December 5, 2014

Unified China and Divided Europe

  • Mark Koyama

    Senior Fellow, F. A. Hayek Program for Advanced Study in Philosophy, Politics and Economics
  • Chiu Yu Ko

  • Tuan-Hwee Sng

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This paper studies the persistence and consequences of political centralization and fragmentation in China and Europe. We argue that the severe and unidirectional threat of external invasion fostered political centralization in China while Europe faced a wider variety of external threats and remained politically fragmented. Our model allows us to explore the economic consequences of political centralization and fragmentation. Political centralization in China led to lower taxation and hence faster population growth during peacetime than in Europe. But it also meant that China was relatively fragile in the event of an external invasion. We argue that the greater volatility in population growth during the Malthusian era in China can help explain the divergence in economic development that had opened up between China and Europe at the onset of the Industrial Revolution.