DP11288 Assessing market (dis)integration in early modern China and Europe

Author(s): Daniel M Bernhofen, Markus Eberhardt, Jianan Li, Stephen L. Morgan
Publication Date: May 2016
Keyword(s): China, common factor model, cross-section dependence, Europe, market integration, price convergence, the Great Divergence
JEL(s): C23, F15, L11, O10
Programme Areas: International Trade and Regional Economics, Economic History, Macroeconomics and Growth
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=11288

This paper challenges established claims of comparable degrees of market integration in Europe and China on the eve of industrialization. Our empirical strategy focuses on the dynamics of price convergence and accounts for general equilibrium effects arising from common shocks and network effects. Using monthly grain prices for 1740-1820, our analysis uncovers a secular process of market disintegration in 221 prefectures of Qing China. Comparing our results with those for grain price panels from Western Europe we conclude that in terms of market integration the Great Divergence was well under way decades before the start of the 19th century.