The European origins of economic development

Abstract

Although a large literature argues that European settlement outside of Europe during colonization had an enduring effect on economic development, researchers have been unable to assess these predictions directly because of an absence of data on colonial European settlement. We construct a new database on the European share of the population during colonization and examine its association with economic development today. We find a strong, positive relation between current income per capita and colonial European settlement that is robust to controlling for the current proportion of the population of European descent, as well as many other country characteristics. The results suggest that any adverse effects of extractive institutions associated with small European settlements were, even at low levels of colonial European settlement, more than offset by other things that Europeans brought, such as human capital and technology.

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Notes

  1. 1.

    An extensive and growing body of research explores the historical determinants of economic development, which has been insightfully reviewed by Spolaore and Wacziarg (2013). For example, Michalopoulos and Papaioannou (2013) show that pre-colonial political institutions had enduring effects on regional economic development, while Michalopoulos and Papaioannou (2014) show that variation between African ethnic groups is more important than variations between nations in Africa in explaining comparative economic development, advertising the broader notion that different peoples carry growth-shaping features with them across borders. Furthermore, as suggested by the work of Bisin and Verdier (2000), Fernandez and Fogli (2009), and Tabellini (2008), culture also extend beyond national borders with prominent effects on economic development. And, other scholars address the deep historical roots of modern-day levels of social capital, civic capital, or democracy, including Haber (2014), Persson and Tabellini (2010), and Tabellini (2010).

  2. 2.

    When we have several observations near our “ideal” date for measuring colonial European settlement, we take the average. The online dataset provides the date of each observation.

  3. 3.

    Although there could also be a mechanical negative relation between indigenous Population density 1500 and Euro share because the denominator of Euro share is the sum of the indigenous and settler populations, we normalize European settlers by total colonial population because the political institutions and human capital views frame their predictions about the enduring effects of the colonial period on economic development in terms of the proportion of Europeans in the colonial population. The indigenous population could potentially attract European settlers to the extent that the indigenous peoples represent a readily available labor supply to be exploited by the Europeans. Thus, the net effect of the indigenous population on European settlement is an empirical question. Our result of Euro share responding negatively to log indigenous population density is consistent with some positive response of absolute numbers of European settlement to indigenous population as long as the elasticity of that response is less than one.

  4. 4.

    Taken from Hibbs and Olsson (originally 2004, later expanded to a larger sample), Biogeography equals the first principal component of (a) the number of annual perennial wild grasses known to exist in the region in prehistoric times with mean kernel weight of greater than ten milligrams and (b) the number of domesticable large mammals known to exist in the region in prehistoric times with a mean weight of more than 45 kilos. Ashraf and Galor 2011 found another version of this measure to be a good predictor of the timing of transition to agriculture and through that channel a good predictor of 1500 AD population density.

  5. 5.

    The Malaria ecology index is from Kiszewski et al. (2004) and measures the biological characteristics of mosquitoes that influence malaria transmission, such as the proportion of blood meals taken from human hosts, daily survival of the mosquito, and duration of the transmission season and of extrinsic incubation.

  6. 6.

    Ashraf and Galor (2011) find that latitude had the opposite effect on areas that had dense populations before 1500—there was less settlement in temperate regions and more in tropical regions.

  7. 7.

    These results are robust to controlling for several other potential influences on Euro share. For example, the results hold when including Soil suitability and Distance to waterways from Ashraf and Galor (2011, 2013). Furthermore, the results hold when including continent fixed effects. Furthermore, we find that each dummy variable for Oceania and the Americas enters positively and significantly in a manner that is consistent with the results on Indigenous mortality in Table 2.

  8. 8.

    To assess this interpretation further, we included linear and quadratic expressions for Euro share. We find that the linear term enters positively and significantly, while the quadratic term enters negatively and significantly. Canada and the United States are beyond the apex of the curve, which is very flat in this region.

  9. 9.

    Ashraf and Galor (2011, 2013) likewise say “a single continent dummy is used to represent the Americas, which is natural given the historical period examined.”

  10. 10.

    These results are robust to several additional checks that will be discussed more below. First, although the sample size drops still further, the results on Euro share hold when adding key variables from Ashraf and Galor (2013), such as Soil suitability or Distance to waterways, to the Table 5 regressions. Second, the results are also robust to including a dummy variable for whether the country is a former colony, i.e., Ex-colony as defined in the Online Data Appendix and constructed by AJR (2001). All robustness checks described throughout the paper are available from the authors on request.

  11. 11.

    As discussed below, these results are robust to adding Soil suitability or Distance to waterways from Ashraf and Galor (2013).

  12. 12.

    Chanda et al. (2014) also explain the Reversal of Fortune as due to the movement of Europeans, but they use Euro 2000 P-W—the proportion of Europeans in the population in 2000, which we discuss and use above. Our story is similar to theirs except that we pinpoint the importance of the proportion of Europeans during the colonial period in accounting for the reversal.

  13. 13.

    Note that the sample will include only observations with positive Euro Share for these periods. A “dog did not bark” method might be acceptable for the entire historical period to equate lack of mention of colonial settlement with zero colonial settlement. But this method is more problematic with finer breakdowns of historical sub-periods.

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Correspondence to William Easterly.

Additional information

Steven Pennings and Diego Anzoategui provided superb research assistance in the final stages of this paper. The data collection project also lasted across many generations of RAs and we have received excellent research assistance and heroic data collection efforts from Alejandro Corvalan, Tomislav Ladika, Alex Levkov, Julia Schwenkenberg, Tobias Pfutze, and Liz Potamites. We also received very helpful comments from the editor Oded Galor, three anonymous referees, Andrei Shleifer, from our discussant Enrico Spolaore and participants in the UCLA Long Term Persistence Conference in May 2012 including Romain Wacziarg and David Weil, and seminar participants at Brown University, Harvard University, Johns Hopkins University, University of California, Berkeley, and Yale University.

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Appendix

Appendix

Table 12 Variable definitions

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Easterly, W., Levine, R. The European origins of economic development. J Econ Growth 21, 225–257 (2016). https://doi.org/10.1007/s10887-016-9130-y

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Keywords

  • Institutions
  • Human capital
  • Political economy
  • Natural resources

JEL Classification Codes

  • 043
  • 01
  • P48
  • N5