A surreal illustration symbolizing the Great Divergence in economic history.

The Great Divergence: Unraveling the Economic Mystery of Europe's Rise

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Samir D’Costa in Business & Economy December 2025 • 4 min read.

"How did Europe surge ahead economically, leaving China behind? A new model sheds light on the pivotal factors driving this historical shift."


History is filled with turning points, moments where the course of civilization veers in unexpected directions. One of the most significant of these is the "Great Divergence," the period beginning around the 19th century when Europe's economic trajectory dramatically separated from that of China. For centuries, these regions had exhibited comparable levels of development, but Europe's rise to global economic dominance begs the question: What happened?

The mystery of the Great Divergence has occupied historians and economists for generations. One compelling explanation comes from historian Kenneth Pomeranz, who argued that Europe's escape from land constraints – facilitated by access to resources from the New World and the adoption of coal – was the key to its economic ascent. While Pomeranz's thesis has sparked considerable debate, the precise mechanisms behind this divergence remain a subject of ongoing research.

Now, a new study offers fresh insights into the Great Divergence, presenting a formal economic model that captures the interplay of factors that drove Europe's remarkable growth. By examining the dynamics of agricultural production, technological innovation, and population changes, this model provides a quantitative framework for understanding one of history's most important economic transformations.

Unpacking the Pomeranzian Growth Model: How Land and Innovation Shaped Economic Destinies

A surreal illustration symbolizing the Great Divergence in economic history.

At the heart of this new research lies a sophisticated economic model that simulates the key elements of Pomeranz's hypothesis. The model divides the economy into two main sectors: agriculture and manufacturing. The agricultural sector produces essential goods using land, labor, and intermediate goods from manufacturing. The manufacturing sector, on the other hand, drives productivity growth through the learning-by-doing of full-time manufacturing workers.

One of the model's crucial assumptions is that households make deliberate decisions about family size, reflecting the changing economic conditions. In pre-industrial societies, where agricultural labor was paramount, larger families were often seen as an asset. However, as economies transitioned and manufacturing gained importance, the incentives shifted, leading to changes in fertility patterns.

To capture the nuances of the Great Divergence, the model incorporates three key factors:
  • Land Constraints: The model treats the relief of land constraints as a sudden increase in land supply, mirroring Europe's access to new resources.
  • Endogenous Fertility: Households actively choose how many children to have, influenced by income levels and the demands of childcare.
  • Intermediate Inputs: The manufacturing sector provides essential inputs to agriculture, boosting productivity and reducing the need for a large agricultural workforce.
By simulating these dynamics, the model offers a compelling narrative of how Europe broke free from the Malthusian trap – a state where population growth outstrips resource availability, leading to stagnation. A sudden increase in land supply, coupled with technological advancements in manufacturing, allowed Europe to produce more food with less labor. This surplus labor then fueled the growth of the manufacturing sector, creating a virtuous cycle of innovation and economic expansion.

Beyond the Model: Implications for Understanding Global Economic History

This new model not only provides a framework for understanding the Great Divergence but also sheds light on other important historical trends. For example, the model helps explain why China, despite having a higher agricultural productivity level in some regions, did not experience the same economic breakthrough as Europe. The model also offers insights into the impact of epidemics and wars on economic development, suggesting that while these events can have a temporary impact, they are unlikely to trigger sustained economic growth on their own.

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Everything You Need To Know

1

What is the 'Great Divergence' and why is it historically significant?

The 'Great Divergence' refers to the period starting around the 19th century when Europe's economic growth significantly surpassed that of China, despite the two regions having comparable development levels for centuries. This divergence is historically significant because it marks a major turning point in global economic history, leading to Europe's dominance and shaping the world as we know it. It highlights the complex interplay of factors that can drive economic transformation and the unequal distribution of wealth and power.

2

How does the new economic model explain the role of 'Land Constraints' in Europe's economic rise?

The new economic model emphasizes that Europe's escape from 'Land Constraints' was a key factor in its economic ascent. This was facilitated by access to resources from the New World and the adoption of coal. The model treats the relief of 'Land Constraints' as a sudden increase in land supply. This allowed Europe to produce more food with less labor, freeing up labor for the manufacturing sector, creating a cycle of innovation and economic expansion.

3

What are 'Endogenous Fertility' and 'Intermediate Inputs' and how do they contribute to the Great Divergence according to the model?

'Endogenous Fertility' refers to the model's assumption that households make deliberate choices about family size, influenced by economic conditions. As economies transitioned, the importance of manufacturing shifted incentives leading to changes in fertility patterns. 'Intermediate Inputs' are essential components that the manufacturing sector provides to agriculture, boosting productivity. These three factors combine to create a narrative of how Europe broke free from the Malthusian trap. A rise in land supply and technological advancements fueled the expansion of the manufacturing sector, driving innovation and economic growth.

4

In what ways does this new model differ from previous explanations of the Great Divergence?

This new model provides a quantitative framework for understanding the Great Divergence by simulating key factors. It builds upon previous theories, such as Kenneth Pomeranz's hypothesis, by offering a more detailed examination of the interplay between agricultural production, technological innovation, and population changes. Unlike earlier explanations, this model uses a formal, structured approach to show how factors like 'Land Constraints', 'Endogenous Fertility', and 'Intermediate Inputs' interact to drive economic divergence.

5

Besides the Great Divergence, what other historical trends can be understood by this economic model?

Besides providing insights into the Great Divergence, the model sheds light on other important historical trends. It can help explain why China, despite higher agricultural productivity in some regions, did not experience similar economic breakthroughs. Furthermore, the model offers insights into the impact of epidemics and wars on economic development, suggesting that while these events can have a temporary impact, they are unlikely to trigger sustained economic growth on their own. The model's versatility allows for a broader understanding of economic history, extending beyond the scope of the Great Divergence.

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