Little Divergence: Evidence from Cotton Textiles inJapan andChina 1868–1930

This paper looks at the role of textile exports in J apan and C hina's economic development in the period of 1868–1930 as a major explanation for the “ L ittle D ivergence” between the two countries in the context of the “ G reat D ivergence” between E urope and A sia. Because of textiles' large weighting in proto‐industrialization gross domestic product ( GDP ), we postulate that C hina's initial 20‐year lag in textiles vis‐à‐vis J apan turns out to be fatal for its industry and that it eventually ordains totally different development patterns for the textile industry in the two countries, which ultimately led to different growth patterns for the overall economy. Although both countries saw rapid growth of textile exports, the nature of those exports and the entailed position of each country in the industry value chain of trade were quite different. We then use G ranger causality tests to show that in one case ( J apan) it is in support of the export‐led‐growth hypothesis ( ELG ) while in another ( C hina) it is not. Our study then also explains why J apan's industrial revolution took place much earlier than C hina's.