This chapter is concerned with two fundamental driving forces of the process of modern economic growth: capital accumulation and technical change. The importance of these factors as drivers of productivity growth underwent a major acceleration with the First Industrial Revolution. This chapter surveys the available evidence on capital accumulation since 1700 in different countries, highlighting the expansion of fixed capital. The chapter then outlines the main contours of technical advances of the First Industrial Revolution, noting the critical role played by two technological trajectories: 1) mechanization, and 2) the development of steam power technology. Finally, the chapter discusses the main sources of technical progress in this historical period, flagging some directions for further research.

This chapter discusses the paths of Spanish and Lusophone America from the late colonial period through independence for most of Latin America to 1870. Relative continuity from colony to independent empire in Brazil contrasts sharply with regime change from colonial to republican systems in mainland Spanish America. Late colonial economies expanded significantly. Trading systems were transformed in the later eighteenth century; mining and slavery-based staple exports expanded fast, as did market integration within Latin America. Indicators of living standards show great diversity but paint a relatively positive picture until at least the last quarter of the eighteenth century. War and independence in the early nineteenth century knocked mainland Spanish America off its path of preindustrial expansion, while Brazil continued to expand. Rather than a ‘reversal of fortune’ new Spanish American republics faced the costs of a transition from a corporate political economy to an incipient republican one. It destroyed the fiscal basis of the state, led to increased concentration of landholdings, and dislocated goods and financial markets. Also, weak states failed to replace corporate structures of protections of the weaker social strata with individual access to legal protections. Regime change created opportunities for growth in the long run, but its immediate result was more inequality and falling living standards for significant parts of the population.

A basic framework for classifying institutions and thinking about their role in economic development is illustrated with the colonial experience of the British and Spanish empires in the eighteenth and nineteenth centuries, and Japan in the nineteenth century. Institutions are the ‘rules of the game’. Primary rules are rules that apply directly to individuals and their relationships. Secondary rules are the ‘rules for making the rules’. The secondary rules governing the Spanish Empire located the procedures for making new rules and changing existing rules in negotiations with the king. Secondary rules in the British Empire located many of the processes for making new rules in the colonies themselves. Faced with independence and the end of monarchical rule in the late eighteenth and early ninteenth century, the institutions in the former Spanish colonies had to be reinvented from whole cloth, as the basic structure of secondary rules was no longer viable. In the British North American colonies, secondary rules allocating authority to colonial legislatures remained in place and were gradually transformed after independence. Japan, in contrast, wrestled with how to structure secondary rules in the events leading up to and following the Meiji Restoration.

This chapter reviews dramatic changes in the European economy between 1700 and 1870. The period saw a rapid population increase, slow structural transformation away from agriculture, and a gradual spread of modern economic growth across the continent. We discuss the proximate causes of these phenomena – namely, technical progress and the adaptation of English technology, growing integration of markets and upsurge of trade, and institutional modernization and the birth of the modern state.

Geography and institutions both shaped Australia’s economic history. After 60,000 years continuous civilization, about 1 million people lived in all parts of the continent in 1700. Aridity, climatic unpredictability, and infertile soil influenced the development of a hunter-gatherer economy that was characterized by sophisticated technologies for food production, especially land management through fire, and kin-based distribution that ensured more than mere survival. Economic activity was governed by gender and age. There was considerable human and social capital in Aboriginal society. Competition for land arrived with British convicts in 1788 and accelerated with gold discovery in 1851 attracting more people, capital and impetus to self-government. A herding economy based on wool exports, food exports, and a busy coastal urban economy permitted a small European population very high real GDP per head from 1830, possibly the highest in the world. The absence of diseases dangerous to Europeans and low levels of income inequality underpinned their high average living standards. The impact of the European economy on the indigenous people caused a devastating depopulation of about two-thirds from starvation, European diseases, and settler violence, producing a stark contrast between the condition of the original population and the newcomers by 1870.

