2002 ReversalofFortuneGeographyandIn

(Acemoglu et al., 2002) ⇒ Daron Acemoglu, Simon Johnson, and James A Robinson. (2002). “Reversal of Fortune: Geography and Institutions in the Making of the Modern World Income Distribution.” In: The Quarterly Journal of Economics, 117(4). doi:10.1162/003355302320935025

Subject Headings: long-run prosperity; economic prosperity measure

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Abstract

Among countries colonized by European powers during the past 500 years, those that were relatively rich in 1500 are now relatively poor. We document this reversal using data on urbanization patterns and population density, which, we argue, proxy for economic prosperity. This reversal weighs against a view that links economic development to geographic factors. Instead, we argue that the reversal reflects changes in the institutions resulting from European colonialism. The European intervention appears to have created an “institutional reversal” among these societies, meaning that Europeans were more likely to introduce institutions encouraging investment in regions that were previously poor. This institutional reversal accounts for the reversal in relative incomes. We provide further support for this view by documenting that the reversal in relative incomes took place during the late eighteenth and early nineteenth centuries, and resulted from societies with good institutions taking advantage of the opportunity to industrialize.

1 Introduction

This paper documents a reversal in relative i ncomes among the former European colonies. For example, the Mughals in India and the Aztecs and Incas in the Americas were among the richest civilizations in 1500, while the civilizations in North America, New Zealand and Australia were less developed. Today the United States, Canada, New Zealand and Australia are an order of magnitude richer tha n the countries now occupying the territories of the Mughal, Aztec and Inca Empires.

Our main measure of economic prosperity in 1,500 is urbanization. Bairoch [1988, Ch. 1] and de Vries [1976, p. 164] argue that only areas with high agricultural productivity and a developed transportation network can support large urban populations. In addition, we present evidence that both in the time-series and the cross-section there is a close association between urbanization and income per capita.^[1] As an additional proxy for prosperity we use population density, for which there are relatively more extensive data. Although the theoretical relationship between population density and prosperity is more complex, it seems clear that during preindustrial periods only relatively prosperous areas could support dense populations.

With either measure, there is a negative association between economic prosperity in 1500 and today. Figure I shows a negative relation ship between the percent of the population living in towns with more than 5,000 inhabitants in 1500 and income per capita today. Figure II shows the same negative relationship between log population density (number of inhabitants per square km) in 1500 and income per capita today. The relationships shown in Figures I and II are robust–they are unchanged when we control for continent dummies, the identity of the colonial power, religion, distance from the equator, temperature, humidity, resources, and whether the country is landloc ked, and when we exclude the “Neo-Europes” (the United States, Canada, New Zealand and Australia) from the sample.

This pattern is interesting, in part, because it provides an opportunity to distinguish between a number of competing theories of the determinants of long-run development. …

Footnotes

↑ By economic prosperity or income per capita in 1500, we do not refer to the economic or social conditions or the welfare of the masses, but to a measure of total production in the economy relative to the number of inhabitants. Although urbanization is likely to have been associated with relatively high output per capita, the majority of urban dwellers lived in poverty and died young because of poor sanitary conditions (see for example Bairoch [1988, Ch. 12]).
It is also important to note that the Reversal of Fortune refers to changes in relative incomes across different areas, and does not imply that the initial inhabitants of, for example, New Zealand or North America themselves became relatively rich. In fact, much of the native population of these areas did not survive European colonialism.

References

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	Author	volume	Date Value	title	type	journal	titleUrl	doi	note	year
2002 ReversalofFortuneGeographyandIn	Daron Acemoglu Simon Johnson James A Robinson			Reversal of Fortune: Geography and Institutions in the Making of the Modern World Income Distribution				10.1162/003355302320935025

[1] By economic prosperity or income per capita in 1500, we do not refer to the economic or social conditions or the welfare of the masses, but to a measure of total production in the economy relative to the number of inhabitants. Although urbanization is likely to have been associated with relatively high output per capita, the majority of urban dwellers lived in poverty and died young because of poor sanitary conditions (see for example Bairoch [1988, Ch. 12]).
It is also important to note that the Reversal of Fortune refers to changes in relative incomes across different areas, and does not imply that the initial inhabitants of, for example, New Zealand or North America themselves became relatively rich. In fact, much of the native population of these areas did not survive European colonialism.

[1]