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Why the West Became Rich before China and Why China Has Been Catching Up with the West since 1949: nother Explanation of the “Great Divergence” and “Great Convergence” Stories

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  • Vladimir Popov

    ()
    (New Economic School, Moscow)

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. The roots of the impressive long-term performance of China lie in the exceptional continuity of the Chinese civilization—the oldest in the world—that managed to preserve its uniqueness and traditions without major interruptions. It is argued that institutional continuity (East Asia, India, and MENA) is more conducive to growth than attempts to replace existing institutions by allegedly more advanced institutions imported from abroad (Latin America, FSU, and SSA). Like Russia in 1917, China re-established collectivist institutions in 1949 as a response to the failure of Westernization. Unlike Russia after 1991, China in 1979-2009 managed to preserve “Asian values” institutions—priority of community interests over the interests of the individual. However, the rapid increase in income inequality since 1985 could be a sign of weakening of collectivist institutions, which is the single most important threat to the continuation of fast economic growth.

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Bibliographic Info

Paper provided by Center for Economic and Financial Research (CEFIR) in its series Working Papers with number w0132.

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Length: 46 pages
Date of creation: Oct 2009
Date of revision:
Handle: RePEc:cfr:cefirw:w0132

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References

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  1. Polterovich, Victor & Popov, Vladimir, 2005. "Appropriate Economic Policies at Different Stages of Development," MPRA Paper 20066, University Library of Munich, Germany.
  2. Oded Galor & Omer Moav, 2006. "Natural Selection and the Evolution of Life Expectancy," DEGIT Conference Papers c011_062, DEGIT, Dynamics, Economic Growth, and International Trade.
  3. O'Rourke, Kevin H & Williamson, Jeffrey G, 2002. "From Malthus to Ohlin: Trade, Growth and Distribution Since 1500," CEPR Discussion Papers 3394, C.E.P.R. Discussion Papers.
  4. Easterly, William & Fischer, Stanley, 1995. "The Soviet Economic Decline," World Bank Economic Review, World Bank Group, vol. 9(3), pages 341-71, September.
  5. Oded Galor, 2006. "Economic Growth in the Very Long-Run," Working Papers 2006-16, Brown University, Department of Economics.
  6. repec:cup:cbooks:9780521855266 is not listed on IDEAS
  7. K. H. O'Rourke & R. Sinnott, 2001. "The Determinants of Individual Trade Policy Preferences: International Survey Evidence," CEG Working Papers 20016, Trinity College Dublin, Department of Economics.
  8. Polterovich, Victor & Popov, Vladimir & Tonis, Alexander, 2007. "Resource Abundance, Political Corruption, and Instability of Democracy," MPRA Paper 19154, University Library of Munich, Germany.
  9. Polterovich, Victor & Popov, Vladimir, 2006. "Stages of Development, Economic Policies and a New World Economic Order," MPRA Paper 20055, University Library of Munich, Germany.
  10. Michael Faye & John McArthur & Jeffrey Sachs & Thomas Snow, 2004. "The Challenges Facing Landlocked Developing Countries," Journal of Human Development and Capabilities, Taylor & Francis Journals, vol. 5(1), pages 31-68.
  11. Ha-Joon Chang, 2007. "State-Owned Enterprise Reform," Policy Notes 4, United Nations, Department of Economics and Social Affairs.
  12. Vladimir Popov, 2007. "Shock Therapy versus Gradualism Reconsidered: Lessons from Transition Economies after 15 Years of Reforms1," Comparative Economic Studies, Palgrave Macmillan, vol. 49(1), pages 1-31, March.
  13. Popov, Vladimir, 2006. "Life cycle of the centrally planned economy: Why Soviet growth rates peaked in the 1950s," MPRA Paper 28113, University Library of Munich, Germany.
  14. Polterovich, Victor & Popov, Vladimir, 2007. "Democratization, Quality of Institutions and Economic Growth," MPRA Paper 19152, University Library of Munich, Germany.
  15. Polterovich, Victor, 2001. "Трансплантация Экономических Институтов
    [Transplantation of Economic Institutions]
    ," MPRA Paper 22034, University Library of Munich, Germany.
  16. Polterovich, Victor & Popov, Vladimir & Tonis, Alexander, 2008. "Mechanisms of Resource Curse, Economic Policy and Growth," MPRA Paper 20570, University Library of Munich, Germany.
  17. Polterovich, Victor & Popov, Vladimir, 2003. "Accumulation of Foreign Exchange Reserves and Long Term Growth," MPRA Paper 20069, University Library of Munich, Germany.
  18. Sachs, Jeffrey D. & Warner, Andrew M., 1999. "The big push, natural resource booms and growth," Journal of Development Economics, Elsevier, vol. 59(1), pages 43-76, June.
  19. Vladimir Popov, 2000. "Shock Therapy Versus Gradualism: The End Of The Debate (Explaining The Magnitude Of Transformational Recession)," Comparative Economic Studies, Palgrave Macmillan, vol. 42(1), pages 1-57, April.
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Cited by:
  1. Popov, Vladimir, 2010. "Development theories and development experience: half a century journey," MPRA Paper 28111, University Library of Munich, Germany.
  2. Popov, Vladimir, 2014. "Socialism is dead, long live socialism!," MPRA Paper 54294, University Library of Munich, Germany.
  3. Popov, Vladimir, 2010. "The Long Road to Normalcy," Working Paper Series UNU-WIDER Working Paper W, World Institute for Development Economic Research (UNU-WIDER).

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