Economic Divergence Research Articles

Why Europe Grew Rich and Asia Did Not: Global Economic Divergence, 1600-1850, by Prasannan Parthasarathi

Why Europe Grew Rich and Asia Did Not: Global Economic Divergence, 1600-1850, by Prasannan Parthasarathi

Financialisation and monetary union in Europe: the monetary-structural causes of the euro-area crisis

The merging of national currencies into a single-currency area is an important factor of financialisation in Europe, as it has disposed of monetary barriers within Euroland, thereby allowing free mobility of financial capital in the form of bank deposits across the whole European Monetary Union (EMU). This monetary–structural change has increased economic divergence and financial instability within the euro area, rather than being a factor of stability and convergence. Further, the payment infrastructure within the EMU is defective, as it leaves the payee’s country with a claim on the payer’s country. This is a monetary–structural factor of financial imbalances across Euroland. Copyright 2013, Oxford University Press.

Economic Requirements and Divergence of National Legislations

Economic Requirements and Divergence of National Legislations

WAR, CAPITAL, AND WAGES: A NEW ECONOMIC THEORY OF “THE GREAT DIVERGENCE”

Jean-Laurent Rosenthal, a distinguished economic historian, and R. Bin Wong, an eminent world historian and specialist on imperial China, have collaborated in this effort to shed light on the causes of the eighteenth-century economic divergence of China and Europe. This book has many of the virtues one would expect from such a collaboration – keen insights into comparative history, explicit models of economic relationships, and novel ideas regarding causation. Yet it also has some defects that reflect this combination: at some points in their argument, the logic of models seems to outweigh historical facts. At other points, details of history that don't fit the models, such as the history of productivity gains in agriculture in imperial China, are neglected. I shall start with the virtues of their arguments, and then discuss some particulars that lead me to question their view.

The Political Economy of the Crisis: The End of an Era?

The article constitutes a political economy exercise in trying to understand the crisis of the euro area and draw lessons from it. The bursting of the biggest bubble in the Western financial system for decades has led to a big crisis in a currency union without a state, which is the euro area now occupying centre stage in the European political system. The culprits are many, but there have also been colossal failures in markets and institutions. A new modus vivendi between democracies and financial markets needs to be found. Banking and sovereign debt crises are closely intertwined and they both cross national borders. Yet European solutions have proved difficult to reach because of economic divergence and rising populism. The distribution of pain is hardly an easy task, while implementation has been rendered more difficult in an increasingly intergovernmental EU system. There are deep underlying differences over the overall economic strategy. Yet a lively debate has developed as manifestation of an emerging European public forum. The stakes are high. Will the crisis act as a powerful catalyst for further integration in Europe? The alternative would be disintegration at a high cost. Crises provide opportunities for change. This is arguably the end of an era. The article ends with a rallying cry for Europe the broad minded. Policy Implications • European integration needs to turn again into a positive sum game for creditors and debtors, surplus and deficit countries by looking for new ways of distributing the burden of adjustment, recognizing the political boundaries of solidarity with conditionality, and strengthening common institutions. • Europeans need to rethink their model of economic development, redefining the relationship between democracies and financial markets, adopting more environmentally friendly policies and more socially inclusive, while placing more emphasis on qualitative growth. • We need to revise our ways of managing European (and global) interdependence, while deciding how far we want to go in trying to defend common interests and values in a world where size still matters a great deal.

Mercantilism and the Rise of the West: Towards a Geography of Mercantilism

It has become common to note the failure of neoclassical economics to explain economic divergence between countries and regions. In recent years this has frequently been attributed to some countries developing or capturing industries with increasing returns; i.e. that the agglomeration effects typical of increasing returns industries are sensitive to slight differences in initial conditions that over time lead to further agglomeration and thus increasing divergence rather than convergence between regions and countries (Romer 1986, Krugman and Venables 1995, Fujita and Thisse 2002). Just as the lack of short-term convergence among modern economies can be attributed to the capturing of increasing returns-to-scale activities, many believe Europe (and its settler colonies) did this on a long-term, global scale as well, in a global division of labor at the state and regional level. In the economic history literature this process is sometimes explained in other language, i.e., that Europe deindustrialized its colonies e.g., in dependency theory in general, and works such as Amin 1976, Forbes and Rimmer 1984, and Alam 2000. This long-term, increasing returns perspective is interesting because it can be seen as (regarding reasons proposed for the ‘great divergence’ in levels of development that economic historians now tell us happened mainly in the last few centuries) merging or at least compatible with both many recent mainstream economic observations related to regional economics, agglomeration, and increasing returns-to-scale activities (‘new’ trade theory) and aspects of important heterodox arguments (Marxist/dependency theories, some Austrian economics, and much evolutionary economics - related to competition, for example). How, then, did European states rise in the international division of labor?

