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Asia’s little divergence: state capacity in China and Japan before 1850

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  • Tuan-Hwee Sng
  • Chiaki Moriguchi

Abstract

This paper explores the role of state capacity in the comparative economic development of China and Japan. Before 1850, both nations were ruled by stable dictators who relied on bureaucrats to govern their domains. We hypothesize that agency problems increase with the geographical size of a domain. In a large domain, the ruler’s inability to closely monitor bureaucrats creates opportunities for the bureaucrats to exploit taxpayers. To prevent overexploitation, the ruler has to keep taxes low and government small. Our dynamic model shows that while economic expansion improves the ruler’s finances in a small domain, it could lead to lower tax revenues in a large domain as it exacerbates bureaucratic expropriation. To check these implications, we assemble comparable quantitative data from primary and secondary sources. We find that the state taxed less and provided fewer local public goods per capita in China than in Japan. Furthermore, while the Tokugawa shogunate’s tax revenue grew in tandem with demographic trends, Qing China underwent fiscal contraction after 1750 despite demographic expansion. We conjecture that a greater state capacity might have prepared Japan better for the transition from stagnation to growth. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Tuan-Hwee Sng & Chiaki Moriguchi, 2014. "Asia’s little divergence: state capacity in China and Japan before 1850," Journal of Economic Growth, Springer, vol. 19(4), pages 439-470, December.
  • Handle: RePEc:kap:jecgro:v:19:y:2014:i:4:p:439-470
    DOI: 10.1007/s10887-014-9108-6
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    Blog mentions

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    3. “State Capacity” & the Sino-Japanese Divergence
      by pseudoerasmus in Pseudoerasmus on 2014-12-08 20:56:02
    4. Weekend Reading: Psuedoerasmus: State Capacity and the Sino-Japanese Divergence
      by ? in Grasping Reality with the Invisible Hand on 2016-11-12 23:53:00
    5. Failed by #EconomicGrowth?
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    3. Mitchell, Austin M. & Yin, Weiwen, 2022. "Political centralization, career incentives, and local economic growth in Edo Japan," Explorations in Economic History, Elsevier, vol. 85(C).
    4. Johnson, Noel D. & Koyama, Mark, 2017. "States and economic growth: Capacity and constraints," Explorations in Economic History, Elsevier, vol. 64(C), pages 1-20.
    5. Ko, Chiu Yu & Koyama, Mark & Sng, Tuan-Hwee, 2014. "Unified China; Divided Europe," MPRA Paper 60418, University Library of Munich, Germany.
    6. Moriguchi, Chiaki & Sng, Tuan-Hwee, 2022. "The Size of Polities in Historical Political Economy," CEI Working Paper Series 2022-02, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
    7. Mitchener, Kris James & Ma, Debin, 2016. "Introduction to the special issue: a new economic history of China," LSE Research Online Documents on Economics 69191, London School of Economics and Political Science, LSE Library.
    8. Koyama, Mark & Moriguchi, Chiaki & Sng, Tuan-Hwee, 2018. "Geopolitics and Asia’s little divergence: State building in China and Japan after 1850," Journal of Economic Behavior & Organization, Elsevier, vol. 155(C), pages 178-204.
    9. Javier Mejia & Javier Mejia, 2021. "The economics of the Manila Galleon," Journal of Chinese Economic and Foreign Trade Studies, Emerald Group Publishing Limited, vol. 15(1), pages 35-62, October.
    10. Bo, Shiyu & Liu, Cong & Zhou, Yan, 2023. "Military investment and the rise of industrial clusters: Evidence from China’s self-strengthening movement," Journal of Development Economics, Elsevier, vol. 161(C).
    11. Cheng, Hua & Gawande, Kishore & Qi, Shusen, 2022. "State capacity, economic output, and public goods in China," World Development, Elsevier, vol. 158(C).
    12. Pei Li & Yi Lu & Tuan-Heww Sng, 2017. "Artificial Administrative Boundaries: Evidence from China," CEH Discussion Papers 09, Centre for Economic History, Research School of Economics, Australian National University.
    13. Yuchtman, Noam, 2017. "Teaching to the tests: An economic analysis of traditional and modern education in late imperial and republican China," Explorations in Economic History, Elsevier, vol. 63(C), pages 70-90.
    14. Jiwei Qian & Tuan‐Hwee Sng, 2021. "The state in Chinese economic history," Australian Economic History Review, Economic History Society of Australia and New Zealand, vol. 61(3), pages 359-395, November.
    15. BASSINO, Jean-Pascal & van der ENG, Pierre, 2016. "Asia's 'Little Divergence' in the 20th Century: Evidence from PPP-based direct estimates of GDP per capita, 1913-1969," Discussion paper series HIAS-E-28, Hitotsubashi Institute for Advanced Study, Hitotsubashi University.
    16. Ma, Debin & Rubin, Jared, 2019. "The Paradox of Power: Principal-agent problems and administrative capacity in Imperial China (and other absolutist regimes)," Journal of Comparative Economics, Elsevier, vol. 47(2), pages 277-294.
    17. Ni Yuping & Martin Uebele, 2015. "Size and structure of disaster relief when state capacity is limited: China’s 1823 flood," Working Papers 0083, European Historical Economics Society (EHES).
    18. Fochesato, Mattia, 2018. "Origins of Europe’s north-south divide: Population changes, real wages and the ‘little divergence’ in early modern Europe," Explorations in Economic History, Elsevier, vol. 70(C), pages 91-131.
    19. Nakabayashi, Masaki, 2019. "From family security to the welfare state: Path dependency of social security on the difference in legal origins," Economic Modelling, Elsevier, vol. 82(C), pages 280-293.
    20. Yamasaki, Junichi, 2020. "Time horizon of government and public goods investment: Evidence from Japan," Journal of Development Economics, Elsevier, vol. 146(C).
    21. Bassino, Jean-Pascal & van der Eng, Pierre, 2019. "Japan and the Asian Divergence: Market Integration, Climate Anomalies and Famines during the 18th and 19th Centuries," CEI Working Paper Series 2018-18, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
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    More about this item

    Keywords

    Comparative institutional analysis; Geography; Principal–agent problem; Institutions and growth; D73; N15; N40; O43; P52;
    All these keywords.

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • N15 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Asia including Middle East
    • N40 - Economic History - - Government, War, Law, International Relations, and Regulation - - - General, International, or Comparative
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • P52 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - Comparative Studies of Particular Economies

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