Acemoglu Et Al - 2005 - The Rise of Europe - Atlantic Trade, Institutional Change, and Economic Growth

American Economic Association
The Rise of Europe: Atlantic Trade, Institutional Change, and Economic Growth
Author(s): Daron Acemoglu, Simon Johnson and James Robinson
Source: The American Economic Review, Vol. 95, No. 3 (Jun., 2005), pp. 546-579
Published by: American Economic Association
Stable URL: https://www.jstor.org/stable/4132729
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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, 010, 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 the of 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: daron@mit.edu); 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: sjohnson@mit.edu);
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-
jrobinson@gov.harvard.edu). 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, Sebastidn 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
25
20
1300 1400 1500 1600 1700 1750 1800 1850
Year
--e-- Western Europe -+- Eastern Europe Asia

FIGURE IA. WESTERN EUROPE, EASTERN EUROPE, AND ASIA: URBANIZATION RATES, WEIGHTED BY POPULATION, 1300-1850
30
25
I 20
C
0
10-
10
1300 1400 1500 1600 1700 1750 1800 1850
Year
-*- Atlantic traders --- Western Europe not Atlantic traders -+- Eastern Europe
FIGURE lB. 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 betweenFigures 1 and 2 illustrate the central thesis
of this paper. Figure 1, panel A, shows that
medieval political institutions and access to the
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
1500.2 Figure 1, panel B, shows that these
initial institutions, most notably in Britain and
the Netherlands. In contrast, countries where the
monarchy was highly absolutist, such as Spain
and Portugal, experienced only limited growth2 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
2500
2000
1500
N
c 1000-
500 -
1500 1600 1700 1820 1870
Year
---- Western Europe -+- Eastern Europe --- Asia

FIGURE 2A. WESTERN EUROPE, EASTERN EUROPE, AND ASIA: GDP PER CAPITA, WEIGHTED BY POPULATION, 1500-1870
2500
2000
1500-
C 1000 --........
1500 1600 1700 1820 1870
Year
- A- Atlantic traders --- Western Europe not Atlantic traders ---- Eastern Europe
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 byern 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
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)
(1.01) (0.84) (1.24) (0.59) (0.79)
(1.31) (1.17) (1.76) (0.94) (0.76)
(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 weight
McEvedy and Jones (1978). Standard deviation is in parentheses. There are 24
Western Europe is England, France, the Netherlands, Portugal, and Spain. Non-A
Denmark, Finland, Germany, Ireland, Italy, Norway, Sweden, and Switzerlan
Czech Republic, Greece, Hungary, Poland, Romania, Russia, and Serbia. Asia
is percentage of population living in towns with population of at least 5,000 at
Bairoch et al. (1988) for Europe; comparable data for Asia are from Bairoch (19
Constraint on executive is on a scale of 1 to 7, where a higher score indicates mo
IV methodology, as explained in the text. We have not coded constraint on t
includes those parts of Germany, Denmark, and Norway that are on the North S
see Appendix, Table 1.
coastal
not simply reflect the tendency ofnations:
moreAtlantic
suc- ports grew much
cessful nations to engage in Atlantic
faster trade.
than other European cities, while Med-
There is no differential growth iterraneanof Atlantic
ports grew at similar rates to inland
traders before the openingcities. of Atlantic sea
routes, and below we show similar results This evidence weighs against the most pop-
using an exogenous measure of access to theular theories for the rise of Europe, which em-
Atlantic-ratio of Atlantic coastline to land phasize the continuity between pre-1500 and
area-instead of the distinction between At- post-1500 growth and the importance of certain
lantic traders and nontraders. Nor do the re-
distinctive European characteristics, such as
sults reflect some post-1500 advantage of
culture, religion, geography, and features of the
900
800
CU
S 700
S 6000
>1
0. 500
CQ 400
0)
(D,
0 200
> 100 00
1300 1400 1500 1600 1700 1750 1800
Year
--Atlantic voyages per year ...... Mediterranean voyages per year

