Chapter 3

Economic
Development in

Historical
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CHAPTER 3 ©E.Wayne Nafziger Development Economics
 Economic Development in
Historical Perspective
 Evolutionary Biological Approach
 World Leaders in GDP per cap., 1500-2005
 International Spreads GDP per cap, 1000-1998
 Beginnings of Modern Economic Growth
 Why Capitalism First Successful in West
 Economic Modernization in Non-Western
World
 Growth in the Last 100-150 Years

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 Diamond’s Evolutionary
Approach to Development
 Domesticated animals & plant species
 East-West axis – same climate &
ecological zones, innovations
transmitted

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 Why was capitalism first successful
in the West?
 Breakdown authority of medieval Roman
Catholic Church, together with Protestant
Reformation of the 16th & 17th centuries.
 Rise of strong national states between 16th & 19th
century
 Enlightenment 17th & 18th century Europe, with
scientific discoveries.
 Liberalism advocating self-regulating market.
 Political revolutions in England, Holland, &
France.
 Prodigious capital accumulation in 16 th & 17th
centuries, with flow of gold & silver from the
Americas.
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 Economic modernization in the non-
Western world (pp. 61-74)
 Japanese development model
 Korean-Taiwanese model
 Stalinist (Soviet) model
 Indian adaptation of Soviet model
 China’s market socialism
 Lessons from non-Western models

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 Japanese development model
 Economic autonomy
 Guided capitalism, selling industrial properties to
business people
 Gradualism
 Land tax
 Technological borrowing & improvement
 High educational standards
 Market exchange rates

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 End of Japan’s economic miracle
 Exhausted benefits from internal &
external economies, learning by doing, &
catch-up
 Industrial policy encouraged cartelization
 Keiretsu-laden banking system had high
bad debts ration
 Iron Triangle of politicians, bureaucracy, &
big business more incestuous

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 Korean-Taiwanese model
 Guided capitalism, building infrastructure, tax
incentives, subsidized export credit
 Investment in education
 High quality of economic management
 Contested markets
 Market-clearing exchange rates
 High educational standards

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 Stalinist development model
 Transfer collective agriculture to state-
owned industry
 Communist Party & planners in command
 High rates of investment in capital goods
 High rates of capital formation, labor force
participation & education but no emphasis
on technological change

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 China’s Market Socialism
 Socialism with Chinese characteristics
 Step-by-step changes
 Household responsibility system in
agriculture
 Private & town-village enterprises increase
share relative to state

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 The Golden Age of Growth

After 1820, fastest growth in last

half of the 20th century,
especially 1950-73.

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Fig. 3-3. GDP p.c. by Region (1995 US$) (Rodrik 2004)

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The Convergence Controversy
 Figure 3-4 shows rich countries growing faster
than poor countries, divergence “big time” over
the long run, 1870 to 1990.
 Figure 3-5 shows country divergence over the
short run, 1980 to 2000.
 However, population-weighted Figure 3-6, in
which China and India loom large, shows
convergence between rich and poor individuals.

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