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Graduate Course in Economic Development & HistoryLecture 4

Economic History:Economic Development in Historical Perspectives II

December 15, 2009

Chiaki Moriguchichiaki@ier.hit-u.ac.jp

Institute of Economic ResearchHitotsubashi University

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Today’s Theme:Economic Development in Historical Perspectives II

1. Determinants of Long-run Economic Development (cont.)- Geography vs. Institutions (Acemoglu, Johnson & Robinson

2001),- Political Economy of Institutional Change (AJR 2005, 2006).

2. Long-run Trends in Health & Its Implications- Development in Historical Anthropometics,- Long-run Progress in Physiological Capital (Fogel 1994,

2003).

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World GDP per Capita from 1 to 2000 A.D.

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Why Europe? Why Not China or Islam?♦ What sets Europe apart from China and the Islam?Paul Kennedy (1987). Rise and Fall of the Great Powers.

– Lack of bureaucratic/ religious conservatism? No.– Absence of abusive rulers? No.– Political fragmentation & military pluralism that ensured innovations

through political competition.

♦ But did China really decline after 1500?Kenneth Pomeranz (2000). Great Divergence: China, Europe and the Making

of the Modern World Economy.– Proper unit of comparison is England vs. Yangzi Delta,– China continued to build ships and trade even after the Imperial Ban,– As late as in 1750, living standards & market integration similar in the

two regions (perhaps),– China hitting ecological constraints and launched on energy-saving,

labor-intensive path of technological innovations,– England, with the ecological windfall from the Discovery, kept on

energy-intensive, labor-saving path of innovations ( industrialrevolution).

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Why Is Not the Whole World Developed?The Impact of Colonization Revisited

♦ According to Diamond, the places colonized by European powers after1500 should be equally worse off.

♦ But there is large variation within ex-colonies with respect to their economicperformance in 2000:– Very high GDP per capita: HK, US, Canada, Australia– Medium to low GDP per capita: Latin America, South Africa, India– Extremely low GDP per capita: West Africa

♦ How do we explain these differences?– Does the colonizer matter? (Britain a “better” ruler than Spain?)– Must account for endogenous selection by colonizers.– Institutional transfers conditional on colony characteristics.

♦ Institutional Determinism– Recent studies by Daron Acemoglu, Simon Johnson, and James

Robinson.

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Colonial Origins of Economic Development

♦ Acemoglu, Johnson & Robinson (AER 2001) “Colonial Origins ofComparative Development: An Empirical Investigation.”

♦ What are the fundamental causes of large differences in income percapita across countries?– Difference in “institutions” such as secure property rights and non-

corrupting governments that encourage investments,entrepreunership, and well-functioning markets.

– In fact, in cross-country data, there are positive correlationsbetween GDP per capita and institutions.

– But it is difficult to estimate the effect of institutions on economicperformance due to reverse causality (rich countries can affordbetter institutions).

– We need a source of exogenous variation in institutions.

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Colonial Origins of Economic Development (cont.)

♦ “Colonization Strategies” as a Source of Exogenous Variations:– Exploitation strategy: extract & transfer resources from colony to

colonizer extractive institutions– Example: Congo (Belgium), Nigeria (Britain), Peru (Spain)– Forced labor, monopolies, weak property rights, abusive state.– Settlement strategy: create a “Neo-Europe” in a colony to migrate

(or send convicts) and settle more democratic institutions– Example: Australia, Canada, the U.S.,

♦ Colonization strategy was determined by the feasibility of settlements byEuropeans (= malaria & yellow fever):

• Britain gave up settling in Sierra Leone because 72% of Britishsettlers dies in the first year.

– We can use the mortality of early settlers as an instrument forcolonial institutions,

– Colonial institutions typically persisted even after independence, andthus are highly correlated with today’s institutions.

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Estimation Strategy

(1) Y1995 = a + b INST1995 + c X + error,

(2) INST1995 = f + g INST1900 + h X + error,

(3) INST1900 = l + m SETTLE1900 + n X + error,

(4) SETTLE1900 = p + q MORT1800 + r X + error.

Y: GDP per capita in 1995.

INST: (a) constraint on executive power, (b) democracy, (c)protection against expropriation, measured in 1900 and 1995.

SETTLE: Fraction of the population of European descent in 1900.

MORT: Mortality rate of European settlers in 1800.

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Data: 64 Countries Previously Colonized

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Correlations between INST in 1990 and MORT in 1800

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IV Regression Results

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Robustness Check (1): Colonial Origins, Laws, Religions

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Robustness Check (2): Geography & Disease Environments

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Geography vs. Institutions

♦ Geographical Determinism (Diamond, Toinbee, Sachs):– The differences in economic prosperity can be explained by

geographic, climatic, or ecological differences across countries.– Tropics (low soil quality unsuitable for agriculture + diseases)

particularly harmful to economic growth.– Natural resources (navigable river, natural harbors, coal deposits)

also important.♦ Institutional Determinism (North, AJR):

– The key to economic prosperity is a cluster of institutions thatensures secure property rights and provide incentives.

– After taking into account the impact of geography on institutions,geography per se has no impact on economic performance.

