Bifurcation in economic growth between China and Europe: An explanation based on the evolution of division of labor

This paper constructs an economic growth theory in which economic growth is driven by knowledge accumulation and endogenously determined by the evolutionary dynamics of division of labor between scientific research and material production. Distinguished from the existing growth models based on representative individual´s intertemporal choice, this paper formulates economy as an evolutionary process to provide a new approach to modeling the interplay between economic growth and structural changes. The model simulates the dynamic process of the separation of scientific research from material production and investigates its impacts on the efficiency of knowledge creation and economic growth. It is shown that the difference in transaction costs and the degree of economies of specialization in material production between economies can result in distinct paths in growth and thus the bifurcation of civilization.