How the World Became Rich: The Historical Origins of Economic Growth

"This book is perhaps the first book to extensively survey recent trends in the economic history academic literature. Over the last 20 years, as I noted above, economic history has become more aligned with economics, and particularly its empirical econometric tradition. Economic historians have become more like empirical microeconomists, using historical data to create ‘natural experiments.’ That basically means using historical situations to simulate the control and treatment groups that you might see in laboratory tests of drugs, based on what you know of the historical period, to identify some sort of causal effect. What effect did historical force X have on Y historical—or often modern-day—outcome? The canonical example that founded this literature was a 2001 paper by Daron Acemoglu, Simon Johnson and James Robinson, “The Colonial Origins of Comparative Development: An Empirical Investigation.” The paper leveraged variation in settler mortality in the developing world to show that institutions have a positive effect on economic development. That spawned a new wave of literature over the following two decades, of which this book by Koyama and Rubin is really the most accessible and comprehensive introduction. They categorize all these papers into five major categories of explanation for why economic development happens. These are: geography, institutions, culture, demography, and colonialism. “Over the last 20 years…economic history has become more aligned with economics” Koyama and Rubin are by no means indifferent between the five factors. This book is not just a literature review, but also presents an original theory of economic development, explaining the Industrial Revolution , the Great Divergence (the separation of incomes between the Global North and Global South over the last two centuries) and then, finally, the recent convergence of leading parts of the developing world. They believe that while geography is important, it is mediated by culture and institutions, which can act to reverse the negative curse of geography, of having (say) limited access to the sea, which one might think would inhibit a country’s ability to participate in foreign trade. The central claim revolves around the role of representative institutions in limiting the ability of executives to arbitrarily interfere with entrepreneurs and innovators—a staple argument of the ‘new institutional economic history.’ Koyama and Rubin suggest that Britain succeeded in achieving modern growth because she possessed all of the advantages often mooted by historians as the factor explaining her take-off. So I think that this book is something incredibly novel in the economic history literature. While the discipline has always been in the vanguard of using quantitative methods to study the past, most works have relied upon earlier research, and few recent books have the ecumenical scope that How the World Became Rich does."

"This is effectively a readable textbook. The authors are economists and economic historians in a very modern sense. Many economic historians in the past, and several of the ones that we looked at earlier, were primarily history -focused. Many were actually historians working in history departments, and their goals were to ask historical questions to understand why this great gap in incomes, living standards and technology emerged between the West and the rest. Rubin and Koyama, while they are similar in motivation, are reviewing a vast body of literature that has emerged primarily in economics and is a little ambivalent on how to treat history. There is some debate on what the purpose of historical research is, whether it’s to flesh out economic theories—so using historical data to test hypotheses that are put up by economists and using history to understand the present day—or really to ask historical questions. Koyama and Rubin synthesize a lot of these different strands of research which, unlike the other books that we studied, is primarily econometric, using different kinds of regressions on large and creatively constructed datasets. For example, an economic historian might go into the archives of some old foundation and get tons of observations about the balance sheets of hundreds of different companies in late Imperial Russia, and then analyze the statistical properties of that dataset and come out with a conclusion that to some extent reflects the history of business activity in Russia , to some extent makes generalizations about the importance of market concentration and rent-seeking in slowing down economic growth, and then partly draws conclusions about how this likely affected subsequent Russian development. That’s the central tension. “It’s probably not a coincidence that two of the most liberal societies in Europe…were also particularly inventive” Rubin and Koyama synthesize all this literature and discuss five major ways to explain the Great Divergence: geography, demography, imperialism, culture and institutions. Both authors are really interested in culture and institutions, which has received a lot of emphasis in the newer work that they survey. They categorize many different books and papers that have been produced by economic historians using this highly empirical, what I call the ‘natural experimentalist’ method. The methodology is inspired by randomized controlled trials in medicine, which are used to look at the effects of a treatment (e.g. a drug or therapeutic program) on a treatment group by comparison with a control group. What economic historians do now is look at the effects of historical treatments on certain hypothetical treatment and control groups. You have to make the argument that these are comparable to one another and that assignments of individuals to the groups are pseudo-random. So Rubin and Koyama place many papers and books into these different categories, and then try to compare their relative importance. Then, in the second half of the book, they take on the question of explaining, first, the rise of Eurasia, then the rise of Europe, the rise of Northwest Europe, the rise of England, and then finally how growth spread to the rest of the world. What they do is take every single factor that we’ve talked about today and give it some little weight in the overall explanation. They say that you cannot explain the rise of Britain without taking into account everything that we’ve discussed. So you need geography, you need political and social institutions, you need cultural factors. You don’t really need colonization, but you do need coal. And they try to attach it all together in a coherent theory. Broadly speaking, this is probably one of the most sensible ways that you can approach the subject because if you have so many different thinkers coming from different perspectives and finding that their particular favorite factor had some importance, it’s unlikely that 99 per cent of them are completely wrong and that one of these factors has all of the explanatory power. Big historical events are overdetermined. Most of the factors cited probably do go some way to answering the question. I would say geography is probably the most important (if by no means the only) explanation for the rise of Europe. As I said, I think the geography definitely explains much of the rise of Eurasia. I also think Diamond is probably onto something when he describes the geographical factors underlying Europe’s polycentrism. Geography can also in part explain, through coal and colonies as Pomeranz argues, the rise of Britain in Western Europe. Britain’s industries were relatively closely located to its coal deposits and where they weren’t you could sail down the coast and ship coal to locations that needed it. As it’s situated on an island off the west coast of Europe, it’s also in a good position to exploit both trade with the rest of Europe and with the Americas. So it has good access to raw materials. Get the weekly Five Books newsletter Britain, through its privileged trading location, also has a head start in developing a commercial society, leading to higher living standards and more people who are focused on invention and economic rationalization. Even culture, to some extent, can be tied to geography, for example how soil suitability for plough agriculture has influenced female gender norms. All of these factors ultimately do lead to the things that Jones, Mokyr, Pomeranz, and Rubin and Koyama discuss, but I do think that in many cases you’ll find that geography is behind it."