– Disease and health environment endogenous to economic growthand provides spurious correlations.

– Institutional persistence the key to solving the problem of economicdevelopment. Then why do bad institutions persist so long?

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Political Economy of Institutional Persistence

♦ Engerman & Sokoloff (2001) “Factor Endowments, Institutions, andPaths to Economic Growth in the New World.”

Acemoglu, Johnson & Robinson (QJE 2002) “Reversal of Fortunes:Geogrpahy and Institutions and Making Modern Income Distribution.”

Acemoglu & Robinson (2006) Economic Origins of Dictatorship andDemocracy.

♦ Attempt to endogenize colonizer’s choice of institutions beyond settlermortality.

♦ Political economy models to explain the incentives of elites to blockdemocratic reforms.

♦ More urbanized and commercialized places in 1500 Lower GDPper capita in 2000.

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Political Economy of Institutional Persistence (cont.)

♦ Places rich in mineral deposits (gold, silver, copper) or suitable forplantation agriculture (sugar, tea, coffee, cotton) Use native population (or import slaves) as forced labor Europeans monopolize political power, trade, and economic profits Extreme income inequality To protect status quo, elites block liberalization & democratization Persistence of Extractive institutions Political change only through violent revolution or coup d’etat Cycle of oligarchy, military dictatorship, populist, and oligarchy Major hindrance to industrialization after 1800.

♦ Places sparsely populated in temperate climate (North America, Australia) Large settlement of European immigrants (mostly farmers) Establishment of private property rights, laws, representation, Low income inequality Further democratization, investment in public goods, Conducive to technological progress & industrialization.

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Additional Topics

♦ Did Slavery Have Lont-run Effects on Institutional Developments inAfrica? (Nunn QJE 2005).

♦ Why Did Britain Industrialized First? Why not Spain or France?(North & Weingast 1987)

♦ Why was Japan First among the Non-west?

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Health & Economic Development

♦ History of Anthropometric History:– Robert Fogel (1926-), won the Nobel Prize in 1993– John Komlos (1944-)– Richard Steckel

♦ Findings from Long-run Historical Data– Fogel (AER 1994) “Economic Growth, Population Theory, and

Physiology,” the Nobel Prize lecture,– Fogel (2004) “Health, Nutrition, and Economic Growth.”

♦ Lessons for Developing Countries.

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Long-run Changes in Health♦ Life Expectancy at Birth:

– Roman Empire in 200: 20-25– North America in 1400: 25-30– Europe in 1500: 20-30– Europe in 1700: 25-30– Europe in 1800: 30-35– In 1900: UK 45, US 48– In 1930: UK 70, US 60, India 30– In 1990: UK 75, US 73, India 60– In 2009: Japan 82, Netherlands 79, US 78, Brazil 72, Russia 66,

India 65, Kenya 58, Sudan 51, Nigeria 47, Angola 38.

♦ Major Drivers:– Improved diet, public hygiene (water treatment, garbage removal)– Vaccination (1800-), antibiotics (1940-), prenatal care.

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Mortality Rates in England

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Mortality Rates in France

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Daily Consumption of Adult Male in France and UK, 1790

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Human History as Escape from Hunger

♦ As late as in 1790, 40% of French and 20% of British people existed ona diet barely sufficient for meeting the basic physiological needs.

♦ Chronic malnutrition made populations vulnerable to crises Extremely high mortality during famines and epidemics.

♦ Chronic malnutrition also made people “stunted and wasted” (short andthin).

♦ In 1790, for French male, the average height was 163cm and theaverage weight was 50kg, about 33% below the current levels.

♦ In 1790, for British male, the average height was 168cm and theaverage weight was 60kg, about 20% below the current levels.

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Correlations between BMI and Mortality Risk:Norwegian Aged 50-64

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Iso-Mortality Curves for Height and Weight: Norwegian Data

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Explaining Long-run Decline in Mortality

♦ Using the sample of 1.7 million Norwegians, Waller (1984) documentedthe robust correlations between BMI and Mortality Risks.

♦ Low BMI associated with high number of chronic diseases at given age.

♦ The improvement in BMI alone can explain substantial part of thedecline in mortality rates in 1700-1975 in France.

♦ Famine-led mortality crises account for less than 10% of the decline inmortality.

♦ Increase in food supply leading to better nutrition during pregnancy &childhood was a major force in reducing mortality.

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Changes in the Food Supply, 1960-2000

For adult male, 2,500+ calories per day required for basic maintenance.

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Lessons for Developing Countries

♦ Before 1800, most population on the earth was undernourished (lowBMI) and faced high morbidity and mortality risks.

♦ Chronic diseases reduced labor productivity through:– Low labor force participation,– Low work intensity.

♦ The improvement in gross nutrition alone can account for 30% of thegrowth of GDP per capita in Britain between 1800-2000.

♦ Health of human capital has big impact on GDP growth; while GDPgrowth has major impact on health through investments in public health(sewage, water supply, hygiene education, hospitals, ER, etc.).

♦ Developing countries can gain much from technological and informationtransfers from developed countries.