Cotton textiles and the great divergence: Lancashire, India and shifting comparative advantage, 1600-1850

"The shift of comparative advantage in cotton textiles from India to Britain was a key episode in the Great Divergence of living standards between Europe and Asia. We offer a new, quantitative perspective on this pivotal development, centred on the interactions between the two countries. The growth of cotton textile imports into Britain from India via the East India Company opened up new opportunities for import substitution as the new cloths, patterns and designs became increasingly fashionable. However, high silver wages in Britain as a result of high productivity in other tradable goods and services, meant that British producers of cotton textiles could not use labour-intensive Indian production methods. The growth in British labour productivity that resulted from the search for labour-saving technical progress meant that unit labour costs became lower than in India despite the much higher wages in Britain. However, the full effects of the change in comparative unit labour costs were delayed until after the Napoleonic Wars by a temporary rise in the price of raw cotton in Britain."