FIGURE 3. VOLUME OF ATLANTIC AND MEDITERRANEAN TRADE (VOYAGE EQUIVALENTS PER YEAR), 1300-1800
European state system.3 Instead, it is consistent Barry R. Weingast, 1989). The critical political
with theories that emphasize the importance of institutions were those that constrained the
profits made in Atlantic trade, colonialism, and power of the monarchy and allied groups.5
slavery.4 Nevertheless, other evidence suggests Checks on royal power and prerogatives
that overseas trade and the associated profits emerged only when groups that favored them,
were not large enough to be directly responsible that is commercial interests outside the royal
for the process of growth in Europe. Stanley L. circle, became sufficiently powerful politically.
Engrman (1972) and Patrick K. O'Brien From 1500, and especially from 1600, onward,
(1982) demonstrate that the contribution of in countries with nonabsolutist initial institu-
profits from slavery and trade with the rest oftions and easy access to the Atlantic, the rise in
the world to European capital accumulation wasAtlantic trade enriched and strengthened com-
modest. O'Brien (1982, p. 2) writes that trans- mercial interests outside the royal circle and
oceanic trade "... could in no way be classifiedenabled them to demand and obtain the institu-
as decisive for economic growth of Westerntional changes necessary for economic growth.
Europe." Although recent work by Joseph E.Although profits from Atlantic trade were small
Inikori (2002) estimates larger trade flows thanrelative to GDP, they were still substantial, and
those of O'Brien, his estimates are not largemuch larger than previous trading profits. For
enough to suggest that European growth wasexample, Figure 3 shows that by the end of the
driven solely by the direct impact of Atlantic seventeenth century, the volume of Atlantic
trade on profits or resources. trade was much larger than that of long-distance
We advance the hypothesis that West Euro- Mediterranean trade (see the Appendix for the
pean growth during this period resulted, in part,construction of these series). The recipients of
from the indirect effects of international trade these profits became very rich by the standards
on institutional development. Although thereof seventeenth- and eighteenth-century Europe,
were some improvements in economic institu- and typically politically and socially very
tions in the late medieval and early modernpowerful.
period, rapid economic development did not These changes did not take place in countries
begin until the emergence of political institu- with highly absolutist institutions such as Spain,
tions providing secure property rights to a
broader segment of society and allowing free
entry into profitable businesses (Douglass C. 5 It is important to note that these new political institu-
tions neither protected the rights of all citizens nor were
North and Robert P. Thomas, 1973; North and
democratic. They can best be characterized as oligarchic,
since they increased the political power of wealthy mer-
chants, and at least in the British case, of the gentry and
3 See, e.g., Max Weber (1905), Eric Jones (1981), John nascent industrial interests. Nevertheless, they constituted a
A. Hall (1985), and David S. Landes (1998). distinct improvement over the previous set of institutions,
4 E.g., Eric E. Williams (1944), Andre Gunder Frank which placed many fewer checks on the power of the
(1978), and Immanuel M. Wallerstein (1974-1980). monarchy.
Portugal, and to a large and Andrei Shleifer,

extent France, 1993). Distinct
where fromthethese
crown was able to closelyapproaches,
control however,
thewe offer an explanation,
expansion of
based on the
trade. Consequently, in these interaction betweenit
countries, Atlantic
was trade
the
monarchy and groups alliedand medieval
with political
it thatinstitutions,
were of why
the
main beneficiaries of the strong
early private property rights
profits from emerged in West-
Atlan-
tic trade and plunder, andern groups
Europe, especially in Britain and
favoring the Neth-
changes
in political institutions erlands,
did not starting in the sixteenth
become century.
powerful
enough to induce them. OurAlthough some scholars have therefore,
hypothesis, noted the impor-
tant role of overseas
predicts an important interaction merchants ininitial
between particular
instances ofwhich
institutions and Atlantic trade, political change duringpattern
is the this period
we find in the data. (most notably Robert Brenner, 2003, and
Steven Pincus, 2002,
The major premise presented in the British
in this paper case), we
isare
consistent with the emphasis of along
not aware of a theory a number of
the lines developed
historians, including,in among
this paper. others, Ralph
Davis (1973a), Jan de Vries (1984), Paul The paper is organized as follows. Section I
Bairoch (1988), Fernand Braudel (1992), and de documents the key premise of the paper, and
Vries and Ad van der Woude (1997). Although shows that the pattern seen in Figures 1 and 2 is
robust. Section II develops our hypothesis for
this historical literature emphasizes the differ-
the rise of Europe and the role played by At-
ential growth of Atlantic ports and Atlantic na-
tions, to the best of our knowledge, there are no
lantic trade in this process, and provides histor-
other studies documenting the quantitative im- ical evidence supporting our interpretation.
Sections III and IV provide evidence on some
portance of Atlantic traders and Atlantic ports,
implications of our hypothesis (Section III
or showing that the differential growth of West-
ern Europe is accounted for largely by the shows that the evolution of European institu-
growth of Atlantic traders. tions is closely linked to Atlantic trade, and
Section IV documents an important interaction
On the theoretical side, our hypothesis builds
between initial institutions and Atlantic trade in
on the notion that institutional change, even
when socially beneficial, will be resisted by
European economic growth). Section V con-
social groups that stand to lose economic rents cludes. The Appendix summarizes the construc-
or political power. Consequently, the process oftion of the variables used in the empirical
analysis, and further detail can be found in
institutional change involves significant conflict
between different groups-in the EuropeanAcemoglu et al. (2002b).
context, between the monarchy and its allies,
versus commercial interests outside the royal I. Atlantic Trade and the Rise of Europe
circle.6 Our historical account can also be
viewed as a marriage between the Marxist thesis A. Data
linking the rise of the bourgeoisie and the de-
velopment of the world economy (e.g., among We use three data series to measure economic
others, Williams, 1944; Frank, 1978; and development. First, we construct estimates of
Wallerstein, 1974-1980) and the neoclassicalurbanization based on the urban population
numbers of Bairoch et al. (1988). This is a
emphasis on the development of political insti-
tutions and secure property rights in Western
comprehensive dataset with information on all
Europe (e.g., North and Thomas, 1973; Eric2,200
L. European cities that had, at some time
between 800 and 1800, 5,000 or more inhabit-
Jones, 1981; North, 1981; J. Bradford De Long
ants.7 We use these data as our measure of
6 See, for example, North (1981), Mancur Olson (1982),

