The road to the Industrial Revolution: hypotheses and conjectures about the medieval origins of the ‘European Miracle’

The article uses various ways of measuring the efficiency of institutions regulating market exchange, such as interest rates, the skill premium, and the level of market integration, to try to answer the question about the quality of institutions in the different parts of Eurasia in the centuries before the ‘Great Divergence’. It appears that Western Europe, from as early as the late medieval period, had a relatively well-developed set of institutions. By contrast, South and Southeast Asian institutions were much less geared towards well-functioning markets. However, Japan and China in the seventeenth and eighteenth centuries developed institutions that were relatively efficient, and resulted in relatively high levels of commercial exchange. A number of hypotheses are then reviewed that may help to explain a European head start dating from the late Middle Ages.