Population, technology and fragmentation: The European miracle revisited

The effects of political fragmentation on long-run development seem to have changed over the course of human history. Technological leaders used to be empires, but the Industrial Revolution started in the fragmented Europe. This paper sets up a model to help us think about this puzzle. There are two sets of mechanisms at play: a standard scale effect, which benefits unified regions, since technology is a non-rivalrous good; and several competition effects, both negative (like wasteful armies) and positive (incentives to invest in new technologies). We apply the model to analyze the preindustrial divergence between China and Europe.