urban population and divide by the population
Per Krusell and Jose-Victor Rios-Rull (1996), Stephen Par-
ente and Edward C. Prescott (1999), Acemoglu and Robin-
son (2000, 2002), and Raghuram G. Rajan and Luigi 7 These data begin in 800, and there are estimates for
Zingales (2003). Ronald Rogowski (1989) is particularly
every 100 years until 1700, then for every 50 years throug
notable in this context, since he also emphasizes how trade
1850. Bairoch et al. (1988) emphasize, however, that esti-
affects political coalitions via its impact on factor mates
prices,
before 1300 are rough and less reliable (and they skip
although he does not focus on how trade mightthe induce
year 1100 due to lack of information). These data wer
used previously by De Long and Shleifer (1993).
institutional change by strengthening commercial interests.
estimates of McEvedyfirm the

andpatterns Jones
shown in Figures
(1978)1 and 2. In to
the regression analysis, weof
culate urbanization (percentage will report
the both
popu
tion living in cities with
weighted and unweightedmore than
results. The bottom 5,
thirduse
inhabitants). We also of the table also shows the evolution of
estimates of our urba
tion rates for Asia measure
from of institutions,
the constraint on the exec-
quantitativ
qualitative assessments of Bairoch (1988). utive, which we will be described in greater
Bairoch (1988, ch. 1) and de Vries (1976, p. detail and used in Section III.
164) argue that only areas with high agricultural
productivity and a developed transportation net- B. Economic Growth in Europe
work could support large urban populations. In
addition, in Acemoglu et al. (2002a) we pre- Figures 1A and IB show the evolution of
sented evidence that both in the time series and urbanization rates in Western and Eastern Eu-
the cross section there is a close association rope, and contrast the behavior of Atlantic trad-
between urbanization and income per capita
ers versus non-Atlantic traders. We first look at
before, as well as after, industrialization. Atlantic
We traders, since the main beneficiaries
therefore take urbanization as a proxy for from
GDP the Atlantic should be those countries that
per capita. engaged in Atlantic trade and colonialism.
Second, we use estimates of GDP per capita However, whether or not a country is an Atlan-
from Maddison (2001). These estimates start in tic trader is clearly endogenous, i.e., it is the
1500 and are available for 1600, 1700, 1820, outcome of some political or economic process.
and then more frequently. Note that these esti- For this reason, we also present results using a
mates are no more than educated guesses, espe- measure of access to the Atlantic, which is a
cially before 1820. We therefore think of these country-level geographic characteristic.
GDP data as a check on our results using ur- We can test the idea that West European
banization data. growth after 1500 was due primarily to growth
in countries involved in Atlantic trade or with a
Third, we use the European city-level data
from Bairoch et al. (1988) to investigate which
high potential for Atlantic trade by estimating
urban centers were driving demographic and the following regression equation:
economic growth, and also to contrast the
growth of Atlantic ports to other ports and to
inland cities.
(1) u,= d, + 8+ E a, *WEj'd,
t? 1600
Table 1 gives the estimates of urbanization

and income per capita at various dates. The first
column is for the whole sample and is un- + -,'PATj' d, + Xj, t + ejt
tr--1500
weighted. The second column is weighted by

