Divergent patterns of economic development

Lecture Outline
1. Explaining “Divergence” after 1870
• International factors:
• Great power rivalry and the rush for colonies
• Colonial exploitation
• Domestic factors:
1. Endowments of resources, labor, climate
2. Interests and govt policy
3. Institutions lock-in elite interests

1
 Explaining Divergence after 1870
International factors:
• Great power rivalry and the rush for colonies
(Figures 1 & 2)
• Economic causes of the “New Imperialism”?
Figure 3)
• Colonial exploitation did slow growth in some
areas (e.g. Congo)
• But some areas did experience growth and
development as export economies under
colonialism
• And some non-colonies didn't develop (see Figure
4)

2
Figure 1: Colonial Expansion 1876-1914
Colonies Mother Countries

1876 1914 1914

area Pop. area Pop. area pop.

G.B. 22.5 251.9 33.5 393.5 0.3 46.5

France 0.9 6.0 10.6 55.5 0.5 39.6

Germany -- -- 2.9 12.3 0.5 64.9
United -- -- 0.3 9.7 9.4 97.0
states
Japan -- -- 0.3 19.2 0.4 53.0
Russia 17.0 15.9 17.4 33.2 5.4 136.2

Note: Population in millions; area in sq. kms.

Source: N. Bukharin, The Imperial World Economic System.
3
Figure 2: The Scramble for Africa…and Asia

4
 Figure 3: Not much support for economic
interpretations of imperialism

• Most empires were not very dependent on their colonies for trade. Same holds
for investment; most investment went to non-colonies.
Source: Benjamin J. Cohen, The Question of Imperialism (New York: Basic Books,
1973). 5
Figure 4: Distribution of incomes for colonized and
non-colonized countries
Some former
colonies did
develop

And some non-

colonies did not
develop

Source: Dani Rodrik, et al, "Institutions Rule: The Primacy of Institutions Over Geography and
Integration in Economic Development." NBER Working Paper No. 9305, October 2002.
6
 Divergence Puzzles
US/Canada vs. Barbados (same empire)
U.S. vs. Mexico (same initial income)

In 1700, Barbados and Mexico were rich relative to the US, and people
thought they would grow very fast. But by 1989, the US had grown
spectacularly wealthy while Barbados and Mexico had stagnated. Why? 7
Engermann &Sokoloff explanation – While all New
World colonies had an abundant endowment of natural
resources that could produce a high rate of economic
growth, endowments of other complementary factors
differed. Two important ones were:
• labor endowments (size of indigenous population)
• climatic conditions (which crops could be grown).
These two features affected initial economic institutions of
colonial societies in distinctive ways:
• “plantation economies” (Caribbean)
• “conquest economies” (S. and Cen. America)
• “settlement economies” (N. America)
8
Engermann and Sokoloff: Relationship between endowments,
interests and institutions

Endowments Interests Institutions

Initial income
Initial factor Institutions developed
distribution
endowments (political, legal, &
(climate, labor) economic)

Initial economic org.

Initial socio-political
(plantation, conquest, Long-term economic
outcome
settlement) and social outcome

A “path-dependent” argument: differences in initial conditions create

differences in long-run outcomes because they send economies along different
paths. Socio-economic processes set up at the beginning become self-
reinforcing.
9
Interests and Political Institutions: Extent of
Voting in the New World

10
Country Year Age Percent

Literacy Rates in the

Argentina 1869 +6 23.8
1895 +6 45.6
1900
1925
+10
+10
52.0
73.0
Americas, 1850–1950
Barbados 1946 +10 92.7
Bolivia 1900 +10 17.0 • The distribution of political power
Brazil 1872 +7 15.8
1890 +7 14.8
affected the distribution of wealth
1900 +7 5.6 and human capital and thus had
1939 +10 57.0 implications for growth. The
Chile 1865 +7 18.0
1875 +7 25.7
development of public primary
1885 +7 30.3 schools, the principal vehicle for
1900 +10 43.0 high literacy and an important
Peru 1925 +10 38.0
Uruguay 1900 +10 54.0
contributor to human capital, tracked
1925 +10 70.0 the distribution of political power.
Venezuela 1925 +10 34.0
Canada 1861 All 82.5 • In the 19th cen., only the US and
English-majority counties 1861 All 93.0 Canada enacted laws to establish
French- majority counties 1861 All 81.2
United States
“free schools” open to all children
Northern whites 1850 +10 96.9 and supported by general taxes.
Southern whites 1850 +10 91.5

All 1870 +10 80.0 (88.5, 21.1)*

1890 +10 86.7 (92.3, 43.2)*
1910 +10 92.3 (95.0, 69.5)*
11