Market Integration and Economic Development: A Long-Run Comparison

How much of China’s recent economic performance can be attributed to market-oriented reforms introduced in the last two decades? A long-run perspective may be important for understanding the process of economic development occurring today. This Paper compares the integration of rice markets in China today and 270 years ago. In the 18th century, transport technology was non-mechanized, but markets were close to being free markets. We distinguish local harvest and weather from aggregate sources of price variation in a historical sample and in a similarly constructed contemporary sample. Findings indicate the degree of market integration in the 1720s is a very good predictor of per capita income in the 1990s. Moreover, the current pattern of interregional income in China is strongly linked to persistent geographic factors that were already apparent several centuries ago, well before the enactment of modern reform programmes.