Economic growth and economic development 198

Introduction to Modern Economic Growth
constant, Europeans initiated very significant changes in the economic institutions
of different societies.
The impact of European colonialism on economic institutions is perhaps most
dramatically conveyed by a single fact–historical evidence shows that there has been
a remarkable Reversal of Fortune in economic prosperity within former European
colonies. Societies like the Mughals in India, and the Aztecs and the Incas in the
Americas were among the richest civilizations in 1500, yet the nation-states that now
coincide with the boundaries of these empires are among the poorer nations of today.
In contrast, countries occupying the territories of the less-developed civilizations of
North America, New Zealand and Australia are now much richer than those in the
lands of the Mughals, Aztecs and Incas.
.
USA
CAN

Log GDP per capita, PPP, in 1995

10

BRB
MUS

9

GAB MYS
ZAF
PAN BWA
CRI

KNA

LCA
NAM
GRD
FJI
GTM

8
LKA

SWZ IDN
GUY
AGO
ZWE

BLZ
VCT

TZA

SGP

CHLBHS
ARG
VEN URY

PER
DMA

BOL

HND

CMR
GIN
CIV
SEN
COM PAK
SDN GHA
VNM LSOIND
GMB
TGO
CAF
HTI
BEN
LAO
KEN
UGA
NPL
BGD TCD MDG
ZAR
BFA
NGAZMB
NER
ERI
BDI
MLI
RWA
MWI
MOZ

7

ECUTUN
DZA
DOM

PRY
JAM
PHL
SURMAR
CPV
EGY
SLV

MEX
COL
TTO
BRA

HKG
AUS
NZL

NIC
MRT

COG

SLE

6
0

50
Urbanization in 1995

100

Figure 4.4. Urbanization and Income today.
The Reversal of Fortune is not confined to such comparisons. To document the
reversal more broadly, we need a proxy for prosperity 500 years ago. Fortunately,
urbanization rates and population density can serve the role of such proxies. Only
societies with a certain level of productivity in agriculture and a relatively developed system of transport and commerce can sustain large urban centers and a dense
184