Tuesday, July 27, 2010

Was the Development of Modern Nations Pre-Determined 3000 Years Ago?

Diego Comin (Harvard), William Easterly (NYU), and Eric Gong (Berkeley) raise fascinating questions in a new article published in the American Economic Journal: Macroeconomics (July 2010, http://www.aeaweb.org).

“To the extent that history is discussed at all in economic development, it is usually either the divergence associated with the Industrial Revolution (e.g., Robert Lucas 2000) or the effects of colonial regimes. Is it possible that history as old as 1500 AD or older also matters significantly for today’s national economic development?”

To explore this question the authors “assemble a new dataset on the history of technology over 2500 years of history prior to the era of colonization and extensive European contacts” for the predecessors to today’s nation states. They look for very long run influences on economic development in the presence or absence of written language, the wheel, agriculture rather than hunting-gathering, iron tools, etc. 1000 years before the present era, in year 0 AD, and in 1500 AD.

They find that technological differences are surprisingly persistent over long periods of time. Specifically, their most interesting, strong, and robust results are for the association of 1500 AD technology with per capita income and technology adoption today. They also find robust and significant technological persistence from 1000 BC to zero AD, and from 0 AD to 1500 AD.

Their hypothesis is that the cost of adopting new technology falls with the stock of previous technology, thus generating the surprising long-term persistence observed in the data. They claim that historians reach a consensus on many mechanisms that cause past technology to have an effect on future technology, while past technology could not be sufficient to explain why Europe, and not China, experienced the Industrial Revolution (other factors such as institutions and values could matter too).

Instead of being a radically new phenomenon, the Industrial Revolution could well have been a simple speeding up of technology dynamics, by which new technology adoption is a function of the past technologies already accumulated.

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