population in the corresponding year, giving a
better sense of the aggregate changes. The re- where ujt is urbanization in country j at time t,
WEj is a dummy indicating whether the country
maining columns give weighted means for At- is in Western Europe, the d,'s denote year ef-
lantic traders (Britain, France, the Netherlands,
fects, the 6j's denote country effects, Xj, is a
Portugal, and Spain), for West European coun- vector of other covariates, and Ej, is a distur-
tries that were not Atlantic traders (Austria, bance term. In addition, PATP, our measure of
Belgium, Denmark, Finland, Germany, Ireland, the potential for Atlantic trade, is a dummy for
Italy, Norway, Sweden, and Switzerland), for Atlantic trader (Britain, France, the Nether-
East European countries, and for the Asian lands, Portugal, and Spain) or alternatively the
countries in our sample.8 These numbers con- Atlantic coastline-to-area ratio (in both cases, a
time-invariant characteristic of the country).
The ,t's, the coefficients on the potential for
8 We take current countries as the unit of observation.
Although these do not always correspond to the independent
polities of the time, this discrepancy should not bias our
empirical inference. For example, if we had data on number
each of observations, the standard errors would be
smaller. The analysis of city-level growth in Section I B is
Italian city-state, their average would show the same pattern
as our single Italy observation (presuming that our data for
informative on differential growth across historical political
boundaries.
the aggregate of Italy are accurate), but because of the larger
TABLE 2-ATLANTIC TRADE AND URBANIZATION

Dependent variable is country-level urbanization
Panel, Panel, Panel, Panel,

Panel, Panel, Panel, Panel, 1300-1850, 1300-1850, 1300-1850, Panel, Panel, 1300-1850,
1300-1850 1000-1850 1300-1850 1000-1850 unweighted with Asia without Britain 1300-1850
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10)
Potential for Atlantic trad
Atlantic trader dummy Atlantic coastline-to-area
Panel A: Flexible specification
p-value for Western Europe [0.00] [0.00] [0.45] [0.09] [0.80] [0.00] [0.12] [0.09] [0.01] [0.78]
X year dummies, 1600-
1850
Potential for Atlantic trade 0.016 0.0086 0.055 0.014 0.018 0.50 0.38 0.75
X 1500 (0.021) (0.019) (0.026) (0.022) (0.016) (0.68) (0.65) (0.87)
Potential for Atlantic trade 0.006 -0.004 0.0495 0.0054 0.0085 0.21 0.03 0.94
x 1600 (0.023) (0.021) (0.028) (0.028) (0.018) (0.68) (0.64) (0.94)
x 1700 (0.021) (0.019) (0.028) (0.026) (0.016) (0.63) (0.58) (0.94)
x 1750 (0.021) (0.018) (0.028) (0.025) (0.015) (0.62) (0.57) (0.94)
x 1800 (0.019) (0.017) (0.028) (0.023) (0.015) (0.57) (0.51) (0.94)
x 1850 (0.018) (0.016) (0.028) (0.022) (0.014) (0.51) (0.44) (0.94)
R-squared 0.87 0.85 0.89 0.87 0.82 0.84 0.93 0.94 0.92 0.83
Number of observations 192 240 192 240 192 208 184 192 240 192
Panel B: Structured specification
p-value for Western Europe [0.00] [0.00] [0.35] [0.06] [0.83] [0.00] [0.11] [0.16] [0.02] [0.81]
1850
X volume of Atlantic (0.0024) (0.0020) (0.0034) (0.0029) (0.0018) (0.07) (0.06) (0.11)
trade
R-squared 0.87 0.85 0.88 0.86 0.81 0.84 0.92 0.92 0.90 0.82
Notes: Standard errors are in parentheses. Panel regressions with ful

regressions use total population in each year as weights, from McEve
in towns that had at least 5,000 population at some point between 80
and urbanization in Asia is from Bairoch (1998). We report results w
an Atlantic trader (one for Britain, the Netherlands, France, Spain,
to area for the Atlantic trader countries plus Belgium, Denmark, Ge
(just for India and China) and column 7 drops the data for Britain. V
definitions and sources see Appendix, Table 1.
Western
Atlantic trade and the Europe
post-1500 time tha
dum
are the main parameters
example,
of interest.
the pointSin
es
focus is on the rise of to
table Western Europ
save space) in
whole, our basic regressions
cation of column
are weigh
1,
population in each year,
tion but
grew bywe
6.9also
perc r
East for
unweighted regressions European urban
completeness
1850. Table 2 include only
Columns 1 and 2 of
Column 3 allows differential
interaction terms between the Western growth for
countries engaged
dummy and dates from in Atlantic trade,
1600, It 1600by includ- t -
d,, which capture the differential gro
ing
1500 the
West European countries term It_15000oo
as a "specification check" ont the
relative PATj d,. of
timing Weto
include
Easte
rope. The top row reports
the effects. We start withthe p-value
PATj as a dummy for fro
F-test of the joint Atlantic
significance of
trader. Significant positive estimates of these in
tions. Column 1 includes data
3 t's imply that Atlantic traders only for
grew starting in
1850, while column the period between 1500 and 1600. The
2 extends theesti- sample
to 1000. Consistentmateswith Figure
confirm the pattern seen in Figure 1B and1A, both
ifications show significantly
show large effects from the interactionfaster
between grow
the Atlantic trader pean