A Bayesian panel data framework for examining the economic growth convergence hypothesis: do the G7 countries converge?

In this paper, we suggest a Bayesian panel (longitudinal) data approach to test for the economic growth convergence hypothesis. This approach can control for possible effects of initial income conditions, observed covariates and cross-sectional correlation of unobserved common error terms on inference procedures about the unit root hypothesis based on panel data dynamic models. Ignoring these effects can lead to spurious evidence supporting economic growth divergence. The application of our suggested approach to real gross domestic product panel data of the G7 countries indicates that the economic growth convergence hypothesis is supported by the data. Our empirical analysis shows that evidence of economic growth divergence for the G7 countries can be attributed to not accounting for the presence of exogenous covariates in the model.

Challenges, (Non-) Responses, and Politics: A Review of Prasannan Parthasarathi, Why Europe Grew Rich and Asia Did Not: Global Economic Divergence, 1600–1850

This review is an analysis of Prasannan Parthasarathi’s explanation of the economic divergence in the long eighteenth century between Britain and India as presented in his recent book. It focuses on the question of why Britain industrialized first instead of India. Parthasarathi’s claim that Britain’s industrialization was a response to two challenges that were absent in India—global competition with other textile producers, in this case India, and a wood shortage—is critically discussed, as is his claim that the state played a fundamental role in the rise of Britain’s industry. The review ends with expressing doubts about Parthasarathi’s thesis that there would not have existed a unique scientific and technological culture in Britain or more broadly Europe.

Shifting patterns of economic growth and rethinking development

This paper provides an historical overview of both the evolution of the economic performance of the developing world and the evolution of economic thought on development policy. The twentieth century was broadly characterized by divergence between high-income countries and the developing world, with only a limited number (less than 10% of the economies in the world) managing to progress out of lower or middle-income status to high-income status. The last decade witnessed a sharp reversal from a pattern of divergence to convergence – particularly for a set of large middle-income countries. The latter phenomenon was also driven by increasing economic ties among developing countries and, on the intellectual scale, increased knowledge generation and sharing among the developing countries. Re-thinking development policy implies confronting these realities: twentieth century economic divergence, the experience of the handful of success stories, and the recent rise of the multi-polar growth world. This paper provides descriptive data and a literature survey to document these trends.

Endogenous or exogenous innovative development in companies on regional level? Case study - lubuskie voivoidship

At the moment endogenous growth theory has become increasingly popular in the world of science, particularly in developed countries. This article aims to show, for lubuskie case, the needs and sense of applying this theory in the Polish regions. Due to the low level of economic development of many Polish regions, including Lubuskie, they are unable to growth in a comparable rate as regions in developed countries. This explains the economic divergence between polish regions and the highly developed regions of Europe and the World. Stimulating economic growth are insufficient in such cases, because of the weakness of the internal factors in regions. Therefore it is important to strengthen an external impulses to keep internal development. It means that the endogenous growth theory is no reason to exist, in conditions of poor Polish regions. Without external inputs there can't be convergences processes. Therefore, the economic development of the of Polish regions should be based on the exogenous growth theory.

Persistent Economic Divergence and Institutional Dysfunction in Post-Communist Economies: An Alternative Synthesis

This paper seeks to explain the continuing lack of economic convergence and the persistence of market dysfunctionality, or wild capitalism, in post-communist transformation. An overview of key statistics on economic convergence and market failure are presented. The paper then analyses the causes of malaise through the lens of institutionalist and radical perspectives. In doing so key data are assembled and presented from documents of the international financial institutions and other agencies monitoring crime and corruption. The paper concludes that, rather than encourage convergence and tame dysfunctionality, neoliberalism and its offspring of labour market reform have created the conditions for continuing economic divergence and for wild capitalism to survive and thrive.

