The Rise of Markets in the Western World A Global Comparison Carol H. Shiue§ University of Texas at Austin May 2003 § I would like to thank Avinash Dixit, Michael Edelstein, Branko Milanovic, seminar participants at the World Bank Group on Inequality, the Economic History Workshop at Columbia University, the Economic History Workshop at the University of California at Los Angeles, and fellow Visiting Scholars at the Russell Sage Foundation for helpful conversations and comments. University of Texas at Austin, Department of Economics, Austin, TX 78712. Email:
[email protected] 1 Abstract Does trade cause growth? How about the Industrial Revolution? A widely held view is that the more efficient markets in Europe provided an important reason of why the Industrial Revolution started its spread from Europe in the late 18th century, and not from China. Among the reasons that have been proposed for this supposed efficiency gap are differences in terms of geography, culture, nationality, population, institutions, or historical ‘accidents’ such as the discovery of the Americas. This paper compares the efficiency of commodity markets using data on the spatial dispersion of grain prices from the 15th to the early 20th century. This analysis is made possible by a new detailed and consistent set of grain price data covering about 60% of China in the 18th century—a part of China larger than Western Europe and contributing about one-fifth of the world’s population at the time. The findings suggest: first, the efficiency of markets in China and Europe was broadly comparable in the late 18th century, except perhaps for local economic activity, in areas of 150 kilometers or less, where Europe seems to have been ahead.