dummy
countries are growing
and faster dates
relative to theafte
These effects becomecontrol statistically
group, which includes Asian countries
signific
ter 1750; in columns(see Figure
8-10, lA). Finally,
the column 7 excludes
effects ar
tistically significant
Britain from starting
the sample and shows in 1700
that the
example, the estimate
results do not for 1850,
simply reflect P185
British growth. The =
implies estimates in column among
urbanization that 7 are about half theAtlanti
size of
ers grew
approximately by
those in the other columns, but 8.5 they perce
show the
points more than in same other
pattern. Western and
European nations. Notice
An importantalso concern with
that the results
the re- es
ported so far is
of 1500oo in this column, which measur endogeneity. Being an Atlantic
differential growth trader
of is anAtlantic
ex post outcome, and perhaps only
traders b
1300-1400 and 1500, is with
countries insignificant
high growth potential-or those and
that were going
This is reassuring; since to grow anyway-engaged
Atlantic tradein wa
limited before 1500,substantialthis finding
Atlantic trade show
and colonial activity.
Belgium, growth
there is no differential Ireland, Denmark, for Germany, and Nor-
Atlanti
ers before Atlantic way alsotrade
had access to theactually
Atlantic, either di-bec
important.9 rectly or via the North Sea, but they did not take
Consistent with the
a majorpatterns
part in long-distanceshown
oceanic trade. Inin
ure 1B, the inclusion of the Atlantic trade columns 8, 9, and 10, we use a geographic
interactions explains almost the entire differ- measure of potential access to the Atlantic,
ential growth of West European nations rela- Atlantic coastline-to-area ratio, as our time-
invariant PATj variable, which gives positive
tive
d, to are
terms Eastern Europe.
no longer The Et-,
statistically 1600 t?* WEj*
significant, Atlantic trade potential to all these countries."1
and the point estimates (not shown in the This measure allows Atlantic trade to play a
table) imply that West European urbanization more important role in the growth of countries
grew only by 2.9 percentage points relative to with more Atlantic coastline relative to their
Eastern Europe between 1300-1500 and land area.12
1850, as opposed to 6.9 percentage points in
column 1.
Columns 4 and 5 show that the results are " Information on the length of coastline and the land
similar for the 1000-1850 period and when
area of particular countries is taken from Integrated
Coastline Management (http://icm.noaa.gov/country/
observations are not weighted by population.'0
Column 6 includes Asian countries. This has ICM-pro.html), which reports a standardized measure.
We use only Atlantic coastline, i.e., omitting coastlines in
little effect on the estimates of the differential the Mediterranean, the Baltic, and the Arctic. Details are
growth of Atlantic traders, but now West Euro- provided in the Appendix of Acemoglu et al. (2002b). It
is important to exclude the Baltic coastlines of Denmark
and Germany from our measure, since significant Baltic
trade predated the rise of Atlantic trade, and economic
9 Although the analysis above does not count Denmark growth driven by Baltic trade could be an alternative
and Sweden as Atlantic traders, Sweden had a small colony explanation for the patterns we observe. In any case, our
on the Delaware river 1637-1681 and Denmark controlled results are generally robust to including the Baltic or the
several small Caribbean islands (now the U.S. Virgin ArcticIs- coastlines. For example, we obtain very similar
lands). To check the robustness of our results, we also results to those reported in Tables 2 and 3 when we
experimented with a more inclusive definition of Atlantic include the west coastline of Sweden, or when we include
trader that includes Denmark and Sweden, with results very the entire Norwegian coastline on the Arctic and the
similar to those reported in column 3. The p-value for entire German coastline on the Baltic. Our results are also
Western Europe X year interactions increases to [0.51], generally similar when we include all the coastline of
while the pattern of coefficients on potential for Atlantic Sweden, Germany, Norway, and the entire Baltic coast-
trade X year dummies is largely unchanged; the interactions line of Denmark, but the size of the coastline-to-area
before 1700 are insignificant, then 0.035 (s.e. = 0.022) in times year interactions are smaller than in our baseline,
1700, 0.035 (s.e. = 0.021) in 1750, 0.046 (s.e. = 0.02) in and Western Europe times year interactions become sig-
1800, and 0.08 (s.e. = 0.02) in 1850. nificant.
0o In column 4, the interaction between the West Euro- 12 Alternatively, we could use the Atlantic coastline-to-
pean dummy and the post-1500 dates is significant at the area measure as an instrument for the Atlantic trader
10-percent level, which reflects the lower level of East dummy. The results we report can be thought of as the
European urbanization in the base period, which is now reduced form for this IV strategy (a univariate regression of
1000-1400. the Atlantic trader dummy on the coastline-to-area measure
The results using the of

