States and Development: Early Modern India, China, and the Great Divergence

Abstract

Can differences in state capacity explain the Great Divergence between Asia and Europe? Evidence from India and China suggests that customary property rights provided de facto rights to land and community ties substituted for de jure property rights in mercantile activities. Economic activity did not face an undue risk of expropriation. China and India generated lower fiscal revenue per capita compared to Europe. We explain the big difference in revenue per capita between the two Asian countries and England in the early modern period. In terms of the differences in the threat of internal and external conflicts. The large empires in Asia faced a disproportionate threat of internal rebellions and traded off fiscal capacity for appeasement of local ruling groups and their military support in external conflicts.