Working Paper: NBER ID: w22896
Authors: Peter H. Lindert
Abstract: Economic historians’ Divergence debates since 2000 have asked a different question from that asked by Angus Maddison. The issue has become “when did countries’ contemporaneous purchasing powers diverge?”, not “when did countries’ productivity grow at different rates?” The two questions have different answers, especially before 1914. Using pre-1914 prices to compare real purchasing powers on six continents, this article sketches some historical geography of the departures from the conventional Maddison estimates. \n\tOne underlying reason for the divergence between projections back from 1990 and direct price comparisons from long ago is that before the great 1870-1914 wave of trade globalization, consumer staples were not traded over great distances, and regions specialized in narrow luxury trade. Inter-continental price ratios for subsistence goods thus varied more widely than since 1914. \n\tThe new measures open up a new economic history of international differences in purchasing power before 1914. Northwest Europe was further ahead of Asian countries than earlier measures have shown. The discrepancy stems from a Gerschenkron effect, magnified before 1914 by Engel effects as well as by Balassa-Samuelson. Yet Northwest Europe was behind America and Australia across the nineteenth century, consistent with the same accounting framework but not with Maddison’s estimates.
Keywords: Purchasing Power; Economic History; Inequality
JEL Codes: I31; N0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| historical comparisons (N10) | purchasing power disparities before 1914 (N93) |
| the divergence attributed to the Gerschenkron effect and Engel effects (F62) | purchasing power disparities before 1914 (N93) |
| intercontinental price ratios for subsistence goods varied widely due to limited trade in consumer staples (F16) | historical purchasing power was underestimated (N13) |
| rich settler countries like America and Australia were richer relative to Britain than earlier estimates suggested (P17) | purchasing power disparities before 1914 (N93) |