Download - Great Divergence (Asia and Europe)
“ THE GREAT DIVERGENCE “
VIVEK KUMAR (54)DEBARATI BIR (12)ANIRUDH SOOD (04)SUKRITI BHARDWAJ (48)ANINDITA CHANDA (03)SUNIDHI JAIN (49)
$ 195000 BILLION WEALTH IN THE WORLD MADE AFTER AROUND 1800
ARE BEING OWNED BY THE WESTERNERS
19 % OF THE WORLD POPULATION OWN 66% OF THIS WEALTH
WESTERNERS -> 10 X RICHER THAN INDIANSAMERICANS -> 20 X RICHER THAN CHINESE
ECONOMIC HISTORIANS CALLED IT AS A GREAT DIVERGENCE
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Ratio
Uk/INDIA
Ratio
US/China
RATIO OF PER CAPITA GDP:UK/INDIA & US/CHINA
SOURCE : Maddison Data Base.xl, Author :J. Bolt
“BY WHAT MEANS……ARE THE EUROPEANS THUS POWERFUL? ORWHY, SINCE THEY CAN SO EASILY VISIT ASIA AND AFRICA FORTRADE OR CONQUEST, CANNOT THE ASIATICKS AND AFRICANSINVADE THEIR COASTS, PLANT COLONIES IN THEIR PORTS, ANDGIVE LAWS TO THEIR NATURAL PRINCES? “
RASSELAS’ QUESTION ???
GREAT DIVERGENCE
ACCOUNTANCY & FINANCIAL INSTI.
TRADE & COMM INDUSTRIAL REVOLUTION
CULTURE & INSTITUTION
MARITIME TECHNOLOGY & TECHNOLOGY
UNIVERSITY
INNOVATIONREAL WAGES &
PRICES
RESEARCH QUESTION…. ????
WHAT WAS THE MOST CRUCIAL DRIVING FORCE BEHIND THE GREAT DIVERGENCE ?
&WILL RE - CONVERGENCE TAKE PLACE ?
THE UNIFIED GROWTH THEORY
INTENDS TO CAPTURE IN A
SINGLE FRAMEWORK THE MAIN
CHARACTERISTICS OF THE
TRANSITION FROM THE
MALTHUSIAN ERA TO THE
MODERN ERA, AS WELL AS THE
ASSOCIATED PHENOMENON OF
GREAT DIVERGENCE AND
DEMOGRAPHIC TRANSITION.
A PERIOD OF
STAGNATION
DUE TO
ALMOST SAME
BIRTH &
DEATH RATES
A PERIOD
WHEN BIRTH
RATES
INCREASED
ALONGWITH
DECLINING
DEATH RATES
WHEN BOTH
BIRTH & DEATH
RATES FELL..PCI
SHOT UP
GREAT DIVERGENCE UNDER A UNIFIED ENDOGENOUS GROWTH MODELWITH TRADE
RAPID EXPANSION OF
INTERNATIONAL TRADE HAS
PLAYED A MAJOR ROLE IN THE
TIMING OF THE DEMOGRAPHIC
TRANSITIONS AND HAS MUCH
CONTRIBUTED TO THE RISE OF
THE GREAT DIVERGENCE
THE GAINS FROM
TRADE IN THE 2ND
PHASE OF I.R WAS
DIRECTED
TOWARDS EDU. &
PCI IN DCs AND IN
POPN GROWTH IN
LDCs
TECHNOLOGY
THE CHANGES IN PCI &
PRODUCTIVITY SINCE THE 1800s
CAN BE EXAMINED AS
FOLLOWS:
VAST INEQUALITIES IN PCI
DESPITE IMPROVEMENTS IN
MOBILITY OF GOODS,CAPITAL
& TECH.
