For more than a decade, the discussion about the timing and causes of a “Great Divergence” in economic fortunes between Europe and Asia has been central in global economic history. Whereas the conventional view presupposes that Europe was in the lead since the late middle ages, as a result of fundamental differences between Europe and the rest of the world, revisionist scholars adhering to the so-called “California School” have argued that Europe and Asia were on a more or less equal level of economic development until around 1800 and that Western Europe took the lead only following a fortuitous spin-off of the large colonies in the Americas, combined with the advantage of favourably located coal.
Studer’s contribution lies in the well-defined reciprocal comparisons between Europe and India (much of the discussion hitherto focused on the comparison between Europe and China), the use of an explicit Smithian theoretical framework, the exploitation of an extensive new dataset on wages and prices, and the application of sophisticated statistical analyses. Studer suggests that, in contrast to revisionist claims, India and Europe’s levels of economic development diverged already somewhere in the seventeenth century, if not earlier. He goes on to argue that at least a part of the divergence was driven by differences in geography, the quality of transportation systems and, consequently, the degree of market integration (i.e. the degree of relatedness of market prices of the same commodity in different locations). He argues that these results go against views that emphasize the role of colonial exploitation in the rise of Europe as well as in the decline of India.
The introduction provides the reader with an overview of both the body of literature dealing with market integration and the divergence debate itself. First, he finds that, despite the fact that there are many studies on market integration, scholars are not yet in agreement on the degree of market integration in Europe before the nineteenth century, let alone on its role in the rise of Europe. Second, Studer stresses that the paucity of quantitative empirical evidence, especially for pre-1860 India, has left room for great discrepancies in views on the importance of trade and market integration in the Great Divergence, which provides the raison d’être for his investigations. The main chapters of the book are divided into two parts, the first makes continental comparisons between Europe and India as a whole, while in the second part he makes micro-comparisons between sub-regions within both (sub-)continents.
Chapter 2 presents an outline of the main factors that could influence the degree of market integration: geography and climate, institutions and politics, as well as transport technology and infrastructure. Studer suggests that Europe has a more benign climate and has a more favourable transport environment resulting from its long coast lines and numerous navigable rivers. In addition, he finds that Europe has a big early advantage in terms of the quality and extent of the road and waterway networks, and later in terms of railways and steam technology. While this chapter presents no new results, as it is solely based on a literature review, it is nevertheless a welcome addition that provides convincing arguments on why markets in Europe were better integrated and, as he subsequently shows, more efficient. In chapter 3, which was previously published as a paper with the Journal of Economic History, Studer employs a large database of grain prices in Europe and India to gauge the degree of market integration. He investigates no less than four elements of the efficiency of markets and the process of market integration: (1) the extent to which prices in different markets across Europe and across India exhibit the same movements (i.e. whether there is a linear relationship between prices) through a correlation analysis; and (2), if there is such a relationship, how quickly this relationship is re-established after a shock (like a bad harvest) through an error correction approach; (3) whether the level of prices in different parts of each (sub-)continent became more similar over time (price convergence); and (4) the extent to which prices in individual markets become less volatile over time. In all four cases, Europe comes out as the clear “winner” before the late nineteenth century.
Part 2 deals with “differentiations and extensions” and is, unfortunately, clearly more focused on Europe. This is perhaps understandable considering the limited amount of data available for India. While Studer has unearthed a lot of data for India, a shortcoming of the study is that it remains wholly dependent on quantitative evidence that is available from published sources and secondary literature. Especially the introduction of an in-depth case study, in this case on the Western Ghats (near Pune) discussed in Chapter 5, would have provided an excellent opportunity to augment the existing evidence from the literature with new primary materials from local Indian (or British colonial) archives that possibly contain more price data. As a result, the second part of the book is somewhat unbalanced. Chapter 4 presents a more elaborate investigation of market integration in Europe, using an extended database. The investigation confirms previous findings that there was already market integration taking place in Europe in the eighteenth century, but it emphasizes the differences within Europe: as a result of geographical constraints, markets in Europe showed significant regional integration since the seventeenth century, but it was only in the nineteenth century that they became integrated on the continental level. Chapter 5 compares Switzerland in Europe with the Western Ghats in India which again corroborate earlier findings. Finally, Studer shows for Switzerland that from the later eighteenth century on, the effect of local climate on local grain prices diminished as the world price increasingly eclipsed local price movements (suggesting deepened market integration). No similar analysis could be performed for the Western Ghats.
In the last two chapters, Studer revisits the main findings of the study and embeds these in the larger divergence literature. Although introducing an additional interpretational chapter next to the conclusions also leads to some repetition, it also provides room to discuss the link between market integration and economic development. His argument is as follows: Smithian theory that larger markets and increased trade allows for an increasing division of labour, improving productivity and thus leading to economic growth (increased incomes and living standards) seems to be convincing as those areas with the highest levels of market integration (i.e. England and the Netherlands) also had the highest GDP and real wage levels. Studer admits that his explorations of the question whether it was market-led growth that allowed the rise of Europe remain rather speculative. Market performance in China may have been equal to that of Western Europe, and the Dutch Republic may have had more or less similar levels of market integration as England; yet, the fact that it was only the latter that made the transition to modern economic growth, means that there is a significant part of the Great Divergence left unexplained. The story of market-led growth may be plausible, yet future research will have to deal more explicitly with this link (as Studer also advocates himself). Also, Studer’s study does not elaborate in detail on how far markets reached into the social body as a whole: markets (and market integration) might have affected very different proportions of the population in the regions and periods studied.
With The Great Divergence Revisited, Studer has made a major contribution to the debate on one of the greatest conundrums in history: why was it the West, rather than the East, that first achieved modern economic growth? Based on solid empirical evidence and a rigorous application of statistical techniques, his argument indicates plausibly that it was more efficient and well-integrated commodity markets that gave Europe the edge over India. Unfortunately, Studer has not used this study as an opportunity to extend current databases on the basis of new primary materials. Furthermore, while the main argument of the book hinges on the assumption that market integration is good for growth, definite proof for this connection is still lacking. These caveats notwithstanding, this work will no doubt have a lasting impact on the divergence debate. It is a recommended read for all participants in the debate, and, as it is well-written and structured (despite a fair deal of repetition), may also serve to introduce new students to the substantial body of literature dealing with market integration as well as that concerned with the economic histories of Europe and India in the light of the Great Divergence debate.
