Economic growth and economic development 206

Average Protection Against Risk of Expropriation, 1985-95

Introduction to Modern Economic Growth
.
USA

10

CAN
AUS

NZL
SGP

IND

HKG
BRA

8

CHL

VEN
PRY

URY

MYS

IDN

BHS
TTO MEX
COL PNG
JAM
CRI

MAR
EGY

ECU

ARG

6

GUY
BOL

DOM
PAN
PER

DZA TUN
VNM
LKA PAK
MMR

PHL
HND
NIC

GTM
SLV

4

LBY

BGD

HTI

-5

0
Log Population Density in 1500

5

Figure 4.10. The Institutional Reversal: population density in 1500
and economic institutions today among the former European colonies.

The explanation for the reversal that emerges from the discussion so far is one
in which the economic institutions in various colonies were shaped by Europeans
to serve their own (economic) interests. Moreover, because conditions and endowments differed between colonies, Europeans consciously created different economic
institutions, which persisted and continue to shape economic performance. Why did
Europeans introduce better institutions in previously-poor and unsettled areas than
in previously-rich and densely-settled areas? Without going into details, a number
of obvious ideas that have emerged from the research in this area can be mentioned.
Europeans were more likely to introduce or maintain economic institutions facilitating the extraction of resources in areas where they would benefit from the
extraction of resources. This typically meant areas controlled by a small group of

Europeans, as well as areas offering resources to be extracted. These resources included gold and silver, valuable agricultural commodities such as sugar, but most
importantly, what is perhaps the most valuable commodity overall, human labor.
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