Why Europe grew rich and Asia did not: global economic divergence, 1600-1850

Why Europe Grew Rich and Asia Did Not provides a striking new answer to the classic question of why Europe industrialised from the late eighteenth century and Asia did not. Drawing significantly from the case of India, Prasannan Parthasarathi shows that in the seventeenth and eighteenth centuries the advanced regions of Europe and Asia were more alike than different, both characterized by sophisticated and growing economies. Their subsequent divergence can be attributed to different competitive and ecological pressures that in turn produced varied state policies and economic outcomes. This account breaks with conventional views, which hold that divergence occurred because Europe possessed superior markets, rationality, science or institutions. It offers instead a groundbreaking rereading of global economic development that ranges from India, Japan and China to Britain, France and the Ottoman Empire and from the textile and coal industries to the roles of science, technology and the state.

The European Central Bank and Why Things are the Way They Are: A Historic Monetary Policy Pivot Point and Moment of (Relative) Clarity

Not since the Great Depression have monetary policy matters and institutions weighed so heavily in commercial, financial, and political arenas. Apart from the eurozone crisis and global monetary policy issues, for nearly two years all else has counted for little more than noise on a relative risk basis. In major developed economies, a hypermature secular decline in interest rates is pancaking against a hard, roughly zero lower-rate bound (i.e., barring imposition of rather extreme policies such as a tax on cash holdings, which could conceivably drive rates deeply negative). Relentlessly mounting aggregate debt loads are rendering monetary – and fiscal policy – impaired governments and segments of society insolvent and struggling to escape liquidity quicksands and stubbornly low or negative growth and employment trends.At the center of the current crisis is the European Monetary Union (EMU) – a monetary union lacking fiscal and political integration. Such partial integration limits policy alternatives relative to either full federal integration of member-states or no integration at all. As we have witnessed since spring 2008, this operationally constrained middle ground progressively magnifies economic divergence and political and social discord across member-states.Given the scale and scope of the eurozone crisis, policy and actions taken (or not taken) by the European Central Bank (ECB) meaningfully impact markets large and small, and ripple with force through every major monetary policy domain. History, for the moment, has rendered the ECB the world’s most important monetary policy pivot point.Since November 2011, the ECB has taken on an arguably activist liquidity-provider role relative to private banks (and, in some important measure, indirectly to sovereigns) while maintaining its long-held post as rhetorical promoter of staunch fiscal discipline relative to sovereignty-encased “peripheral” states lacking full monetary and fiscal integration. In December 2011, the ECB made clear its intention to inject massive liquidity when faced with crises of scale in future. Already demonstratively disposed toward easing due to conditions on their respective domestic fronts, other major central banks have mobilized since the third quarter of 2011. The collective global central banking policy posture has thus become more homogenized, synchronized, and directionally clear than at any time since early 2009.

The rise and decline of European parliaments, 1188–17891

This article quantifies the activities of medieval and early modern parliaments. It traces the long‐term evolution of this European institution, and offers a first pass at analysing its impact on long‐term economic development. Starting in Spain in the twelfth century, parliaments gradually spread over the Latin west between 1200 and 1500. In the early modern period, parliaments declined in influence in southern and central Europe and further gained in importance in the Netherlands and Britain, resulting in an institutional ‘Little Divergence’ between 1500 and 1800. We discuss the background of this phenomenon in detail. Moreover, by analysing the effects of parliamentary activity on city growth we find that these differences in institutional development help to explain the economic divergence between north‐western and southern and central Europe.

Trade and poverty: when the Third World fell behind

Today's wide economic gap between the postindustrial countries of the West and the poorer countries of the third world is not new. Fifty years ago, the world economic order--two hundred years in the making--was already characterized by a vast difference in per capita income between rich and poor countries and by the fact that poor countries exported commodities (agricultural or mineral products) while rich countries exported manufactured products. In Trade and Poverty, leading economic historian Jeffrey G. Williamson traces the great divergence between the third world and the West to this nexus of trade, commodity specialization, and poverty. The world rapidly became global between the early nineteenth century and World War I, and the global trade boom occurred simultaneously with rising economic divergence between industrial and nonindustrial countries. Analyzing the role of specialization, de-industrialization, and commodity price volatility with econometrics and case studies of India, Ottoman Turkey, and Mexico, Williamson demonstrates why the close correlation between trade and poverty emerged. Globalization and the great divergence were causally related, and thus the rise of globalization over the past two centuries helps account for the income gap between rich and poor countries today.

