DP7386 Sweet Diversity: Colonial Goods and the Rise of European Living Standards after 1492

Author(s): Jonathan Hersh, Hans-Joachim Voth
Publication Date: July 2009
Keyword(s): Age of Discoveries, First divergence, new goods, standard of living indicators, unified growth
JEL(s): d12, f19, n14
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=7386

Did living standards stagnate before the Industrial Revolution? Traditional real-wage indices typically show broadly constant living standards before 1800. In this paper, we show that living standards rose substantially, but surreptitiously because of the growing availability of new goods. Colonial luxuries such as tea, coffee, and sugar transformed European diets after the discovery of America and the rounding of the Cape of Good Hope. These goods became household items in many countries by the end of the 18th century. We use the Greenwood-Kopecky (2009) method to calculate welfare gains based on data about price changes and the rate of adoption of new colonial goods. Our results suggest that by 1850, the average Englishman would have been willing to forego 15% or more of his income in order to maintain access to sugar and tea alone. These findings are robust to a wide range of alternative assumptions, data series, and valuation methods.