Social Institutions and Economic Growth: Why England Rather than China Became the First Modern Economy

This paper highlights the crucial impact of social institutions on the historical process leading to the modern economy. Social institutions that insure risk-takers and limit violent responses to economic changes in‡uence investment in generating and implementing individually-risky, growth–enhancing new knowledge. The model allows for the possibility that even when social institutions are designed by the elite, social and cultural norms impact their form and that institutional forms matter, particularly due to institutions’unforeseen consequences. An historical analysis and simulation of an endogenous growth model incorporating England’s and China’s premodern social institutions substantiate that distinct social institutions were among the factors rendering England, and not China, the …rst modern economy. Greif: Stanford University. Iyigun: University of Colorado. Sasson: Goldman Sachs. Corresponding author: [email protected]. This paper bene…tted from comments by Lee Alston, Andy Baker, David Brown, Karen Clay, Saumitra Jha, Pete Klenow, Joel Mokyr, and participants in seminars at Stanford, Berkeley, University of Colorado, Universidad Torcuato di Tella, and the 2011 IEA Meetings in Beijing. We gratefully acknowledge Max Floetotto and Weisi Xie’s superb research assistance. Avner Greif thanks the Canadian Institute for Advanced Research (CIFAR) for support.