According to Angus Maddison, world GDP (constant prices) grew eightfold between 1820 and 1950, led by a huge increase in productivity in Western Europe and North America. Between these years, the rest of the world fell behind in productivity growth. The economies of China and India, the largest at the beginning of the nineteenth century, grew by only about a quarter of their original size. Simon Kuznets called the productivity-induced growth surge in Europe and North America “modern economic growth.” Modern economic growth, because it was so restricted in space, made the world a lot more unequal in 1950 than it had been in 1820. The second process, inequality, economic historians nowadays call “the great divergence” after the title of a 2000 book by Kenneth Pomeranz. Explaining the origins of inequality and the origins of modern economic growth, however, had preoccupied historians from much earlier.
The oldest theory is now known as Smithian or trade-induced growth theory. The theory states, in the spirit of Adam Smith, that a fall in the costs of doing trade, and integration of distant markets, should encourage division of labor, productivity improvement, and economic growth. The evidence for Smithian growth comes in two forms. First, some regions of Europe had been experiencing a process of market integration for centuries, before the process culminated in industrialization. Secondly, Atlantic and Indian Ocean trades in the seventeenth and eighteenth centuries, dominated by western European merchants, integrated markets on a world scale. Critics point out that maritime trade in this time was helped by naval power and state support to merchant capitalists, which is not a Smithian factor. The fact that trade evolved into imperialism in some regions, like India, suggests that trade was more of a political activity than in Smith’s ideal world. Others contend that institutions and knowledge spillover—and not markets as such—account for the origin of modern economic growth in Western Europe. A set of works (beginning with Pomeranz’s Great Divergence) comparing Europe with China and India insist that these regions looked more similar than dissimilar around 1800, the inference being that the subsequent inequality must be attributed to two promising factors that took shape after that date: exploitation of abundant New World land and coal and British colonialism. Contributors to the debate admit that these are not rival theories, for there were interactions between these explanatory variables. The challenge is to find out what came first.
Smithian growth as a theory has one advantage over the others: the extent of market integration is in principle quantifiable, though in practical terms, historical datasets on prices and trade costs are hard to find and harder to use in a comparative history project. The Great Divergence Reconsidered takes a big step in this direction. The book reexamines the evidence for and against Smithian growth. On the basis of a new set of data and a series of carefully conducted tests, the book concludes that whereas those regions of Western Europe that forged ahead earlier had been involved in a market integration process, in regions that fell behind—India being the example studied in this book—the preconditions for Smithian growth to occur were slow to develop. This divergence emerged because geographical barriers to trade acting via transportation costs were smaller in Europe than in India to begin with and weakened more gradually in India.
Excluding the introduction and the conclusion, the book has six chapters. Chapters 2 and 3 deal with the determinants and measurements of market integration in Europe (c.1700–1900) and India (c.1750–1900). Chapters 4 and 5 explore the idea that geography constrained and shaped the process of market integration in Europe and India. Chapter 6 presents the comparative history arguments and considers rival interpretations of divergence in view of the evidence. As the five appendices remind the reader, the core of the work is statistical and focused on measurement of price convergence. The assembling of the biggest price dataset in India so far used for this purpose is itself a significant contribution. Studer augments the quantitative study by framing it in a balanced discussion of the historiography and narrative accounts of market exchange in Europe and India.
The book reaches its main thesis via two types of test. First, price correlations between market sites were lower in India for similar distances than in Europe in the eighteenth and early nineteenth century (Chapter 3). The correlation rose in India from the late nineteenth century, showing the effect of railways and cheap bulk transportation in reducing trade costs. Secondly, there were differences within Europe and India. Within early modern Europe regions near seas, rivers, and canals and those with limited altitude gradations had more market density. Within early modern India, the Deccan plateau, dominated by an arid and undulating landscape, had smaller market density than the European trading zones and possibly some Indian ones located nearer cheaper trade routes as well. The conclusion drawn from these tests is that “trade networks and market structures were shaped by geography more directly than by political boundaries” (p. 153). Geography mattered via transportation cost, which tended to be relatively low in Western Europe, whereas “nature burdened India with more hurdles to overcome” (p. 155). Having stated the main argument, the book speculates—plausibly in my view—that institutional and technological divergence can be read as effects of the geographically determined differences in trading conditions.
The case for trade cost as an explanation for divergence, and a compelling treatment of Indian price history, represents a ground-breaking contribution. India is a difficult case to handle because of paucity of data and is moreover a controversial case because it was a British colony. Studer is aware that not everyone in the business will buy his thesis because the India data are less detailed than the European data. Nevertheless, Studer’s case for including geography is by far the most persuasive I have seen. And it is timely. The divergence scholarship has progressed by treating geography as a field for speculation. The book should add rigor to that discussion.
