Unified China And Divided Europe

Chiu Yu Ko

National University of Singapore (NUS) – Department of Economics

Mark Koyama

George Mason University – Department of Economics; George Mason University – Mercatus Center

Tuan-Hwee Sng

National University of Singapore (NUS) – Department of Economics

December 5, 2014

Abstract:

This paper studies the causes and consequences of political centralization and fragmentation in China and Europe. We argue that the severe and unidirectional threat of external invasion fostered political centralization in China while Europe faced a wider variety of smaller external threats and remained politically fragmented. We test our hypothesis using data on the frequency of nomadic attacks and the number of regimes in China. Our model allows us to explore the economic consequences of political centralization and fragmentation. Political centralization in China led to lower taxation and hence faster population growth during peacetime than in Europe. But it also meant that China was relatively fragile in the event of an external invasion. Our results are consistent with historical evidence of warfare, capital city location, tax levels, and population growth in both China and Europe.

Unified China And Divided Europe

Since Montesquieu, scholars have attributed Europe’s success to its political fragmentation (Montesquieu, 1989; Jones, 2003; Mokyr, 1990; Diamond, 1997). Nevertheless, throughout most of history, the most economically developed region of the world was China, which was often a unified empire. This contrast poses a puzzle that has important implications for our understanding of the origins of modern economic growth: Why was Europe perennially fragmented after the collapse of Rome, whereas political centralization was an equilibrium for most of Chinese history? Can this fundamental difference in political institutions account for important disparities in Chinese and European growth patterns?

This paper proposes a unified framework to (a) provide an explanation for the different political equilibria in China and Europe; (b) explore the economic consequences of political centralization and fragmentation. Our model predicts when and where empires are viable based on the nature and intensity of the external threats that they face. It also highlights the different implications that political centralization and fragmentation would have on the locations of capital cities, levels of taxation, and population growth.

Our model focuses on the role of geography in determining China’s recurring unification and Europe’s enduring fragmentation. Historically, China faced a severe, unidirectional threat from the Eurasian steppe.1 Europe confronted several smaller threats from Scandinavia, Central Asia, the Middle East, and North Africa. We show that if multitasking is inefficient, empires will not be viable in Europe and political fragmentation will be the norm. On the other hand, empires were more likely to emerge and survive in China because the nomadic threat threatened the survival of small states more than larger ones. The different equilibria have important economic consequences: political centralization allowed China to avoid wasteful interstate competition and thereby enjoy faster economic and population growth during peacetime. However, the presence of multiple states to protect different parts of the continent meant that Europe was relatively more robust to both known threats and unexpected negative shocks.

To test the mechanisms identified in our model, we use time series analysis to show that an increase in the frequency of nomadic attacks on China is associated with a decrease in the number of regimes in historical China. Our estimates suggest that each additional nomadic attack per decade increased the probability of political unification in China by about 6.0% in the long run. We go on to use the model to explain several notable features of Chinese and European history such as the location choice of imperial capitals, army size, and different levels of taxation at either end of Eurasia. Finally we provide evidence suggesting that political centralization led to greater volatility of Chinese population growth and discuss the likely implications of this prediction for economic growth.

This paper is related to a range of literatures. Our theoretical framework builds on the research on the size of nations originated by Friedman (1977) and Alesina and Spolaore (1997, 2003). In particular, our emphasis on the importance of external threats is related to the insights of Alesina and Spolaore (2005) who study the role of war in shaping political boundaries. In examining the causes of political fragmentation and centralization in China and Europe, we build on earlier work that points to the role of geography such as Diamond (1997) and on many historians who stress how the threat of nomadic invasion from the steppe shaped Chinese history (Lattimore, 1940; Grousset, 1970; Huang, 1988; Barfield, 1989; Gat, 2006).

China And Europe

China And Europe

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