Economic growth and economic development 214

Introduction to Modern Economic Growth

Former Colonies, Percent European Descent in 1975 <5%

Log GDP per capita, PPP, 1995

10

9

SGP
HKG

GAB
MYS

BWA
NAM

DZA
SWZ

8

PHL

IDN

TUN

MAR

EGY

GUY
ZWE
LSO

7

AGO

LKA

CMR
GIN
CIV
COG
MRTGHA
SEN
GMB
TGO VNM
CAF
HTI
LAO KEN BEN
UGA
ZAR
BFA
MDG
TCD
ZMB

NGA
NER
ERI
MLI
MWI MOZ
TZA

SDN

PAK
IND

NPL

BGD
BDI
RWA

SLE
ETH

6
-2

0

2
Log Population Density in 1500

4

6

Figure 4.14. The Reversal of Fortune among former European
colonies with two current European inhabitants.

“contracting institutions” from the influence of “property rights institutions”. One
of the important roles of institutions is to facilitate contracting between lenders and
borrowers or between different firms, to facilitate the functioning of markets and
the allocation of resources. Such contracting is only possible if laws, courts and
regulations uphold contracts in the appropriate way. Let us refer to institutional
arrangements of this sort that support private contracts as contracting institutions.
The other cluster of institutions emphasized above relates to those constraining government and elite expropriation. Let us refer to these as property rights institutions.
Although in many situations contracting institutions and property right institutions
will be intimately linked, they are nonetheless conceptually different. While contracting institutions regulate “horizontal” relationships in society between regular
citizens, property rights institutions are about the protection of citizens against the
power of elites, politicians and privileged groups. These two sets of institutions are
potentially distinct and can thus have distinct effects.
200