State capacity and great divergence, the case of Qing China (1644-1911)

This article posits that the political institution of imperial China - its unitary and centralized ruling structure - is an essential determinant to China's long-run economic trajectory and its early modern divergence from Western Europe. Drawing on institutional economics, I demonstrate that monopoly rule, a long time-horizon, and the large size of the empire could give rise to a path of low-taxation and dynastic stability in imperial China. But fundamental incentive misalignment and information asymmetry problems embedded within its centralized and hierarchical political structure also constrained the development of the fiscal and financial capacity of the Chinese state. This paper develops several sets of unique data series on warfare, central government revenue, and governmental savings (in the form of silver reserves) for seventeenth-nineteenth century Qing China, matched with an historical narrative to illustrate the problem of incentives and information as the origin of China's economic divergence from Western Europe.