coastline-to-area
In AT,. In all columns, the mea-
estimate of P, th
coefficient to
sure for PATj are similar on the those
interaction term between thethe
using
Atlantic trader dummy. Most
log volume notably,
of Atlantic trade and the
potentialdif-
for
ferential growth related Atlantic
to trade
the at Atlantic,
the country level, nowis highly
captured by interactions with
significant, while the the Atlantic
interaction terms between
coastline-to-area ratio, Western is still Europe and dates from
strong; the 1600point
onward
estimates for the 3's are are again insignificant. Notably,
significant the R2 of this
starting in
1700 and quantitativelymore large.
restrictiveForregression
example,
is close to the the
R2 of
coefficient 131850 = 5.05 the flexible specifications reported
indicates in panel A.
approxi-
mately 6.5 percentage points These results more
suggest thaturbanization
the significant inter-
growth in the Netherlands action between
thanpotential in Italyfor Atlantic trade and
between
1300-1400 and 1850 (the Atlantic
dates after 1600 is due coastline-to-
to the importance of
area ratio for the Netherlands is 0.013 and for Atlantic trade, not some other parallel process.
Italy it is 0). This explains over half of the Table 3, which has the same structure as
differential 12-percentage-point actual urban-Table 2, provides regression evidence using log
ization growth between Italy and the Nether-GDP per capita as the dependent variable. Mad-
lands between these two dates. Other dison (2001) reports estimates of GDP per cap-
specifications using the Atlantic coastline-to- ita for 1500, 1600, 1700, 1820, and 1870. We
area measure in columns 9 and 10 give similar
take 1500 as the base year, and add interactions
results. between our measure of potential for Atlantic
Equation (1) allows for an arbitrary pattern
trade, PATj,of and the dates from 1600 on to
differential growth in Atlantic traders. capture the importance of Atlantic trade for
Instead,
we might expect the differential growth of At-
the country (so we can no longer test for pre-
lantic traders to be related to the volume of
existing trends using the interaction between
Atlantic trade. For this reason, in panel B we and 1500). Output numbers for 1870 are
PATj
report results from estimating a structured
already heavily influenced by differential indus-
model of the form trialization experiences of various countries, so
our baseline specification stops in 1820. For
completeness, we also report regressions that
(2) ujt= dt + j? + I at WEj'dt
t21600 extend the sample to 1870.
Parallel to our results in Table 2, West Euro-
pean countries grow faster after 1500, although
+ p [ PA Tj In ATt + Xj t y + ,jt
this pattern is somewhat less pronounced, espe-
cially when we limit the sample to 1500-1820.
where AT, denotes our estimate of the aggregate
The interactions
volume of Atlantic trade, shown in Figure 3. between the Atlantic trader
The construction of this variable is explained
dummy and the dates after 1600 are typically
briefly in the Appendix, and further details and
significant starting either in 1600 or 1700, and
robustness results can be found in Acemoglu et
quantitatively large. For example, the estimate of
al. (2002b). 31820 = 0.27 in column 3 indicates that Atlantic
Note that the model in equation (2) is moregrew, on average, 31 percent (=0.27 log
traders
restrictive than that in (1), since we are points)
forcingmore than non-Atlantic trader West Euro-
the pattern of P,'s in (1) to be the same pean
as that
nations between 1500 and 1820. Columns 4
to 7 report similar results to those in Table 2. The
pattern is the same when the sample is extended to
in our sample has an R2 of 0.30). Nevertheless, we with
1870, prefer the
unweighted regressions, when Britain
specification in the text, since it is plausible that, even
is excluded from the sample, and when Asian
conditional on being an Atlantic trader, a country with
countries
greater Atlantic coastline will trade and grow more are included. Columns 8 to 10 report
than
another with less coastline, making such similar results using the Atlantic coastline-to-area
an IV procedure
invalid. In fact, a comparison of columns 3-7 with columns
measure.
8-10 shows that the fit of the models with the Atlantic
Panel B of Table 3 reports structured
coastline-to-area ratio is marginally better than those with
similar
the Atlantic trader dummy, because the former measure
to (2) where we include the int
gives greater potential for trade to Britain and the Nether-
term, PATj ? In AT, instead of the f
lands, which have relatively high coastline-to-area ratios.
post-1500 interactions between PATj
TABLE 3-ATLANTIC TRADE AND GDP PER CAPITA

