Economic growth and economic development 200

Introduction to Modern Economic Growth

.
USA

10

CAN
AUS

SGP
HKG

Log GDP per capita, PPP, in 1995

NZL

CHL

9

ARG
VEN
URY
MYS
COL

BRA

BLZ
GTM

DOM
PRY

8

MEX
PAN
CRI

JAM
PHL

ECU
PER

TUN
DZA

IDN

MAR
SLV

GUY

BOL

EGY

LKAHND
NIC
VNM
HTI

PAK
IND

LAO

7

BGD

0

5

10
Urbanization in 1500

15

20

Figure 4.5. Reversal of Fortune: urbanization in 1500 versus income
per capita in 1995 among the former European colonies.
among the former European colonies reflects something unusual, something related
to the intervention that these countries experienced. The major intervention, of
course, was related to the change in institutions. As discussed above, not only did

the Europeans impose a different order in almost all countries they conquered, there
were also tremendous differences between the types of institutions they imposed on
in the different colonies.4 These institutional differences among the former colonies
are likely at the root of the reversal in economic fortunes.
To bolster this case, let us look at the timing and the nature of the reversal a
little more closely. When did the reversal occur? One possibility is that it arose
shortly after the conquest of societies by Europeans but Figure 4.8 shows that the
previously-poor colonies surpassed the former highly-urbanized colonies starting in
4In some instances, including those in Central America and India, the colonial institutions were
built on the pre-colonial institutions. In these cases, the issue becomes one of whether Europeans
maintained and further developed existing hierarchical institutions, such as those in the Aztec,
the Inca or the Mughal Empires, or whether they introduced or imposed political and economic
institutions encouraging broad-based participation and investment.

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