Reversal of Fortune: Geography and Institutions in the Making of the Modern World Income Distribution

83 Pages Posted: 16 Nov 2001  

Daron Acemoglu

Massachusetts Institute of Technology (MIT) - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Simon Johnson

Massachusetts Institute of Technology (MIT) - Entrepreneurship Center; National Bureau of Economic Research (NBER)

James A. Robinson

Harvard University - Department of Government; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: August 2001

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 is inconsistent with a view that links economic development to geographic factors. According to the geography view, societies that were relatively rich in 1500 should also be relatively rich today. In contrast, the reversal is consistent with the role of institutions in economic development. The expansion of European overseas empires starting in the 15th century led to a major change in the institutions of the societies they colonized. In fact, the European intervention appears to have created an "institutional reversal" among these societies, in the sense 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 19th century, and resulted from societies with good institutions taking advantage of industrialization opportunities.

Keywords: geography, institutions, property rights, divergence, industrialization, urbanization, population.

JEL Classification: F02, N10, O50, O14, P50

Suggested Citation

Acemoglu, Daron and Johnson, Simon and Robinson, James A., Reversal of Fortune: Geography and Institutions in the Making of the Modern World Income Distribution (August 2001). MIT Department of Economics Working Paper No. 01-38. Available at SSRN: https://ssrn.com/abstract=290824 or http://dx.doi.org/10.2139/ssrn.290824

Daron Acemoglu (Contact Author)

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Simon Johnson

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James A. Robinson

Harvard University - Department of Government ( email )

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Centre for Economic Policy Research (CEPR) ( email )

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