A fresh perspective on global economic history has emerged, challenging traditional narratives about the rise of Western economies and the relative decline of others. This new approach, introduced by CEPR, examines two pivotal phenomena: the Great Divergence—the period when Western nations began to significantly outpace the rest of the world in economic output—and the Great Reversal, referring to the recent resurgence of economies in Asia and other regions. The analysis moves beyond conventional explanations centered on industrialization and colonialism, instead emphasizing institutional evolution, technological diffusion, and shifts in global trade dynamics.
Historically, the Great Divergence has been attributed to Europe’s early adoption of market economies, scientific advancements, and political stability. However, this updated framework suggests that divergence was not inevitable but contingent on specific historical junctures, including access to resources, demographic trends, and policy choices. For instance, while Western economies expanded through capital-intensive industries, many non-Western regions remained focused on labor-intensive agriculture, limiting productivity gains.
The Great Reversal, beginning in the late 20th century, marks a shift as countries like China, India, and South Korea achieved rapid industrialization and integrated into global supply chains. This reversal has been driven by strategic investments in education, infrastructure, and export-oriented policies. Additionally, digital technologies and globalized financial markets have enabled faster knowledge transfer and capital mobility, leveling the playing field.
The study underscores that economic leadership is not static. It warns against complacency in currently dominant economies and calls for adaptive policies to remain competitive. By analyzing long-term structural changes rather than isolated events, this approach offers a more nuanced understanding of global economic shifts and their implications for future growth trajectories.
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The Great Divergence and the Great Reversal: A new approach to global economic history CEPR