The First Great Divergence and the Evolution of Cross-Country Income Inequality during the Last Millennium: the Role of Institutions and Culture

Using a millennium of data for 12 countries in the East and in the West this paper tests the extent to which the three most influential hypotheses on growth and development can shed light on why some economies developed earlier than others and which factors were fundamental for the Great Divergence. These hypotheses are the contracting institutions, property right institutions, and culture. It is tested whether these theories influence growth through science and technology or human capital or channels that are independent of these two channels. It is found that culture, contracting institutions and property right institutions have all been relevant for growth and development. JEL classification: O1, P16