The sustained increase of per-capita income, modern economic growth, is a relatively recent phenomenon. The impact, nevertheless, has been profound. By most accounts, it started in Britain in the mid-18th century and spread to a limited number of regions of the world, including Western Europe and North America. Explaining the causes of growth and identifying the factors that made it possible are among the most important unsolved questions facing economists today. This project pursues these issues by providing a detailed quantitative analysis of the economic conditions that prevailed in major economies in the 18th century at the turning point of modern economic growth. The focus is on China and Europe, two regions of the world that were both relatively advanced as of the mid- 18th century, and yet would start industrializing about 150 years apart. The project assesses economic development in these two regions in three major areas: commodity markets, labor markets, and the accumulation of worker skills (human capital). The PI's also provide a new benchmark for living standard comparisons for the mid-18th century. The database for this analysis is based on both primary and secondary sources, and it allows us to produce a quantitative picture for China in unprecedented detail. The first paper in this project examines the performance of commodity markets. Prevailing views place much emphasis on how efficient markets lead to optimal resource use and specialization. This paper presents evidence on the level of grain market integration in China and Europe over the 17th to 19th centuries. Preliminary findings suggest that differences in the relative levels of market efficiency in China and Western Europe were important. The performance of European markets of the 18th century was comparable to China's, but markets within Britain, the first industrial nation, were more integrated than anywhere else in the world. Continental Europe did not catch up with Britain until the mid-19th century. The PI's propose to relate their findings to theories about the Industrial Revolution and the timing of the spread of growth. The second paper confronts the great debate on relative living standards. Historic living standards provide the initial conditions of modern growth. The longstanding consensus going back to Smith and Malthus is that Western Europe was richer than China long before 1750. Recent revisionism has disputed that claim, but the question remains unsettled. With the large set of wages and prices assembled in this project, the PI's will be in the position to reassess the issue. For this comparison, they will employ new data on real wages in about 700 counties all over China, together with the available data for Europe. This paper also sheds light on the merits of theories that explain the post-1750 divergence in terms of technical change biased towards capital in Europe and towards labor in China, and differences in labor market efficiency. In the third paper, the PI's examine the role that skill abundance and human capital accumulation may have had for growth. With the innovations of the 18th century requiring a better trained labor force, did skilledlabor abundance give Europe a crucial advantage over China? Did Europe build on that to create a comparative advantage in skill-intensive products with higher growth potential? This paper addresses these questions by creating a new database on the skill premium in China and in Europe. In addition, the PI's also use the skill premium to calculate an implied interest rate for the prefectures of China. Together with interest rates computed from seasonal fluctuations in grain prices, the PI's then compare capital market integration in China and Europe both spatially and across (agricultural versus education) sectors. INTELLECTUAL MERIT: The PI's research on the sources of economic growth in history takes a comparative and multidisciplinary approach that helps to increase understanding of economic interactions in other regions of the world and in the economy while showing how a better understanding of past events can inform analysis of contemporary economic issues. BROADER IMPACTS: In creating a public-use dataset from Chinese and European historical sources, the PI's will promote greater inter-cultural education and direct cooperation between researchers and organizations in North American, Europe, and China. In addition, both collaborators on this project teach undergraduate and graduate courses in Economic Development, and under their supervision students will be welcome to participate at all stages in this project. The PI's have presented work related to this project to audiences at the World Bank, the International Monetary Fund, Statistics Canada, the National Bureau of Economic Research, and at academic seminars and conferences in North America and Europe.