Dependent variable is country-level log GDP per capita
Panel,
Panel, Panel, 1500-1820, Panel,
Panel, Panel, Panel, Panel, 1500-1820, 1500-1820, without Panel, Panel, 1500-1820,
1500-1820 1500-1870 1500-1820 1500-1870 unweighted with Asia Britain 1500-1820 1500-1870 unweighted
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10)
Potential for Atlantic trad
Atlantic trader dummy Atlantic coastline-to-area
Panel A: Flexible specification
p-value for Western Europe X [0.44] [0.05] [0.92] [0.23] [0.17] [0.01] [0.89] [0.97] [0.58] [0.31]
year dummies, 1600-1820 or
-1870
Potential for Atlantic trade x 0.14 0.15 0.16 0.14 0.13 4.43 4.46 3.42
1600 (0.07) (0.11) (0.07) (0.13) (0.07) (2.42) (3.61) (2.21)
1700 (0.07) (0.10) (0.07) (0.12) (0.06) (2.27) (3.40) (2.21)
Potential for Atlantic trade X 0.27 0.27 0.18 0.27 0.20 12.03 11.89 8.06
1820 (0.06) (0.10) (0.07) (0.11) (0.06) (2.10) (3.14) (2.21)
Potential for Atlantic trade X 0.22 15.84
1870 (0.09) (2.93)
R-squared 0.94 0.94 0.96 0.95 0.96 0.92 0.96 0.96 0.96 0.96
p-value for Western Europe X [0.44] [0.051 [0.92] [0.48] [0.14] [0.01] [0.88] [0.99] [0.54] [0.23]
year dummies, 1600-1820 or
-1870
volume of Atlantic trade (0.016) (0.017) (0.018) (0.028) (0.015) (0.53) (0.50) (0.58)
R-squared 0.94 0.94 0.96 0.95 0.96 0.92 0.96 0.96 0.96 0.96
Notes: Standard errors are in parentheses. Panel regressions

regressions use total population in each year as weights, from
results with two different measures of potential for Atlantic
Spain, and Portugal; zero for all others) in columns 3, 4, 5, 6,
Germany, Ireland, and Norway (columns 8, 9, and 10). Colum
Volume of Atlantic trade is the log average number of voyag
regressions. The
dummies. This more overall patterns are not af- sp
structured
again shows that
fected.the differential
To save space, Table 4 reports only the
Western Europe structured
from specifications
1600 of equation
is closely
(2).
the extension of Atlantic trader. Weber (1905) and Landes (1998) argue that
Overall both Table 2 and Table 3 show an
religion is an important determinant of eco-
nomic
important role for Atlantic trade in West Euro-and social development. To assess the
pean growth. When the effect of Atlanticimportance
trade of religion, we allow Protestant
is not taken into account, the estimates countries
of ac's to grow at rates different from non-
are significant, positive, and large: Western Eu- countries by interacting a dummy for
Protestant
rope is growing faster than Eastern Europe beinganda majority Protestant country in 1600
Asia. Once Atlantic trade interactions are in- with year dummies starting in 1600.13 The p-
cluded, ac's are typically no longer significant,
values from the joint significance test reported
in columns 1 of panels A and C show that when
while the effect of Atlantic trade is very strong.
Furthermore, the estimates show no evidence theofdependent variable is the urbanization rate,
differential growth by Atlantic traders before these interactions are either insignificant or only
the age of Atlantic trade. marginally significant. In contrast, when the
dependent variable is log GDP per capita and
C. Other Determinants of Economic Performance
To check the robustness of our results, 13 See the Appendix for the construction of the variables
Table 4 adds a number of covariates to our basic used in this subsection.
TABLE 4-ROBUSTNESS CHECKS
Panel, Panel,
Panel, Panel, 1300 to 1850, Panel, Panel, Panel, 1500 to 1820, Panel,
1300-1850, 1300 to 1850, controlling 1300 to 1850, 1500-1820, 1500 to 1820, controlling 1500 to 1820,
controlling controlling for Roman controlling controlling controlling for Roman controlling
for religion for wars heritage for latitude for religion for wars heritage for latitude
(1) (2) (3) (4) (5) (6) (7) (8)
Using Atlantic trader dum
Panel A: Dependent variable
p-value for Western Europe X [0.67] [0.42] [0.49] [0.09] [0.24] [0.91] [0.15] [0.85]
year dummies, 1600-1850
Atlantic trader dummy x volume 0.013 0.011 0.011 0.011 0.089 0.070 0.125 0.078
of Atlantic trade (0.002) (0.003) (0.003) (0.002) (0.013) (0.017) (0.017) (0.015)
p-value for Protestant X year [0.07] [0.00]
Wars per year in preceding -0.0006 0.075
century (0.008) (0.029)
p-value for Roman heritage X [0.89] [0.00]
year
p-value for latitude X year [0.11] [0.00]
R-squared 0.89 0.89 0.89 0.89 0.97 0.95 0.97 0.97
Number of observations 192 176 192 192 96 88 96 96
Using Atlantic coastline-to-area mea
Panel C: Dependent variable is level of
p-value for Western Europe X [0.19] [0.23] [0.39] [0.09] [0.99] [0.98] [0.71] [0.81]
year dummies, 1600-1850
Coastline-to-area X volume of 0.79 0.76 0.75 0.78 2.78 3.33 3.32 2.96
Atlantic trade (0.08) (0.08) (0.07) (0.07) (0.54) (0.56) (0.54) (0.56)
p-value for Protestant X year [0.51] [0.05]
Wars per year in preceding 0.0082 0.033
century (0.007) (0.026)
p-value for Roman heritage X [0.77] [0.32]
year
p-value for latitude X year [0.52] [0.38]
R-squared 0.93 0.93 0.92 0.93 0.97 0.96 0.97 0.97
Notes: Standard errors are in parentheses. Weighted