THIS DIVERGENCE WAS
PRIMARILY DUE TO
DIFFERENCES IN TFP OR
EFFICIENCY
THIS DIFFERENCE IN TFP WAS
BASICALLY DUE TO THE
INABILITY TO MAKE USE OF
THE NEW TECHNOLOGIES
WHY DID INCOME PER CAPITA DECLINE IN POORCOUNTRIES SUCH AS INDIA AND CHINARELATIVE TO THE ADVANCED ECONOMIES SUCHAS THE UNITED STATES SINCE 1800?
Yi = Ai Kiα Li
β Tiϒ……..(1)…… i = (ASIA,EUROPE)
TAKING CAPITAL STOCKS AS EXOGENOUS, THE INCOME PER CAPITA OF OTHER ECONOMIES RELATIVE TO INDIA WOULD BE----
(Yi / Li ) = A (Ki / Li )α L i
β (Ti / Li)ϒ ………(2)
DIFFERENTITING EQN (1) W.R.T KI ……WE GET,
(Ki / Li ) = Ai1/(1-α) (Ti / Li )
ϒ/(1-α) ……………..(3)
SUBSTITUTING EQUATION (3) INTO EQUATION (2), WE OBTAIN THE FOLLOWING EXPRESSION FOR OUTPUT PER CAPITA…..
(Yi / Li ) = Ai1/(1-α) (Ti / Li )
ϒ/(1-α) ………………(4)
IT FOLLOWS FROM EQUATION (4) THAT WE CAN
CALCULATE RELATIVE EFFICIENCIES IN THE WORLD
ECONOMY CIRCA 1910 AS----
Ai = (Yi / Li )1-α (Ti / Li )
-ϒ …………….(5)
GREAT DIVERGENCE: WAGES, PRICES AND
ECONOMIC DEVELOPMENT
A MODEL OF THE SILVER WAGE GAP
ASSUMPTIONS:
WE CONSIDER A 2-COUNTRY WORLD (ASIA & EUROPE) WITH A SINGLE FACTOR OF PRODUCTION,LABOUR
THERE IS ONLY 1 TRADEABLE GOOD(SILVER) & 1 NON—TRADEABLE GOOD(GRAIN)
DUE TO ARBITRAGE,THERE IS ONLY 1 INTERNATIONAL PRICE, PT
WAGES ARE EQUALIZED BETWEEN THE 2 SECTORS
THUS,
PTi
= PT …………..(1)
WITH A SINGLE FACTOR OF PRODUCTION, WAGES IN THE 2
ECONOMIES IS GIVEN BY---
Wi = PT * Wti ……………………(2)
ALSO,………PiN = Wi / αi
N ………………….(3)
SUBSTITUTING FROM (2),..WE GET…..
PiN = (PT * Wt
i )/ αiN ……….(4)
REARRANGING EQUATION (3), WE HAVE :
Wi / PiN = αi
N ……………(5)CONSIDERING REAL CONSM WAGES IN 2 COUNTRIES &
MAKING RELEVANT SUBSTITUTIONS, WE GET……
Wi / Pi = (αiT)ϐ (αi
N)1-ϐ ……(6)IF GRAIN WAGES ARE ROUGHLY EQUAL IN THE TWO
COUNTRIES (i.e αAN = αE
N ), BUT SILVER WAGES
ARE HIGHER IN EUROPE → THAT THE REAL
CONSUMPTION WAGE IS LOWER IN ASIA, BY
A FACTOR WHICH DEPENDS ON THE WEIGHT ϐ
CULTURE IS A KEY DETERMINANT OF THE
VALUES, PREFERENCES AND BELIEFS OF
INDIVIDUALS AND SOCIETIES AND IS ADVOCATED TO
HAVE BEEN AN IMPORTANT FACTOR BEHIND THE
INDUSTRIAL REVOLUTION
“A DESIRE FOR IMPROVEMENT AND EVEN THE
„RIGHT‟ KIND OF INSTITUTIONS BY
THEMSELVES DO NOT PRODUCE SUSTAINED
GROWTH UNLESS SOCIETY PRODUCES NEW
USEFUL KNOWLEDGE AND UNLESS THE
GROWTH OF KNOWLEDGE CAN BE SUSTAINED
OVER TIME. USEFUL KNOWLEDGE GROWS
BECAUSE IN EACH SOCIETY THERE ARE
PEOPLE WHO ARE CREATIVE AND
ORIGINAL, AND MOTIVATED BY SOME
COMBINATION OF
GREED, AMBITION, CURIOSITY, AND ALTRUISM”
……….. MOKYR (2005, P. 60).
