Economic growth and economic development 203

Introduction to Modern Economic Growth Urbanization in excolonies with low and high urbanization in 1500 (averages weighted within each group by population in 1500) 25 20 15 10 800 1000 1200 1300 1400 1500 1600 low urbanization in 1500 excolonies 1700 1750 1800 1850 1900 1920 high urbanization in 1500 excolonies Figure 4.8 The Timing of the Reversal of Fortune: Evolution of average urbanization between initially-high and initially-low urbanization former colonies ways Nevertheless, the culture hypothesis does not provide a natural explanation for the reversal, and has nothing to say on the timing of the reversal Moreover, we will discuss below how econometric models that control for the effect of institutions on income not find any evidence of an effect of religion or culture on prosperity The importance of luck is also limited The different institutions imposed by the Europeans were not random They were instead very much related to the conditions they encountered in the colonies In other words, the types of institutions that were imposed and developed in the former colonies were endogenous outcomes, outcomes of equilibria that we need to study 4.4.3 The Reversal and the Institutions Hypothesis Is the Reversal of Fortune consistent with a dominant role for economic institutions in comparative development? The answer is yes In fact, once we recognize the variation in economic institutions created by colonization, we see that the Reversal of Fortune is exactly what the institutions hypothesis predicts 189