Chapter 3
Economic
Development in
Historical
Perspective
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Economic Development in
Historical Perspective
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Evolutionary Biological Approach
World Leaders in GDP per cap., 1500-2005
International Spreads GDP per cap, 1000-1998
Beginnings of Modern Economic Growth
Why Capitalism First Successful in West
Economic Modernization in Non-Western
World
Growth in the Last 100-150 Years
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Diamond’s Evolutionary
Approach to Development
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Domesticated animals & plant species
East-West axis – same climate &
ecological zones, innovations
transmitted
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Why was capitalism first successful
in the West?
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Breakdown authority of medieval Roman
Catholic Church, together with Protestant
Reformation of the 16th & 17th centuries.
Rise of strong national states between 16th & 19th
century
Enlightenment 17th & 18th century Europe, with
scientific discoveries.
Liberalism advocating self-regulating market.
Political revolutions in England, Holland, &
France.
Prodigious capital accumulation in 16th & 17th
centuries, with flow of gold & silver from the
Americas.
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Economic modernization in the nonWestern world (pp. 61-74)
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Japanese development model
Korean-Taiwanese model
Stalinist (Soviet) model
Indian adaptation of Soviet model
China’s market socialism
Lessons from non-Western models
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Japanese development model
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Economic autonomy
Guided capitalism, selling industrial properties to
business people
Gradualism
Land tax
Technological borrowing & improvement
High educational standards
Market exchange rates
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End of Japan’s economic miracle
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Exhausted benefits from internal &
external economies, learning by doing, &
catch-up
Industrial policy encouraged cartelization
Keiretsu-laden banking system had high
bad debts ration
Iron Triangle of politicians, bureaucracy, &
big business more incestuous
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Korean-Taiwanese model
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Guided capitalism, building infrastructure, tax
incentives, subsidized export credit
Investment in education
High quality of economic management
Contested markets
Market-clearing exchange rates
High educational standards
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Stalinist development model
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Transfer collective agriculture to stateowned industry
Communist Party & planners in command
High rates of investment in capital goods
High rates of capital formation, labor force
participation & education but no emphasis
on technological change
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China’s Market Socialism
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Socialism with Chinese characteristics
Step-by-step changes
Household responsibility system in
agriculture
Private & town-village enterprises increase
share relative to state
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The Golden Age of Growth
After 1820, fastest growth in last
half of the 20th century,
especially 1950-73.
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Fig. 3-3. GDP p.c. by Region (1995 US$) (Rodrik 2004)
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The Convergence Controversy
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Figure 3-4 shows rich countries growing faster
than poor countries, divergence “big time” over
the long run, 1870 to 1990.
Figure 3-5 shows country divergence over the
short run, 1980 to 2000.
However, population-weighted Figure 3-6, in
which China and India loom large, shows
convergence between rich and poor individuals.
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