The Grand Transition

Persistent income growth in the world economy since the Industrial Revolution appears to have coincided with a large number of transitions of economic, social, political, and cultural variables. Examples include the economic transition from agriculture to services, the social transition from a rural to an urban way of life, and the political transition from authoritarian regimes to democracy. Other prominent examples include the demographic transition, the environmental transition, and the transition of inequality. As a result, rich countries differ in almost every aspect of development from poor countries, not only in terms of the average income per person.

 

Economic, political, and cultural transitions have not happened at all places with the same speed and at the same level of income, so it is obvious that the observed transitions can only provide rough approximations of complex social interactions. But understanding the main direction of causality between long-run income growth and its accompanying transitions appears to be a crucial precondition for consistent policy making.

 

For instance, rich countries are on average less corrupt and have a higher degree of democracy as poor countries, so the question arises whether a high level of corruption and a low level of democracy cause a low level of income, or whether it could be the other way round as suggested by the modernization hypothesis, which has been established in the literature for long. This hypothesis has come under attack in more recent studies that deny a causal link form the level of income to political or cultural variables. However, an intensive debate among economists about these questions is just beginning, and it is probably fair to say that many critical theoretical and empirical issues are far from being settled, despite a literature that can be traced back to Marx, Freud, Weber, and Kuznets, among others.

 

This project attempts to derive a common analytical framework that can be used to study what may be called the Grand Transition. The Grand Transition hypothesis explains the links between the level of income and the various transitions that together constitute the process of modern development, which can be observed in all fields of society on a global scale. In its simplest form, an analytical framework that combines basic elements from growth theory and trade theory can provide new empirical insights about some of the transitions that have occurred in the developed countries over the last 200 years. Further empirical studies will reveal whether it is indeed justified to speak of a Grand Transition, which would imply that countries with so far lower average income levels will go through the same economic, social, political, and cultural transitions as today's club of rich countries.