Title: The European Origins of Economic Development
Author: William Easterly and Ross Levine
Scope: 4 stars
Readability: 2.5 stars
My personal rating: 4.5 stars
See more on my book rating system.

Topic of Article

Easterly and Levine use statistical analysis to identify the impact of colonial European settlement on current levels of national development.

Key Take-aways

• The migration of Europeans to non-European colonies had an enormous positive impact on those regions current level of economic development (i.e. a higher percentage of European genes leads to a higher level of economic development).
• The positive effect is measurable even when Europeans made up only a small minority of the local population.
• All of this is true, even when many other factors are taken into account (legal systems, ethnic diversity, institutions and geography).

My Comments

This study, while very dry reading, is powerful confirmation of the importance of migration of people from complex societies to simpler societies. The migrants “bring their complexity with them”. It is still unknown how much of this is due to migrants bringing their genes, institutions, skills, technologies or culture, but all of these factors probably play at least some role.

Important Quotes from article

We find a remarkably strong impact of colonial European settlement on development. According to one illustrative exercise, 47 percent of average global development levels today are attributable to Europeans. One of our most surprising findings is the positive effect of even a small minority European population during the colonial period on per capita income today, contradicting traditional and recent views .

The proportion of colonial Europeans is strongly and positively associated with current levels of economic development after accounting for (i) British legal heritage, (ii) the percentage of years the country has been independent since 1776, (iii) the ethnic diversity of the current population, and (iv) current institutions.

Another important result is that the European share of the population during the early stages of colonization is more strongly associated with economic development today than the percentage of the population today that is of European descent. Europeans during the colonization era seem to matter more for economic development today than Europeans today.

Thus, the positive relationship between Europeans and economic development today is not just about the difference between settler and extractive colonies. We do not confirm the prediction that colonies with essentially no Europeans performed better than (or even as well as) those colonies with a small group of Europeans.

[In] the New World (Americas and Caribbean) and Oceania (the Pacific Islands, Australia, and New Zealand)… mortality rates of 90 percent of the indigenous population after European contact were not unusual.

History suggests that the key determinant of the indigenous mortality effects of European’s making contact with other populations during the colonization period is the region’s previous degree of isolation from Europe, not the extent of subsequent European settlement.

Three factors account for the bulk of cross-country variation in European settlement during the colonial period. First, the density of the indigenous population matters. In regions with a high concentration of non-Europeans who had already occupied the land and could supply forces of resistance, Europeans comprised a much smaller fraction of the colonial population than in other lands. Second, indigenous mortality matters. Where the indigenous population fell drastically because of European diseases, European settlers were more likely to settle. Third, many of the regressions also suggest positive relationship between Euro share and Latitude.

Where all three factors were favorable for European settlement, such as Australia, Canada, New Zealand, and the United States, the European share of the colonial population was very high. When only some of the three factors were favorable, there tended to be a minority share of European settlers.

The coefficient on Euro share falls drastically and becomes insignificant when conditioning on either Government quality or Education. These findings are consistent with—though by no means a definitive demonstration of—the views that the share of Europeans in the population during colonization shaped long-run economic development by affecting political institutions and human capital accumulation.

The estimated coefficients suggest that if Brazil had a Euro share of 0.084 rather than 0.074, then its average GDP per capita over the period from 1995 to 2005 would have been $9,798 instead of $7,942.

While an enormous body of research documents and emphasizes the exploitative behavior of minority white populations around the world, the regressions suggest that Europeans brought factors of production that boosted long-run economic development, especially among colonies with a only a few Europeans.

The proportion of Europeans during the colonization period is independently associated with economic development today, and the results are not driven by the proportion of Europeans today.

Using the 2000 population weights, the data and estimated coefficients indicate that 47% of the development outside of Europe is attributed to the share of European settlers during the early stages of colonization.

The results are consistent with the view that the proportion of Europeans during the early stages of colonization exerted an enduring, positive impact on economic development. These findings hold when (1) restricting the sample to non-settler colonies, (2) conditioning on the current proportion of the population of European descent, and (3) using instrumental variables to extract the exogenous component of Euro share.

The previous literature was correct to focus on colonial settlement by Europeans as one of the pivotal events in the history of economic development.