After the demise of the manorial system in the fifteenth and sixteenth centuries, the Shogunate and lords established exclusive property rights of farming households by thorough cadastral surveys in the seventeenth century and protected them against bystanders thereafter. The unit to which property rights were granted was the stem family. The property rights protection had owner farmers accept a high land:tax ratio. The high state capacity of early modern Japan enabled the Shogunate and lords to have fiscal room to invest in water control, urban construction, large-scale reclamation, and the judicial system in the seventeenth century. The property rights protection also provided farming households with incentives to improve productivity by the enhancement of intense farming, which led to an acceleration of growth in per capita GDP from the eighteenth century onwards. The land tax was mostly fixed in the seventeenth century when the state granted property rights, the productivity improvement in the eighteenth and nineteenth centuries was barely taxed, and hence state capacity declined in the eighteenth and nineteenth centuries. The isolationist policy of the Shogunate blocked knowledge transfer from the West. Still, the state capacity of Shogunate Japan was substantially higher than those of other emerging economies in the nineteenth century and bequeathed tax revenue to the Meiji Imperial Government for modernization through knowledge transfer from the West from the late nineteenth century onwards.

This chapter considers to what extent ‘geography’, broadly conceived, mattered for economic growth across the globe. First, it sets out the pattern of comparative aggregate growth between 1700 and 1870 and documents the east to west shift in the global distribution of economic activity. The next section surveys the comparative evidence on key first nature (or physical) geography characteristics that are potentially critical for long run economic development. This is followed by a discussion of second nature geography (the ’geography of interactions between economic agents’) and a quantitative assessment of the extent to which first nature characteristics, second nature geographical forces and institutional quality can account for income differentials across a sample of major economies in America, Asia, and Europe. Finally, a case study on shifting comparative advantage in the textile industry illustrates the outcomes of technical change within a changing global economic geography. The chapter concludes that changes in trade costs, agglomeration economies and differential access to markets with associated productivity gains probably played a major role in moving the economic centre of gravity. The West became absolutely and relatively richer than the East, not only because of better institutions but also because of more favourable geographies.

In 1700 the Mughals controlled much of the Indian subcontinent. By 1858 the British Crown ruled. Why did this transition occur? How did the relationship between the state and economic activity change? And how did the economy perform? This chapter provides an overview, discussing competing perspectives on the breakdown of the Mughal Empire, the rise of the East India Company, the increasing commercialization of the economy, and changes in the economic structure. The literature suggests that the East India Company’s political and military success partly came from more successful fiscal administration compared to its Indian rivals. After consolidating its rule, British policy favoured the export of Indian primary products and the import of manufactured goods, contributing to deindustrialization. In agriculture, the area cultivated increased with population, but technology stagnated. Per capita income, which was already low, may have fallen slightly. Conflicts between the state and local users of forests and other resources emerged, especially in conjunction with the introduction of a major technological innovation, the railways. Our period ends with the Mutiny, a formidable challenge to British rule, following which British policy became conservative, seeking to preserve the existing social order.

We provide evidence that both ‘first nature’ and ‘second nature’ geography matter for long-run growth. This is complemented with two new case studies on Japan and European regions over the entire twentieth century, which allow us to sharpen our focus on the role of geography, given that institutional and cultural differences within countries will be more limited than across countries. Both case studies suggest that second nature geography is essential. In the last decades, metropolitan regions around the capital cities grew faster, while others, including many former industrial regions, started to fall behind. On a global level, this is mirrored in an increasing role for market access. This evidence ties into Baldwin’s idea of the two ‘unbundlings’ of production since 1800.

Using recent advances in historical national accounts and scholarship of the region, this chapter depicts the economic development of eastern Europe from the times of the Habsburg monarchy and the Russian Empire before World War I through the turbulent interwar years, with the onset of the communist regime and socialist experiment in Russia, the spread of the centrally planned economic system and communist rule in the post-World War II decades, its collapse in the late 1980s and then a decade of transition to market economies. The chapter assesses the region’s economic performance in each of these periods. Even though the path of eastern Europe since the late nineteenth century has been one marked by a series of significant shocks, there were also significant continuities, so that the socialist ‘experiment’ did not result in the significant break with the past that its architects had envisaged.

