EC120 week 02, topic 1, slide 0 A long-term perspective of economic development Topics: Trends and fluctuations in economic well-being Economic development in the really long-run Eurasian landmass versus the rest Economic approaches and categories The role of institutions Population and economic development –The Great Pestilence, a demographic catastrophe –The Malthusian model of population Summing up: determinants of economic well-being

EC120 week 02, topic 1, slide 1 Economic development in the really long-run Geology and climate  uneven distribution of wild plants and animals; diffusion more likely across similar latitudes Settled agriculture displaced hunter/gatherer groups in some places  higher population densities Settled agriculture  organised societies  surpluses above subsistence (supporting cities & states) Stratified societies evolve with centralised institutions Trade & conquests  diffusion of ideas, technologies, languages

Long-run economic development (notes only) EC120 week 02, topic 1, slide 2

EC120 week 02, topic 1, slide 3 Eurasian landmass versus the rest Eurasian land mass is favoured for developing –technology, –centralised organisations, –dense populations, –disease resistance But the Eurasian land mass is heterogeneous –Tropical/sub-tropical regions face different challenges & opportunities relative to temperate zones

EC120 week 02, topic 1, slide 4 Eurasia: economic integration & development to c1500 Europe: in relative decline after collapse of Roman Empire East Asia: Chinese civilisation developed early relative to Europe South Asia: long history of diverse civilisations “European exception” (economic success) emerged, but when?

EC120 week 02, topic 1, slide 5 Trends and fluctuations in economic well-being “Economic well-being” has many dimensions Focus on a summary measure: output per capita But “per capita” measures hide inequalities Long-term trend of slow, uneven improvement

EC120 week 02, topic 1, slide 6 Economic approaches and categories Output (income) is a function of inputs (factors of production): Land, Labour, Capital “Technology” determines how much output is obtained from inputs Classical approach emphasises generation of “surplus” Neoclassical approach emphasises incentives and strategies

The Role of Institutions Institutions: a framework for social, political and economic life Regulate distribution of power among individuals and groups  incentives and constraints  opportunities for behaviour State capacity – central enforcement of uniform taxation & rights Hypothesis: institutional differences  economic success/failure Two categories: inclusive and extractive –Inclusive  foster economic success, via creative destruction –Extractive  restrictions discourage change  stagnation/failure EC120 week 02, topic 1, slide 7

EC120 week 02, topic 1, slide 8 Population and economic development (1) The Great Pestilence, now known as “The Black Death”: “… greatest catastrophe to strike the Western World during the last millennium …” Infectious disease(s) that arrived in Europe from Asia, 1348/51, killing 1/4 to 1/3 of population Major economic, social and political consequences “The path to the Industrial Revolution began with the Black Death” (R.C.Allen)

EC120 week 02, topic 1, slide 9 Population and economic development (2) Population in pre-industrial societies: –Long-term growth rate positive but negligible –Large fluctuations persisted for centuries –Mortality sensitive to disasters –Fertility differed substantially across societies –Technological progress (slow) -> per capita income grows (slowly)

EC120 week 02, topic 1, slide 10 Population and economic development (3) Malthusian model: a theory of population 1.Birth rates vary positively with income (“preventive check”) 2.Death rates vary negatively with income (“positive check”) 3.Population growth forces a decline of income (per capita) Identifies fundamental resource constraints But –Responsiveness of births & deaths to income may be low –The model neglects inequalities within societies

Population and economic development (4) Demographic Revolution –Increased growth rate from about 1750 Demographic Transition –Fertility decline, depending on level of development EC120 week 02, topic 1, slide 11 The figure illustrates the Demographic Revolution (high births, declining deaths) followed by the Demographic Transition (falling births, low deaths).

EC120 week 02, topic 1, slide 12 Summing up: determinants of economic well-being A handy classification: a)Environment and resources b)Culture, philosophy and religion c)Institutions: political, social & economic institutions d)Markets e)Technologies and their application