Latin America made considerable progress in living standards between 1870 and 2010 amid rapid modernization and structural change. However, despite these remarkable advances, the income gap between the region and the industrial leaders remains significant. This chapter assesses the long-term performance of Latin America relative to the developed world and discusses the key transformations in Latin America. Excess volatility, poor productivity and high inequality remain essential to explaining why the region has been unable to converge with the industrialized core through advances in human capital, R&D, and infrastructure investment. In order to improve future prospects in standards of living and catching up, the region would need to adopt a development model that delivers sustained and inclusive economic growth. Key elements of this model are a higher rate of investment, a proactive industrial policy, tighter intra-regional integration, and greater redistribution to finance a better quality of education and inclusive social services.

This chapter discusses the consequences of industrialization and growth for the standard of living of the world’s population. The estimates concerning GDP growth, life expectancy, and educational attainment are discussed and an inequality-adjusted human development index is constructed and presented. At the onset of the process of modern economic growth in 1800 there were already large differences in well-being between the advanced economies in Europe and North America and the rest of the world, which further widened during the ninteenth century. This widening was the result of faster growth of the core economies; only rarely did countries show a substantial decline. The decrease of GDP per capita in China between 1700 and 1900 is a rare exception to this rule.

India integrated into the global economy of the British Empire in 1858 with the transition to Crown rule. The increase in agricultural exports and industrial imports did not lead to economic growth. Even as the share of trade in GDP increased and foreign capital flowed into the export industries and the railways, the economy stagnated. With independence, India retreated from the global economy, but per capita GDP growth turned positive for the first time since 1914. Although trade and foreign investment declined in a regulatory regime, domestic capital formation doubled. The liberalization of the economy after 1980 was built on the foundations of a regulatory regime.

This book seeks to provide an overview of the modern world economy since 1870, dealing with the material in such a way as to give due weight to chronology, regional balance, and coverage of the main topics. It forms part of a two-volume publication, with the first volume taking the story from 1700 to 1870. Volume II begins in 1870 because by then modern economic growth had emerged in Britain and already spread to much of the rest of western Europe and the British offshoots in the New World (the United States, Canada, Australia, and New Zealand), and was poised to begin in Asia, following the institutional reforms in Japan associated with the Meiji Restoration of 1868. There was thus a great potential during the period after 1870 for closing the gap in living standards that had opened up between the West and the rest of the world. Although many more countries embarked on the process of sustained modern economic growth between 1870 and 2001, the gap nevertheless continued to grow during the long twentieth century, as catching up proved elusive (Maddison 2005: 11). By 2001, the world was nearly seven times richer than it had been in 1870, but the gains were unevenly distributed, with the West growing by a factor of nearly 12, while the rest of the world grew by a factor of less than 6.

Early modern South East Asia can be characterized as a region of low population density, abundant natural resources, and high labour productivity in agriculture, where coastal areas were deeply involved in international trade, in particular with China and India. Available information on urban real wages indicates that in most parts of the region, living standards were well above Chinese and Indian levels until at least the mid-nineteenth century. The population growth observed throughout the region in the eighteenth and nineteenth centuries suggests also a strong resilience to climate shocks and wars. The main independent indigenous polities in the mainland and a few smaller ones in the archipelago reinforced their authority, legitimacy, and capacity. An increase or stability in the long run of per capita terms comprehensive wealth, which is the total value of natural, human, and physical (i.e. produced) capital stocks divided by total population, would imply a sustainable economic transformation. The general trends that can be observed suggest that this was the case in early modern South East Asia.

In 1700 about 250,000 European colonists and enslaved Africans lived in North America, primarily along a thin strip of land bordering the Atlantic Ocean. By 1870 these scattered colonial settlements had been consolidated into two continental nations – the United States and Canada – with a combined population of more than 40 million. Although agriculture remained the leading employer in North America in 1870, the rapid growth of industry was transforming these nations into increasingly urban and industrial societies and contributing to the accelerating growth of living standards. This chapter locates the sources of this remarkable growth in the interactions of abundant natural resources, a responsive economic and political system, and sustained technological progress. Yet the story of these years is not solely one of economic success. From the perspective of the aboriginal peoples of North America, European settlement and expansion had tragic consequences. So, too, the experience of enslaved Africans and their descendants was one of remarkable hardships. Slavery proved a source of continuing political tensions that resulted in a destructive and costly civil war and left a legacy of racial segregation and tensions that are still palpable today.

This chapter traces three grand transformations of the North American economy. The first process – the shift from a rural agricultural economy to an urban industrial economy and the emergence of ‘modern economic growth’ – began before 1870. The second process – the shift from growth based on increasing factors of production per person to growth based on enhancing the productivity of the factors – began at the turn of the twentieth century. It was tied to the emergence of the United States as a global economic leader. The third process – the shift from an internally focused industrial economy to a globally integrated, information-based economy – began after 1970. Focusing on these transformations complicates the story of balanced growth common in macro-growth accounts, but is crucial for our understanding of the growth of the North American economy.

African per capita income levels have fallen significantly behind other world regions during the long twentieth century. But despite the outward appearance of economic stagnation, African economies underwent profound transitions. This chapter contrasts African patterns of recurrent growth and contraction, and persisting specialization in primary commodity production, to deeper changes in factor endowments, economic geographies, and institutions governing states and markets. It discusses the periodization of growth cycles in relation to global market forces and colonial and postcolonial economic policies, and questions how the deeper currents of change have affected the capacity of African societies to outgrow poverty.

This chapter outlines how the development, diffusion and adoption of new technologies have shaped economic growth. Several major technological phases are identified, which differ from periods distinguished by global wars or major changes in growth patterns. Before 1940, large-scale industrialization and new technologies originated in the United States, diffusing to western European countries. Outside the Western core different development strategies were deployed. Only after 1940, countries in western Europe largely caught up to American productivity levels. The combination of technology diffusion and export-led growth in Japan, Korea, Taiwan, and, more recently, China and India have enabled significant growth in living standards. The changes in cross-country income-level inequality have also had their within-country counterparts. The more recent period of IT-enabled growth primarily benefited high-skilled workers in Europe and the US, while low- and middle-skilled workers not only met competition from machines, but also from workers in low-wage countries.