Economic growth and economic development 203

Introduction to Modern Economic Growth

Urbanization in excolonies with low and high urbanization in 1500
(averages weighted within each group by population in 1500)
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low urbanization in 1500 excolonies

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high urbanization in 1500 excolonies

Figure 4.8. The Timing of the Reversal of Fortune: Evolution of
average urbanization between initially-high and initially-low urbanization former colonies.
ways. Nevertheless, the culture hypothesis does not provide a natural explanation
for the reversal, and has nothing to say on the timing of the reversal. Moreover, we
will discuss below how econometric models that control for the effect of institutions
on income do not find any evidence of an effect of religion or culture on prosperity.
The importance of luck is also limited. The different institutions imposed by the
Europeans were not random. They were instead very much related to the conditions
they encountered in the colonies. In other words, the types of institutions that were
imposed and developed in the former colonies were endogenous outcomes, outcomes
of equilibria that we need to study.
4.4.3. The Reversal and the Institutions Hypothesis. Is the Reversal of
Fortune consistent with a dominant role for economic institutions in comparative
development? The answer is yes. In fact, once we recognize the variation in economic
institutions created by colonization, we see that the Reversal of Fortune is exactly
what the institutions hypothesis predicts.

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