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The Rise of Europe: Atlantic Trade, Institutional Change, and Economic Growth

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The Rise of Europe: Atlantic Trade, Institutional Change, and Economic Growth The Rise of Europe: Atlantic Trade, Institutional Change, and Economic Growth By DARON ACEMOGLU,SIMON JOHNSON, AND JAMES ROBINSON* The rise of Western Europe after 1500 is due largely to growth in countries with access to the Atlantic Ocean and with substantial trade with the New World, Africa, and Asia via the Atlantic. This trade and the associated colonialism affected Europe not only directly, but also indirectly by inducing institutional change. Where “initial” political institutions (those established before 1500) placed significant checks on the monarchy, the growth of Atlantic trade strengthened merchant groups by constraining the power of the monarchy, and helped merchants obtain changes in institutions to protect property rights. These changes were central to subsequent economic growth. (JEL F10, N13, O10, P10) The world we live in was shaped by the rapid There is little agreement, however, on why this economic growth that took place in nineteenth- growth took place in Western Europe and why century Western Europe. The origins of this it started in the sixteenth century. growth and the associated Industrial Revolution This paper establishes the patterns of eco- are generally considered to lie in the economic, nomic growth in Western Europe during this political, and social development of Western era, develops a hypothesis on the origins of the Europe over the preceding centuries. In fact, rise of (Western) Europe and provides historical between 1500 and 1800, Western Europe expe- and econometric evidence supporting some of rienced a historically unprecedented period of the implications of this hypothesis. sustained growth, perhaps the “First Great Di- We document that the differential growth of vergence” (i.e., the first major sustained diver- Western Europe during the sixteenth, seven- gence in income per capita across different teenth, eighteenth, and early nineteenth centu- regions of the world), making this area substan- ries is almost entirely accounted for by the tially richer than Asia and Eastern Europe. growth of nations with access to the Atlantic Ocean, and of Atlantic traders. Throughout the paper, the term Atlantic trader refers to Britain, * Acemoglu: Department of Economics, Massachusetts In- France, the Netherlands, Portugal, and Spain, stitute of Technology, E52-371, Cambridge, MA 02142 the nations most directly involved in trade and (e-mail: [email protected]); Johnson: Sloan School of Manage- colonialism in the New World and Asia. Atlan- ment, Massachusetts Institute of Technology, 50 Memorial tic trade, in turn, means trade with the New Drive, Cambridge, MA 02139 (e-mail: [email protected]); World, as well as trade with Asia via the Atlan- Robinson: Department of Government, Harvard University, 1875 Cambridge Street, Cambridge, MA 02138 (e-mail: tic, and includes colonialism- and slavery- 1 [email protected]). We thank Thomas Becker and related activities. The differential growth of Rui Pedro Esteves for outstanding research assistance and Josh Atlantic traders suggests a close link between Angrist, Abhijit Banerjee, Dora Costa, Jan de Vries, Stanley Atlantic trade and the First Great Divergence. In Engerman, Philip Hoffman, Peter Lindert, Sebastia´n Mazzuca, Joel Mokyr, Larry Neal, Steve Pincus, Christina Romer, David fact, it appears that the rise of Europe between Romer, Andrei Shleifer, Alan Taylor, Hans-Joachim Voth, two 1500 and 1850 is largely the rise of Atlantic anonymous referees, and seminar participants at the University of California, Berkeley, the Canadian Institute of Advanced Research, University of Chicago Graduate School of Business 1 Atlantic trade opportunities became available only dur- and Department of Political Science, George Mason Univer- ing the late fifteenth century, thanks to the discovery of the sity, Harvard Business School, the Harvard Economic History New World and the passage to Asia around the Cape of Seminar, the London School of Economics, MIT, the National Good Hope. These discoveries resulted from a series of Bureau of Economic Research economic history, inequality, innovations in ship technology, primarily pioneered by the and economic growth groups, New York University, and Portuguese, that changed the rigging and hull design of Princeton University for comments and suggestions. ships and developed knowledge of oceanic navigation. 