62nd Annual Meeting
October 11 - 13, 2002
"Private versus Public
Institutions"
abstracts
Reversal of Fortune (Plenary)
|
Daron Acemoglu, Simon Johnson, and James A. Robinson |
| Abstract: What explains the large differences we observe in prosperity between countries? In this book we focus on how two fundamental ideas, the "institutions hypothesis" and the "geography hypothesis" can explain this pattern. The institutions hypothesis suggests that it is the way a society is organized that determines its' prosperity. The geography hypothesis suggests that it is the geographic endowment of a country that is more significant. We compare and contrast these hypotheses and argue that only the institutions view can explain the historical development paths of the last 500 years. In particular we argue that 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 ninteenthth centuries, and resulted from societies with good institutions taking advantage of the opportunity to industrialize. |
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Prepared 06/27/02