The “Little Divergence” — England vs. Iberia

From a new paper by António Henriques and Nuno Palma:

Why did the countries which first benefited from access to the New World – Castile and Portugal – decline relative to their followers, especially England and the Netherlands? The dominant narrative is that worse initial institutions at the time of the opening of Atlantic trade explain Iberian divergence. In this paper, we build a new dataset which allows for a comparison of institutional quality over time. We consider the frequency and nature of parliamentary meetings, the frequency and intensity of extraordinary taxation and coin debasement, and real interest spreads for public debt. We find no evidence that the political institutions of Iberia were worse until at least the English Civil War.

From the paper:

Our argument that the mid seventeenth-century is when English political divergence truly began gains support from the fact that this is also when English GDP per capita started to grow persistently,structural change began, and fiscal capacity took off in comparative terms…The idea that Iberian political institutions at the start of the sixteenth century (or evenearlier) were more absolutist than those in England and the Netherlands does not standup to close historical scrutiny.

Note by the way that Portuguese coinage was stable 1500-1800 throughout, and the same cannot be said for England or the Dutch Republic.  For the time being, score at least one for the primacy of economics over the primacy of politics.