Title: Why the West Became Rich Before China and Why China Has Been Catching Up with the West Since 1949: Another Explanation of the ‘Great Divergence’ and ‘Great Convergence’ Stories
Abstract: The goal of this paper is to offer a non-technical interpretation of the “Great Divergence” and “Great Convergence” stories. After reviewing existing explanations in the literature, I offer a different interpretation. Western countries exited the Malthusian trap by destroying traditional institutions, which was associated with an increase in income inequality and even a decrease in life expectancy, but allowed the redistribution of income in favor of savings and investment at the expense of consumption. When the same pattern was imposed on some developing countries (colonialism – Sub-Saharan Africa (SSA), Latin America (LA), and the Former Soviet Union (FSU)), it resulted in the destruction of traditional institutions, increase in income inequality, and worsening of starting positions for catch-up development. Other developing countries (East Asia (EA), South Asia (SA), and the Middle East and North Africa (MENA countries)) that were less affected by colonialism and managed to retain traditional institutions by the end of the twentieth century found themselves in a better starting position for modern economic growth. The slow-going technical progress finally allowed them to find another exit from the Malthusian trap – increased income that permitted the share of investment in GDP to rise without a major increase in income inequality or decrease in life expectancy.
Publication Year: 2009
Publication Date: 2009-01-01
Language: en
Type: article
Indexed In: ['crossref']
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Cited By Count: 7
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