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
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

Author(s): Vladimir Popov
Subject(s): Supranational / Global Economy, Economic history
Published by: Hokkaido Slavic-Eurasian Reserarch Center
Keywords: Great Divergence; Great Convergence; Colonialism;
Summary/Abstract: Among many puzzles in economic history, the crucial and most intriguing is the “Great Divergence,” the gap between Western and developing countries that started to emerge in the sixteenth century and widened until at least the mid twentieth century. The USSR in the 1930s-60s was the first major non-Western country to experience successful catch-up development and to narrow the gap with the West, although afterwards (1970-80s), the gap stopped narrowing and it later (1990s) widened. Japan, South Korea, Taiwan, Hong Kong, and Singapore in the 1950-80s were the only states that successfully caught up with the West and became developed countries. In recent decades, a similar process is underway in Southeast Asia and China. Together with the recent acceleration of growth of India and some other developing countries, it could mean that we have reached a tipping point in the Great Divergence and that from now on, the world will gradually experience global convergence in the level of income. The goal of this paper is to offer a non-technical interpretation of the “Great Divergence” and “Great Convergence” stories. After reviewing the existing explanation in the literature, I offer a different interpretation. Western countries exited the Malthusian trap by destroying traditional institutions, which was associated with the increase in income inequalities and even decrease in life expectancy, but allowed to redistribute income in favor of savings and investment at the expense of consumption. When the same pattern was imposed on developing countries (colonialism – Latin America, FSU, SSA), it resulted in the destruction of traditional institutions, increase in income inequalities and worsening of the starting positions for catch up development. In other developing countries (East Asia, India, MENA) that were less affected by colonialism and managed to retain traditional institutions, starting positions for modern economic growth remained good. The slowly going technical progress finally allowed them to find another (and less painful) exit from the Malthusian trap – increased income permitted to raise the share of investment in GDP without the major increase in income inequalities and decrease in life expectancy.

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