Commercial Revolution in Medieval China

We examine the origins of the Commercial Revolution in Song dynasty China – the world’s first such revolution. By using a boundary created by an internal rebellion in the middle of the Tang dynasty, we find that, through the channels of migration and tax reform, counties that were politically stable and allowed a freer allocation of labor exhibited: 1) distinctly higher per capita commercial taxes, and 2) a larger number of market towns two centuries later. Further evidence suggests that in areas that remained effectively governed in the Tang dynasty after the rebellion these channels led to robust growth in agricultural productivity and improvements to river networks, paving the way for “Smithian growth”.