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Introduction to Modern Economic Growth
is more difficult for lenders to collect on their loans, interest rates increase, banks
that can monitor effectively play a more important role, or reputation-based credit
relationships may emerge. In contrast, property rights institutions relate to the relationship between the state and citizens. When there are no checks on the state,
on politicians, and on elites, private citizens do not have the security of property
rights necessary for investment.
Nevertheless, interpreting the evidence in Acemoglu and Johnson (2005) one
should also bear in mind that the sources of variation in income per capita and
investment rates identifying the different effects of contracting and property rights
institutions relate to very large differences discussed in Chapter 1. It is possible
that contracting institutions have relatively small affects, so that they are hard to
detect when we look at countries with thirty-fold differences in income per capita.
Therefore, this evidence should be interpreted as suggesting that contracting institutions are less important in generating the large differences in economic development
than the property rights institutions, not necessarily as suggesting that contracting
institutions do not matter for economic outcomes.

4.6. Disease and Development
The evidence presented above already militates against a major role of geographic factors in economic development. One version of the geography hypothesis
deserves further analysis, however. A variety of evidence suggests that unhealthy
individuals are less productive and often less successful in acquiring human capital.
Could the differences in the disease environments across countries have an important effect on economic development? Could they be a major factor in explaining
the very large income differences across countries? A recent paper by David Weil
(2006), for example, argues that the framework used in the previous chapter, with
physical capital, human capital and technology, should be augmented by including
health capital. In other words, we may want to think over production function of
the form F (K, H, Z, A), where H denotes efficiency units of labor (human capital
as conventionally measured), while Z is “health capital”. Weil suggests a methodology for measuring the contribution of health capital to productivity from micro
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