The European Origins of Economic Development

Abstract

Although a large literature argues that European settlement outside of Europe shaped institutional, educational, technological, cultural, and economic outcomes, researchers have been unable to directly assess these predictions because of an absence of data on colonial European settlement. In this paper, we construct a new database on the European share of the population during colonization and examine its association with the level of economic development today. We find: (1) a strong and uniformly positive relationship between colonial European settlement and development, (2) a stronger relationship between colonial European settlement and economic development today than between development today and the proportion of the population of European descent today; and (3) no evidence that the positive relationship between colonial European settlement and economic development diminishes or becomes negative at very low levels of colonial European settlement, contradicting a large literature that focuses on the enduring adverse effects of small European settlements creating extractive institutions. The most plausible explanation of our findings is that any adverse effect of extractive institutions associated with minority European settlement was more than offset by other things the European settlers brought with them, such as human capital and technology.

Keywords: Institutions, Human Capital, Political Economy, Natural Resources

JEL Classification: O43, O1, P48, N5