The Change to Modern Growth: Ultimate Causes (Technology, Institutions/Culture, and Geography)

In this chapter, we focus on the ultimate causes of economic growth. We find that the switch from Malthusian-type growth to modern growth occurred in around 1700 in the UK and 1900 in China. After introducing new estimates of total factor productivity as a measure of ultimate causes of growth, we detect a positive effect from the Black Death on technology that rapidly ebbed away. Yet while for England, productivity growth regained momentum somewhat after about a century, for both China and Italy, it remained low until the nineteenth century. We critically examine these dynamics. First, inventions in Western (and Eastern) Europe switched more from services and agriculture to industrial uses. As the latter had a bigger impact on growth in a proto-industrial world, this placed Europe in an advantageous situation compared with China, where inventions commonly occurred in services. Second, institutions played an important role. This includes both those that blocked convergence (for which we introduce variable time in office for mayors as a new indicator of the effect of local government on regional economies) and institutions that work as a factor of production (i.e. reduce the efficiency of newly implemented institutions). Third, over an extensive historical timeframe and across macro-areas such as continents, geography emerges as a significant explanatory factor: it plays a role in the three regions under consideration. One example of this is the influence of the black soil areas in northern Eurasia. The latter aspect operates through the demand for labour or capital-saving technology, with capital-saving technology being more prevalent in China, especially in the black soil area in the north of the country.