Tuesday, 19 June 2012

The european origins of economic development

There is a new NBER Working Paper - No. 18162 - on this topic by William Easterly and Ross Levine. The abstract reads:
A large literature suggests that European settlement outside of Europe shaped institutional, educational, technological, cultural, and economic outcomes. This literature has had a serious gap: no direct measure of colonial European settlement. In this paper, we (1) construct a new database on the European share of the population during the early stages of colonization and (2) examine its impact on the level of economic development today. We find a remarkably strong impact of colonial European settlement on development. According to one illustrative exercise, 47 percent of average global development levels today are attributable to Europeans. One of our most surprising findings is the positive effect of even a small minority European population during the colonial period on per capita income today, contradicting traditional and recent views. There is some evidence for an institutional channel, but our findings are most consistent with human capital playing a central role in the way that colonial European settlement affects development today.
The results of the study are consistent with the view that the proportion of Europeans during the early stages of colonisation exerted an enduring, positive impact on economic development. These findings hold when (1) restricting the sample to non-settler colonies, (2) conditioning on the current proportion of the population of European descent, and (3) using instrumental variables to extract the exogenous component of Euro share.

This would be an interesting idea to explore in more detail with regard to New Zealand, especially in terms of the human capital that European may have bought with them.

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