International technology diffusion and economic growth: Explaining the spillover benefits to developing countries

Technology spillovers offer great opportunities for economic growth to developing countries that do little, if any, R&D activity. This paper explores the extent to which these countries benefit from foreign technology, the diffusion mechanisms involved, and the factors that shape their absorption capabilities. Results based on a non-stationary panel of 55 developing countries indicate that the benefits are quite substantial: a ten-percent increase in foreign R&D stock is translated into more than a two-percent increase in aggregate productivity. Of the diffusion channels considered, imports appear to be more conducive to R&D spillover. In addition, developing countries that enjoy larger benefits tend to exhibit larger stock of human capital, more openness to trade and foreign activities, and stronger institutions. These North–South R&D spillovers, although larger than previously suggested, appear less strong than North–North spillovers, adding to the general literature on economic divergence between developed and developing countries.

Income Inequality between Chinese Regions: Newfound Harmony or Continued Discord?

This paper develops an improved test of economic convergence or divergence using time series methods. The usefulness of the method is illustrated in an analysis of the growth pattern between Chinese regions in 1952-2007. Comparing all combinations of regional pairs, the analysis yields support for economic divergence in roughly half of the cases. In the other half, we instead find that regions have grown while maintaining stable income differences. As such, the results show the co-existence of divergence and conditional convergence among China's regions.

Regional inequality in large post-soviet countries

This article highlights the factors of differentiated socio-economic development by region and methodological approaches to measuring regional inequality. The analysis of the level of inequality has been implemented for three CIS countries: Russia, Ukraine, and Kazakhstan, which made it possible to identify similarities in trends of economic divergence and differences in social inequality, determined by state policy of the countries in question.

Country Diversification, Product Ubiquity, and Economic Divergence

Countries differ markedly in the diversification of their exports. Products differ in the number of countries that export them, which we define as their ubiquity. We document a new stylized fact in the global pattern of exports: there is a systematic relationship between the diversification of a country’s exports and the ubiquity of its products. We argue that this fact is not implied by current theories of international trade and show that it is not a trivial consequence of the heterogeneity in the level of diversification of countries or of the heterogeneity in the ubiquity of products. We account for this stylized fact by constructing a simple model that assumes that each product requires a potentially large number of non-tradable inputs, which we call capabilities, and that a country can only make the products for which it has all the requisite capabilities. Products differ in the number and specific nature of the capabilities they require, as countries differ in the number/nature of capabilities they have. Products that require more capabilities will be accessible to fewer countries (i.e., will be less ubiquitous), while countries that have more capabilities will have what is required to make more products (i.e., will be more diversified). Our model implies that the return to the accumulation of new capabilities increases exponentially with the number of capabilities already available in a country. Moreover, we find that the convexity of the increase in diversification associated with the accumulation of a new capability increases when either the total number of capabilities that exist in the world increases or the average complexity of products, defined as the number of capabilities products require, increases. This convexity defines what we term as a quiescence trap, or a trap of economic stasis: countries with few capabilities will have negligible or no return to the accumulation of more capabilities, while at the same time countries with many capabilities will experience large returns - in terms of increased diversification - to the accumulation of additional capabilities. We calibrate the model to three different sets of empirical data and show that the derived functional forms reproduce the empirically observed distributions of product ubiquity, the relationship between the diversification of countries and the average ubiquity of the products they export, and the distribution of the probability that two products are co-exported. This calibration suggests that the global economy is composed of a relatively large number of capabilities – between 23 and 80, depending on the level of disaggregation of the data – and that products require on average a relatively large fraction of these capabilities in order to be produced. The conclusion of this calibration is that the world exists in a regime where the quiescence trap is strong.

THE EUROPEANIZATION OF PORTUGAL

ABSTRACT The article aims to explore Portugal's performance in some areas that can be included in a wide concept of Europeanization: the state of the economy, the rule of law, and education. It starts with a brief reference to the evolution of the Portuguese economy since the European accession to conclude that with the adoption of the single currency Portugal entered into a phase of clear economic divergence, making it an exception within the EU. Section 2 is devoted to the rule of law. It highlights how a modern and updated legal system can have an outcome that threatens some basic foundations of the rule of law, and can also contribute to increasing social inequality. The last section focuses on some problems affecting education. Particular attention is drawn to the performance of the secondary education system and to issues related to the quality of higher education institutions.