DP8023 Before the Great Divergence? Comparing the Yangzi Delta and the Netherlands at the Beginning of the Nineteenth Century

Author(s): Bozhong Li, Jan Luiten Van Zanden
Publication Date: September 2010
Keyword(s): economic development, labour productivity, real incomes
JEL(s): N3, O1, O4
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=8023

The debate about the long-term economic development of China compared with Europe has taken a new turn with the publication of Kenneth Pomeranz? book on ?The Great Divergence?, in which he maintains that before the Industrial Revolution the most advanced parts of China (in particular the Yangzi Delta) was in terms of real incomes on par with the richest regions in Western Europe (Great Britain, the Netherlands). His tentative results were very different from the estimates produced by Maddison (2001) who concluded that there was already a large gap in real per capita GDP between these two extreme parts of Eurasia. Using the method of historical national accounting, this paper tests these ideas on the basis of a detailed comparison of the structure and level of GDP in part of the Yangzi Delta and the Netherlands in the 1820s, also taking into account differences of purchasing power of the two currencies involved. The results are that Dutch GDP per capita was already almost twice the level in the Yangzi Delta, which is more or less consistent with Maddison?s point of view. The level of agricultural productivity in this part of China was, however, at about the same level as in the Netherlands (and England), but large productivity gaps existed in industry and services (with the exception of government services). We also attempt to explain the patterns found, and conclude that differences in factor costs may have been behind the observed differences in labour productivity.