This chapter outlines the key contours of Australian economic history between 1870 and 2010 in a comparative perspective. Overall, the story it tells is a positive one, in spite of the vexing challenges that Australia has faced. Despite undergoing relative economic decline and a fundamental reorientation in the direction of its trade over this period, Australia emerged into the twenty-first century with its status as one of the world’s most prosperous and advanced societies intact. While numerous challenges remain unresolved, Australia’s experience to date provides a clear-cut example of a society where an abundance of natural resources has proved a blessing rather than a curse. The secret of Australia’s avoidance of the pitfalls that have befallen so many countries similarly blessed appears to lie in the ability of its institutions to adapt successfully in the face of changed circumstances while remaining supportive of innovative and productive activities.

This chapter describes broad regional and temporal trends in the evolution of international trade and international factor flows between 1700 and 1870, including key differences in trade costs across space and time. We find trade links in western Europe and the European colonies of North America intensified at the same time these regions experienced the initial Industrial Revolution and the spread of industrialization, which led to sustained economic growth. At the same time, global differences in specialization and income emerged. To understand the contribution of global market forces as well as colonialism to these differences, the chapter lays out theoretical reasons for links between trade and economic growth and examines related historical arguments and evidence. We conclude that trade contributed to global divergence, but the magnitude and mechanisms through which trade affected global welfare lies not so much in the direct impact of trade and specialization as in multiplier effects emerging from the interactions of trade with other factors that affect economic development.

This chapter documents the long-term trend of economic growth in the Middle East and North Africa region between 1870 and 2010, and analyses both the proximate sources (labour, physical capital, and technology) and underlying sources (geography and institutions) of economic growth. The chapter puts together novel empirical facts at the country level on the long-term trends of key variables in economic development, including GDP per capita, democracy, population, fertility, mortality, migration, labour force participation, human capital, physical capital, and technology. Geography, in particular the abundance of natural resources, shaped the path of economic development in the region through the emergence and persistence of undemocratic political institutions and coercive labour institutions. This is the case for the Arab states of the Persian Gulf, Libya, Algeria, Iran, and Iraq. By contrast, countries that are less rich in natural resources witnessed more diverse political development paths, although their upheavals mostly resulted in (presidential) dictatorships.

There were two very different conjunctures for the Ottoman economy during the eighteenth century. The decades until the end of the 1760s were a period of relative peace and economic expansion. In contrast, from the end of the 1760s until the 1820s was a period of wars and domestic political struggles when long-distance trade as well as agricultural and manufacturing output were frequently disrupted, state finances came under pressure and the frequent debasements led to inflation. Even though trade and more generally economic interaction between the Ottoman Empire and western Europe increased during the eighteenth century, its volume remained small. As a result, both urban and rural crafts and manufacturing activities in the Ottoman Empire remained mostly intact. The nineteenth century was a period quite different from the earlier era. It was characterized, on the one hand, by major efforts of Western-style reform in administration, education, law, and justice, as well as economic, fiscal, and monetary affairs. It was also a period of integration into world markets and rapid expansion in trade with industrial Europe that transformed the Ottoman economy into an exporter of primary products and importer of manufactures.

In this chapter, we describe long-run trends in global merchandise trade and immigration from 1870 to 2010. We revisit the reasons why these two forces moved largely in parallel in the decades leading up to World War I, collapsed during the interwar period, and then rebounded (but with much more pronounced growth in trade than in immigration). More substantively, we also document a large redistribution in the regional sources of goods and people, with a shift from the former industrialized core countries – especially Europe – to those in the former periphery – especially Asia – as well as a very striking change in the composition of merchandise trade towards manufactured goods precisely dating from 1950. Finally, using a triple differences framework in combination with a dramatic change in US immigration policy, we find evidence that immigration and trade potentially acted as substitutes, at least for the United States in the interwar period.