546 VOL. 95 NO. 3 ACEMOGLU ET AL.: THE RISE OF EUROPE 547 FIGURE 1A. WESTERN EUROPE,EASTERN EUROPE, AND ASIA:URBANIZATION RATES,WEIGHTED BY POPULATION, 1300–1850 FIGURE 1B. ATLANTIC TRADERS,WEST EUROPEAN COUNTRIES NOT ATLANTIC TRADERS, AND EASTERN EUROPE: URBANIZATION RATES,WEIGHTED BY POPULATION, 1300–1850 Europe, and is quite different in nature from the easy access to the Atlantic, even such nonabso- European growth that took place before 1500. lutist states as Venice and Genoa, did not expe- Not all societies with access to the Atlantic rience any direct or indirect benefits from show the same pattern of growth, however. The Atlantic trade. data suggest an important interaction between Figures 1 and 2 illustrate the central thesis medieval political institutions and access to the of this paper. Figure 1, panel A, shows that Atlantic: the more rapid economic growth took urbanization in Western Europe grew sig- place in societies with relatively nonabsolutist nificantly faster than in Eastern Europe after initial institutions, most notably in Britain and 1500.2 Figure 1, panel B, shows that these the Netherlands. In contrast, countries where the monarchy was highly absolutist, such as Spain and Portugal, experienced only limited growth 2 For the purposes of this paper, Western Europe is taken in the subsequent centuries, while areas lacking to be all the countries west of the Elbe, i.e., Austria, 548 THE AMERICAN ECONOMIC REVIEW JUNE 2005 FIGURE 2A. WESTERN EUROPE,EASTERN EUROPE, AND ASIA: GDP PER CAPITA,WEIGHTED BY POPULATION, 1500–1870 FIGURE 2B. ATLANTIC TRADERS,WEST EUROPEAN COUNTRIES NOT ATLANTIC TRADERS, AND EASTERN EUROPE: GDP PER CAPITA,WEIGHTED BY POPULATION, 1500–1870 differential trends are due in large part to 1850. In contrast, Atlantic traders started with a the growth of Atlantic traders. The rest of West- lower average urbanization rate of 8 percent in ern Europe had a relatively high average urban- 1300 (and only 10.1 percent in 1500), which ization rate of 10 percent in 1300 (and 11.4 almost tripled in the subsequent 550 years to percent in 1500), but grew at approximately the reach 24.5 percent in 1850, overtaking average same rate as Eastern Europe from 1500 to 1850, urbanization in the non-Atlantic parts of West- by a factor of less than 2, to reach 17 percent by ern Europe between 1600 and 1700 (see Table 1). Panels A and B in Figure 2 show the same pattern, using Angus Maddison’s (2001) esti- Belgium, Britain, Denmark, Finland, France, Germany, Ire- mates of GDP per capita. While GDP per capita land, Italy, the Netherlands, Norway, Portugal, Spain, Swe- rose by a factor of almost two among Atlantic den, and Switzerland. Eastern Europe is all European traders between 1500 and 1820, in the rest of countries to the east of the Elbe, including Russia and Western Europe it grew at approximately the excluding Turkey. See Section I A for details on urbaniza- same rate as in Eastern Europe, just under 30 tion and GDP data. All averages are weighted by popula- tion, using numbers from Colin McEvedy and Richard percent. Jones (1978). The patterns depicted in Figures 1 and 2 do VOL. 95 NO. 3 ACEMOGLU ET AL.: THE RISE OF EUROPE 549 TABLE 1—DESCRIPTIVE STATISTICS Non- Whole Whole Atlantic Atlantic sample, sample, Western Western Eastern unweighted weighted Europe Europe Europe Asia Weighted by population Urbanization in 1300 6.6 9.9 8.0 10.0 4.1 11.0 (5.2) (3.2) (2.8) (6.1) (3.3) (0.7) Urbanization in 1400 7.6 10.3 8.5 12.1 3.9 11.1 (9.5) (3.6) (2.4) (10.0) (1.5) (0.5) Urbanization in 1500 8.3 10.6 10.1 11.4 4.0 11.5 (7.6) (3.4) (5.3) (6.8) (1.8) (0.7) Urbanization in 1600 9.6 11.7 13.6 14.0 4.4 12.0 (7.6) (4.0) (7.6) (8.8) (2.7) (0.7) Urbanization in 1700 10.7 11.2 14.5 13.1 3.7 11.6 (8.5) (4.1) (6.8) (8.1) (2.2) (0.7) Urbanization in 1800 14.1 10.3 19.8 16.9 7.0 8.9 (9.1) (4.9) (7.9) (7.5) (3.3) (1.4) GDP per capita in 1500 627.54 608.3 721.46 850.73 506.94 575.0 (159.3) (118.0) (31.1) (217.1) (78.2) (35.4) GDP per capita in 1600 740.73 630.5 916.31 908.22 578.29 576.8 (225.6) (144.2) (149.3) (167.3) (112.3) (35.3) GDP per capita in 1700 862.12 622.2 1079.21 980.82 636.0 574.2 (348.4) (208.1) (321.4) (128.2) (136.1) (35.3) GDP per capita in 1820 988.00 691.7 1321.95 1095.40 719.5 575.5 (373.6) (264.5) (348.7) (125.3) (174.9) (45.7) Constraint on executive in 1500 1.67 1.73 1.75 1.99 1.46 (0.76) (0.79) (0.56) (0.99) (0.79) Constraint on executive in 1600 1.67 1.53 1.62 1.54 1.45 (1.01) (0.84) (1.24) (0.59) (0.79) Constraint on executive in 1700 1.83 1.52 1.83 1.41 1.30 (1.31) (1.17) (1.76) (0.94) (0.76) Constraint on executive in 1800 2.25 2.18 4.00 1.90 1.00 (1.82) (1.83) (1.79) (1.78) (0.00) Atlantic coastline-to-area 0.0057 0.0014 0.0118 0.0026 0.00 0.00 (0.0117) (0.0065) (0.0181) (0.0052) Notes: First column is unweighted means; other columns are mean values weighted by total population in year indicated, from McEvedy and Jones (1978).
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