China and India dominated merely based on the size of their populations, and economic production was largely driven by the need to produce enough food for the masses to survive and for the small elite to preserve their higher standards of living.

_The Industrial Revolution and the Great Divergence_ All of this changed with the industrial revolution. Scientific progress began to be applied to the means of production as machines were developed that both increased productivity in firms, but also dramatically reduced transportation costs. This created the possibility for the countries that developed those technologies, or those that adapted the technologies first, to grow much faster than less technologically advanced countries.

The world growth rates achieved post-1820 also stand out clearly against the growth rates from the previous three centuries of the Renaissance, Reformation and Enlightenment, respectively. Whereas per-capita GDP growth worldwide was negligible in 1500-1820, it was about one-and-a-half percent per annum following 1820.

There appear to be four interconnected sources of this growth (Fardoust, 2006):

- The Industrial Revolution and improved transportation and communication technologies;

- Trade liberalization and the intellectual doctrine of trade, as articulated by the likes of Adam Smith and David Ricardo;

- The peacefulness and stability (relative to earlier times) in Europe, where the likes of Metternich, Bismarck and Castlereagh maintained the Concert of Europe and Britain assured a balance of power in its _Pax Britannica_ ; and

- An increase in  ̳equity‘ in European institutions beginning in the late seventeenth century and continuing through the early twentieth century.

In the case of Britain, the Industrial Revolution generally refers to the period ―that witnessed the application of mechanically powered machinery in the textile industries, the introduction of James Watt‘s steam engine, and the ̳triumph‘ of the factory system of production‖ (Cameron, 1997, page 166). It was the outcome of the idea born during the Middle Ages and developed thereafter that science should be applied to industry and the practical affairs of humankind. As Azariadis and Stachurski (2005) point out, ―While the scientific achievements of the ancient Mediterranean civilizations and China were remarkable, in general there was little attempt to apply science to the economic problems of the peasants. Scientists and practical people had only limited interaction.‖ Lin (1995) argues that the transition from innovation based on the experiences of artisan/farmers in the pre-industrial revolution period to innovation based on controlled experiments guided by science after the industrial revolution was the key factor. Societal incentives in pre-modern China did not favor the move toward the human capital accumulation needed for the new system of innovation.

The result of this process was that (at least prior to the year 2000) the global economy was dominated by the few industrialized economies that existed in the world, and most of these few economies had become industrialized either as leaders or earlier followers of the nineteenth century industrial revolution. Historical data (Figure 3) dramatically reveal the divergent pattern of growth across country groupings. In the late nineteenth century, the Western European countries and their colonial ―offshoots‖ began to experience an historic take-off in incomes per 5