INDIAN POLICIES AND ECONOMY

Assignment 1

Evolution of the
Worlds Economy
Over the Past 2000
years
A timeline of 5 economies

Sabyasachi Sahu
January 11 2016

Roll No: 1501100

Introduction:
If we delve through the evolution of GDP through the years, starting from 1
AD, we find that India and China contributed to more than half of the worlds
GDP. This trend though changed in the 18th and 19th century, a fact attributed
to the Industrial Revolution in the European countries. The evolution of GDP
was succinctly summarized by Derek Thompson as: Everything to the left of
1800 is an approximation of population distribution around the world and
everything to the right of 1800 is a demonstration of productivity divergences
around the world.

1 1000 AD
In this period, India and China contributed to more than 50% of worlds GDP
because they had more than 50% of the worlds population. Besides, the
graph in this time frame portrays a good picture of the Malthusian Trap,
where the most important determinant of income was births and deaths
rather than supply and demand.

1000-1820 AD
In this period, we see France and UK, protagonists of the then Western
Civilization picking up in terms of production and income, thanks to the
advent of some moderate sophistication and the agrarian organization of the
economy. This led to the start of economic prosperity in Europe and was the
start of divergence between the economies of Western Europe and that of the
rest of the world. Also, in this period was the discovery of America and the
colonization of India, two watershed events that had contrasting effects on
the two economies. While Americas economy charted an upward course,
Indias economy took the path south, because of its colonization by the
British Empire.

The Effect of Industrial Revolution (1820-1913 AD)

Industrial Revolution was the transition of the European and American
civilizations from a predominantly agrarian production method to
manufacturing production method with the help of machines, chief among
which were Steel, chemicals and guns. This too, was a watershed event in the
history of the world, for these countries, armed with their sophistication and
the concept of an industry increased their levels of productivity drastically to
catch up with the GDP of the counties with a higher population. Its effect can
be determined by the fact that per capita income rose more than eightfold
and .population more than fivefold. Moreover, in these times life expectancy
also increased by a significant number.

1913-1945 AD
This period consists of three crucial events viz. World War I (1914-1919), The
Great Depression (1929) and World War II (1939-1945). We see that the
France and UK, protagonists of the Allied Forces, suffered a decrease in GDP

because of the loss to life and property during the war, which in turn is
debilitating for the economy. During this time, these countries moved from a
fixed exchange rate to a floating exchange rate, leading to significant
devaluation of the debt that they had incurred because of the wars. USA,
which was geographically isolated from the wars, should have higher growth
of GDP, but because of the Great Depression of 1929 which affected the US
economy the hardest. Irrespective, because of the wars which debilitated the
European economy, USA emerged as an economic superpower

1946-now
This period saw unprecedented investments in R&D which led to rise of new
technologies in all sectors, be it medicine or automobiles. It also gave rise to
the advent of the electronics and telecommunications industry, the IT
industry and unprecedented growth of financial markets. Because of a higher
standard of living compared to erstwhile generations, consumption also
increased and gave rise to more and more avenues of growth. Globalization
of trade, liberalization of economies, outsourcing of jobs and a heightened
manufacturing sector spurred Asian economies to new heights. It was
simultaneously followed by a fall in GDP of Western Europe after they lost
their colonies. USA drove the growth of the world with its superior technical
knowhow and innovation, besides helping developing economies through
International Monetary Fund and World Bank (USA funds majority of WB and
IMF corpus).
Besides, India on the back of its services led economy, China on the basis of
its manufacturing led economy and Japan, on the basis of its electronics
goods economy have also contributed significantly to the worlds GDP, a
trend which is likely to continue.

Conclusion:
Over the long run, economic prosperity is a very recent achievement for
humanity, more like achieved over the course of last couple of hundred years.
Though some regions are more productive than others, every region is doing
better than ever before much better.

Evolution of Economy over the years

70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%

India
China
United States
United Kingdom
France