due
to 'preventative checks'. Higher wages meant high labour
costs for industry and this spurred industrialisation by
promoting labour saving technology. The Industrial
Revolution was impacted by this capital intensive
technological change. Specialisation and organisation of
production is easier along capital intensive path.
Innovation is easier along this path.
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 technological change. Specialisation and organisation of
production is easier along capital intensive path.
Innovation is easier along this path.
Government
• China was extremely centralised. Chinese bureaucracy faced no challenge from an independent
aristocracy, church, judiciary or military. The bureaucracy prevented the emergence of an
independent industrial and commercial class. Europe had decentralised governments, powerful
aristocracies, merchants and churches.
• The Glorious Revolution of 1688 saw William of Orange take the throne from James II. This was done
at the request of parliament and realigned the power of the English constitution. The balance of
power between parliament and the co-monarchy of William & Mary made the government more
credible. Many historians, including North and Weingast (1989), argue that the Glorious Revolution
launched the great divergence.

• The impact of the Glorious Revolution: government's ability to borrow increased, the capacity of
government to provide services increased as a result of higher revenues, government employment
increased, government investment in infrastructure increased, and government's role in legislating
increased.
• The increase in British state capacity impacted economic growth. The government was laissez-faire,
both taxation and regulation were low, and democracy increased property rights and lowered
transaction costs. Moreover, the government borrowed to expand its navy and colonial armies and a
strong state could create good institutions. These factors facilitated markets and technological
change that launched the Industrial Revolution.
Urbanisation

Efficiency Culture
• Clark suggests that differences in informal institutions governing work ethics and effort are key. He
claims that deficiencies in technology transfer, management skills or input markets cannot explain
the productivity gap between Northwest Europe and Asia.

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