Early Starts, Reversals and Catch-up in The Process of Economic Development Areendam Chanda Louisiana State University Louis Putterman Brown University

We begin with two possibly conflicting observations.

Observation 1 Levels of income and recent rates of growth are positively correlated with “early development” (Diamond, 1998; Hibbs and Olsson, 2004a,b; Burkett,Humblet and Putterman, 1998; Bockstette, Chanda and Putterman, 2001)

Observation 2 Rates of growth between 1500 and recent times are negatively correlated with early development (level of urbanization in 1500) – Acemoglu, Johnson and Robinson 2002 “Reversal of Fortune”

The two observations appear to be conflicting because urbanization goes hand-in-hand with other indicators of early development (population density, early agricultural transition, long-term presence of states).

What we do in the paper We provide the following simple reconciliation of the two observations: 1. Level of development in 1500 was positively predicted by early development. 2. Rate of growth from 1500 to 1960 was negatively predicted by early development. 3. Rate of growth from 1960 to 1998 is positively predicted by early development.

in other words The AJR “reversal” in colonized countries is real, but It applies to the era of European expansion and not to the post-World War II era (except as a remnant) The Diamond/Hibbs-Olsson/et al. observation holds for most of the time since the agricultural revolution.

implication The AJR arguments about institutions introduced in the colonial era do not seem to hold for explaining differences in growth rates from 1960 to present, the main period studied by modern growth and development economists. (This is not to take a position about institutions versus geography in general.)

Early development: concept and measurement Early development or early starts are indicated by 1. early transition from hunting and gathering to agriculture 2. early appearance of villages, dense populations, and eventually states 3. increases in specialization, development of technology, organizational complexity etc.

measures we use Agyears = years since transition to agriculture, based on Hibbs-Olsson estimates (and Diamond) Statehist = proportion of years since 1 CE that country had a super-tribal polity (i.e., a state), downweighted if colonial, geographically restricted, or if multiple competing states (Bockstette, Chanda, Putterman)

We mainly use statehist1500, which covers only the years 1 to 1500 CE. We check some correlations for other measures, for example statehist50 (statehist 1000) covers only state status during 1 to 50 CE (1 to 1000 CE)

agyears – statehist correlation

Does early development raise income? Possibly early development does not raise ordinary people’s incomes - - “Malthusian growth” Available estimates nonetheless suggest that areas further ahead in population density, urbanization, and state presence as of 1500 had somewhat higher incomes.

Overview of Analysis First, demonstrate that incomes in 1500 are positively predicted by early starts. Second, demonstrate that growth from 1500 to 1960 in non-European countries is negatively predicted by early starts. Third, demonstrate that growth from 1960 to 1998 in non-European countries is positively predicted by early starts.

Overview of Analysis First, demonstrate that incomes in 1500 are positively predicted by early starts. Second, demonstrate that growth from 1500 to 1960 in non-European countries is negatively predicted by early starts. {This means reproducing the reversal using our measures of early development rather than AJR’s.} Third, demonstrate that growth from 1960 to 1998 in non-European countries is positively predicted by early starts.

Estimating income in 1500 We use urbanization 1500 from Bairoch (1988) and AJR (2002). The data for population densities are calculated by using population numbers from Maddison (2001) and land area numbers from FAO Statistics. Regressions 1 and 2 are alternately used to estimate income of ***- denotes significance at 1%, **- at 5% and *- at 10%.

Income 1500 predicted by early start

Note that this is the first formal direct test of the core hypothesis in Diamond (1998) on a large sample of countries.

Note that this is the first formal direct test of the core hypothesis in Diamond (1998) on a large sample of countries (Hibbs and Olsson’s demonstration is for 1997 but Diamond focuses on the effect of early agriculture as of 1500).

Documenting the reversal of fortune (1500 – 1960) Dependent variable: Log GDP p.c. 1960

Using our estimates of urbanization, popden, or income of 1500 based on popden or both to represent the level of development in 1500, income in 1960 is negatively related to that level. ***- denotes significance at 1%, **- at 5% and *- at 10%. Sample: AJR sample of colonized countries, excluding Hong Kong, Singapore and Western Offshoots All regressions include constants, not shown.

Documenting the reversal of fortune (1500 – 1960) Dependent variable: Log GDP p.c. 1960

Robustness checks Test for convergence Add various combinations of (a) landlocked, (b) latitude, (c) colonizing power (France, Spain), (d) years colonized. Substitute PWT for Maddison estimate of 1960 GDP p.c. Substitute growth rate 1500 – 1960 for log GDP p.c and test for convergence.

To check that the results are not simply due to convergence, we re-ran the regressions for statehist1500 and for agyears but including logGDP1500 as a control. Statehist and agyears remain significant and negative. (logGDP1500 is also significant and negative.) Statehist remains significant and negative with any and all combinations of the geography and history variables. Running the convergence check on statehist using the growth rate, statehist remains negative and significant.

Documenting “catch-up”

Conclusion We’ve demonstrated that early starts are positively correlated with (a) income in 1500, and (b) growth during We’ve reconfirmed the “reversal of fortune” for using “early start” indicators, but found a “reversal of the reversal” underway after 1960.

The effects of colonially imposed institutions seem to have worn off some time after Modern growth is more related to “social capability” built up over two millennia than to differences in colonial institutions. Hibbs & Olsson and Bockstette, Chanda and Putterman find that early development (agriculture or states) predicts current quality of institutions, some other institutional measures.

Perhaps the biggest long-term colonial impact is that from large-scale population movements, which may have transferred old social capabilities with them— something to be explored in future research. (This may help to explain Hall & Jones and La Porta, Lopez-de-Silanes, Shelifer and Vishny).