Colonial European Settlement Had Positive Effect on Income Today


European settlement during the colonial era had a positive effect on today’s per capita income, a study by William Easterly, a professor in NYU’s Department of Economics, and Ross Levine, a professor at the University of California at Berkeley’s Haas School of Business, has found.

“Having European settlers who came to a given country during colonial times had a remarkably strong positive effect on average per capita income we observe today,” explains Easterly, who is co-director of NYU’s Development Research Institute. “This effect occurred even when they were a small minority of the population and despite horrific exploitation—dispossession and oppression of the indigenous peoples in North and South America, slavery in Africa, and apartheid in southern Africa.

“This suggests that what they brought—in the form of scientific knowledge and other educational capital, technological knowledge, and institutions of private property, capitalist markets, and democracy—was in the long run more powerful than the negative effects of oppression.”

The researchers were careful to note that their findings say nothing about Europeans as a group, but, rather, are better explained by the “growth-promoting characteristics” they brought to colonies: institutions, human capital, connections with international markets, and cultural values that support individual initiative.

“European share of the population during the early stages of colonization is more strongly associated with economic development today than the percentage of the population today that is of European descent,” the researchers write. “This result de-emphasizes the importance of Europeans per se and instead emphasizes the impact of what Europeans brought to economies during colonization.”

Their study examined the impact of the European population during the early stages of colonization by first taking into account the proportion of Europeans in a given country—a variable the researchers called “Euro share.” It then examined the per capita income of these countries centuries later—specifically, their average of per capita income over a 10-year period, 1995 to 2005.

The effect remains after controlling for other factors, except for educational attainment and the quality of a country’s governing institutions today, which suggests that settlers’ positive effects could have operated primarily through improving human capital and institutions.

The paper, “The European Origins of Economic Development,” was issued in the National Bureau of Economic Research working papers
series.

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