EUROPEAN ENLIGHTENMENT
WAS ASSOCIATED WITH
RELIGIOUS AND POLITICAL
TOLERANCE, HUMAN RIGHTS
AND FREEDOM AND NATURAL
LAW AND JUSTICE (MOKYR, 2005).
IN THESE SOCIETIES POTENTIAL
„OUTRAGEOUS‟ IDEAS AMONG
ECCENTRIC INNOVATORS WERE
TOLERATED WITHOUT VIOLENT
RESPONSES
COMPARING ECONOMIC DEVELOPMENT IN THE
EAST AND WEST, WEBER ARGUED THAT CHINESE
PATRIMONIALISM AND OFFICIALDOM, AND
CHINESE RELIGION WERE THE AREAS IN WHICH
CHINESE DEVELOPMENT DIFFERED MOST
DISTINCTIVELY FROM THE EUROPEAN ROUTE.
CULTURE AND INSTITUTIONS
A MODEL
A TWO-STEP PROCEDURE IS ADOPTED HERE IN WHICH PER CAPITA INCOME IS
INFLUENCED BY INSTITUTIONS AND CULTURE INDIRECTLY THROUGH S&T AND
HUMAN CAPITAL AND DIRECTLY THROUGH CHANNELS INDEPENDENTLY OF S&T
AND HUMAN CAPITAL FOR COUNTRY I AT TIME T AS FOLLOWS:
WHERE Y IS PRODUCTIVITY OR PER CAPITA INCOME, S&T IS SCIENCE AND
TECHNOLOGY, HC IS HUMAN CAPITAL, CUL IS CULTURE, CON IS
CONTRACTING INSTITUTIONS, PRO IS PROPERTY RIGHT INSTITUTIONS, CD IS
FIXED EFFECT DUMMIES, AND Ε IS A STOCHASTIC ERROR TERM. THE MODEL
IS ESTIMATED USING DATA OVER THE PERIOD 950 TO 1850 FOR 12 COUNTRIES. THE
DATA COVER ONE OBSERVATION PER CENTURY; THUS, YIELDING 120
OBSERVATIONS IN TOTAL.
THE VARIABLES S&T AND HC ARE INSTRUMENTED USING CULTURE AND INSTITUTIONS
AS INSTRUMENTS:
RE - CONVERGENCE
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96
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01
20
06
Ratio
Uk/INDIA
Ratio
US/China
SOURCE : Maddison Data Base.xl, Author :J. Bolt
SOURCE : Maddison Data Base.xl, Author :J. Bolt
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England/GB/UK
USA
China
India
Japan
10TH OCT,2052
Bibliography
• Maddison Data Base.xl, Author :J. Bolt.
• Maddison, A. (2005) Measuring and interpreting world economic performance, 1500- 2001. Review of Income and Wealth, 51, March, pp. 1–36.
• Gupta and Ma, pp. 267-282
• Rose, Mike. The Mind at Work: Re-Convergence. New York: Penguin Group, 2004.
• Acemoglu, D., Johnson, S. and Robinson, J. (2002): “Reversal of Fortune: Geography and Institutions in the Making of the Modern World Income Distribution,” Quarterly Journal of Economics, 117, pp. 1231-1294.
• Allen, Robert C., 2000. Economic Structure and Agricultural Productivity in Europe,1300-1800. European Review of Economic History 4, 1-26.
• Bruland, Kristine. 1989. British technology and European industrialization: The Norwegian textile industry in the mid-nineteenth century. Cambridge: Cambridge University Press.
QUESTIONS IF ANY *
* Plz don’t investigate
THANK YOU