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Why are some regions persistently wealthier than others? That question has driven global economic history since the mid-twentieth century, but the answers have shifted dramatically. Early frameworks blamed the structure of the world economy itself; later ones turned to domestic institutions; and the most recent debates have reopened the question of timing and contingency. The result is a field animated by live disagreements about causation, scale, and evidence.
In the 1950s and 1960s, the dominant modernization theory assumed that all economies followed a single path from tradition to modernity. Poor countries were simply at an earlier stage. A group of Latin American economists, led by Raúl Prebisch, challenged that view head-on. In a landmark 1949 report, Prebisch argued that the terms of trade between primary-commodity exporters (the periphery) and industrial manufacturers (the core) tended to deteriorate over time. International trade, far from being a rising tide that lifted all boats, systematically transferred wealth from poor regions to rich ones. This became the core of Dependency Theory, which held that underdevelopment was not a stage but a condition actively produced by the structure of global capitalism.
Dependency Theory shifted the unit of analysis from the nation-state to the global system. It insisted that the economic fate of Latin America, Africa, and Asia could not be understood without analyzing their subordinate position in a hierarchy created by European colonialism and maintained by trade, investment, and political pressure. The framework was explicitly political: it called for import-substitution industrialization and, in more radical versions, for breaking ties with the core altogether.
World-Systems Analysis, developed by Immanuel Wallerstein in the 1970s, extended Dependency Theory into a full-scale historical sociology. Where Dependency Theory focused on contemporary Latin America, World-Systems Analysis traced the origins of the core-periphery structure back to the long sixteenth century, when a European-centered world-economy emerged. Wallerstein divided the globe into core, semi-periphery, and periphery, arguing that the system's logic—unequal exchange, cyclical crises, and hegemonic competition—had driven global development for five centuries. The two frameworks shared a deep skepticism about national development strategies and a conviction that the world system, not domestic policy, was the primary causal force. They coexisted as complementary structural critiques, though World-Systems Analysis offered a more elaborate historical machinery and a longer time horizon.
Just as Dependency Theory and World-Systems Analysis were gaining influence, a very different explanation for global inequality emerged from within economics. In 1973, Douglass North and Robert Paul Thomas published The Rise of the Western World, which argued that the key to Europe's economic ascent was the gradual development of institutions that protected property rights, enforced contracts, and lowered transaction costs. New Institutional Economic History (NIEH) shifted the causal focus from the global system to domestic institutional arrangements. For North, the difference between rich and poor countries was not exploitation by the core but the presence or absence of efficient institutions.
NIEH directly competed with Dependency Theory on the same terrain: persistent global inequality. Where Dependency Theory saw a structure that trapped the periphery, NIEH saw a set of domestic choices—or historical accidents—that had produced divergent institutional paths. England and the Netherlands succeeded because their institutions rewarded productive activity; Spain and Portugal stagnated because absolutist monarchies and guild monopolies raised transaction costs. The implication was clear: poor countries could develop by reforming their institutions, not by withdrawing from the world economy.
This was a narrowing of the analytical lens. NIEH deliberately set aside the systemic, relational logic of Dependency Theory and World-Systems Analysis in favor of a comparative institutional approach that treated each country's history as largely independent. It also brought a new methodological style: rigorous, often quantitative, and grounded in neoclassical economics. For the next two decades, NIEH became the dominant framework in global economic history, especially in English-language scholarship, while Dependency Theory and World-Systems Analysis retreated to the margins of the discipline.
By the late 1990s, a new generation of historians began to question the institutionalist consensus. The California School—a loose group of scholars including Kenneth Pomeranz, R. Bin Wong, and Jack Goldstone—argued that NIEH's focus on European institutions had produced a teleological story in which Europe's rise was inevitable. Instead, they insisted on rigorous, symmetrical comparisons between Europe and other parts of the world, especially China. Their research showed that the most advanced regions of Europe and Asia—the Yangzi Delta and England, for example—were remarkably similar in living standards, life expectancy, and market development as late as 1750. The implication was that Europe's subsequent industrialization was not the natural outcome of superior institutions but a contingent, late-breaking event.
The California School was not itself a single theory but a methodological intervention: it demanded that global historians treat all regions as comparable cases rather than assuming European exceptionalism. This approach provided the infrastructure for the Great Divergence Debate, which crystallized around Kenneth Pomeranz's 2000 book The Great Divergence: China, Europe, and the Making of the Modern World Economy. Pomeranz argued that the critical divergence between Europe and Asia occurred only after 1800, driven by two contingent factors: coal deposits located near industrial centers in Britain, and access to New World resources that relieved Europe's ecological constraints. Neither factor, he claimed, was the result of superior institutions.
The Great Divergence Debate directly challenged NIEH's causal narrative. Where North saw deep institutional roots stretching back centuries, Pomeranz saw a late, conjunctural break driven by geography and colonialism. The debate also revived themes from Dependency Theory and World-Systems Analysis—especially the role of colonial extraction—but without adopting their systemic determinism. The California School and the Great Divergence Debate thus transformed the field by reopening the question of timing and by insisting that any explanation of global inequality must account for the late and contingent nature of Europe's rise.
Today, global economic history is a field of live debate rather than settled consensus. The leading frameworks—NIEH and the Great Divergence Debate—agree on one fundamental point: the explanation for global inequality must be historical and comparative. Both reject the older modernization theory's assumption of a single developmental path. But they disagree sharply on causation. NIEH continues to emphasize deep institutional structures, often tracing property rights and legal systems back to colonial or pre-colonial origins. The Great Divergence Debate, by contrast, stresses late, contingent factors—coal, colonies, and conjuncture—and warns against reading history backward from Europe's industrial success.
Dependency Theory and World-Systems Analysis are no longer at the center of the field, but their legacy persists in two ways. First, they established the foundational premise that global inequality is a relational phenomenon, not a collection of separate national stories. Second, the Great Divergence Debate has revived interest in colonial extraction and global power asymmetries, themes that structural critiques had kept alive when institutionalism dominated. World-Systems Analysis continues to be used by sociologists and some historians for long-run studies of hegemonic cycles, while Dependency Theory remains influential in development studies and Latin American historiography.
The California School's methodological commitment to symmetrical comparison has become a standard practice, even among scholars who disagree with its conclusions. The field now expects global historians to be genuinely global in their evidence base, not just in their claims. This has produced a richer, more pluralistic discipline, but also one in which the central question—why some regions grew rich while others did not—remains unresolved. The tension between institutional depth and contingent conjuncture is unlikely to disappear, and that is precisely what makes global economic history a field worth studying.