“ 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

0

5

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25G

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80

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01

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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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61

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66

19

71

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76

19

81

19

86

19

91

19

96

20

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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32

20

38

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