in each year from McEvedy and Jones (1978). Depen
more than 5,000 population). Urbanization in Europe
(2001). Panels A and B use the Atlantic trader dum
the Netherlands; zero for all others). Panels C and
voyages per year. Protestant is a dummy for whether
dummies for 1600 and after. Wars per year are in pr
heritageis dummy for whether country was in the Rom
for capital city of this country today; this is interac
Table 1.
we use the Atlantic trader dummy for our po- Many social scientists view war-making as
tential Atlantic trade measure (panel B), thereanis important factor in the process of state
a significant effect from these religion times building and subsequent economic develop-
ment (e.g., Otto Hintze, 1975; Paul Kennedy,
year interactions. Nevertheless, this has little
impact on the pattern of differential growth 1987; Charles Tilly, 1990). Incidence of wars
between Western and Eastern Europe, or might be- also proxy for the importance of inter-
tween Atlantic and non-Atlantic traders. More- state competition, which many historians, in-
over, the quantitative effects of Protestantismcluding Jones (1981) and Hall (1985), have
on economic growth are smaller than those of emphasized. To assess the importance of
Atlantic trade.14 wars, in columns 2 and 6 we include a vari-
able which is the average number of years at
war during the previous period (a century or
14 The point estimates (not reported) imply that Protes-
tant countries experienced 4.5 percentage points greater
urbanization growth between 1500 and 1850, and 30 percent tions, including the Protestant dummy interacted with dates
more GDP growth between 1500 and 1820. The correspond- from 1600, are 8.4 percentage points more urbanization and
ing numbers for Atlantic traders in the flexible specifica- 41 percent more GDP growth.
Bairoch et
half-century). We find al. (1988). Figure
that this 4A shows that the
variable it
insignificant in the urban expansion of Western Europe
urbanization was driven
regression
has no effect on the by cities that were Atlantic
patterns ports. Table 5 con-
documented so
A popular view sees firms thisthe roots
pattern with regression of
analysis.Europ
It
growth in the Roman estimates modelsEmpire (e.g.,
similar to (1), with the log of Pe
Anderson, 1974; Jones, 1981;
city-level urban Landes,
population as the dependent 19
and perhaps in the variable. culture The key right-hand
of Ancient side variable is Gre
To investigate whether the interaction
Roman between a dummy indicating
heritage is
portant for the rise whetherof Europe,
the city we
is an Atlantic port (or in our crea
dummy that indicates alternative specification, whether
whether it is a po-
a country
part of the Roman tential Empire. We
Atlantic port), denotedthen
by APi, and inter
this variable with dates from 1600 onward to dummies from 1500.16 The sample for all re-
see whether there is differential growth gressions
de- in Table 5 is the balanced panel of
cities for which we have observations in each
pending on the extent of Roman heritage (col-
umns 3 and 7). These interactions are date.17
typically insignificant and do not affect the
In column 1, APi is a dummy for Atlantic
port, and observations are weighted by cur-
patterns reported in the previous tables. The
only exception is when we use log GDP per rent population in each year. The interactions
capita as the dependent variable and the At-
between the Atlantic port dummy and dates
lantic trader dummy for PATj. But in this after 1600, the APi ? d, terms, are statistically
case, the results indicate that countries withand economically significant and positive. For
Roman heritage grew more rapidly between example, the coefficient of 0.79 implies that
Atlantic ports grew approximately 120 per-
1400 and 1600, and significantly more slowly
thereafter. cent (P-0.79 log points) relative to other cities
Finally, in columns 4 and 8 we add inter- between 1300-1400 and 1800. Notably, there
actions between distance from the equator appears to be no differential growth of Atlan-
(the absolute value of the latitude of the na- tic ports before 1600, once again supporting
tion's capital) and dates from 1600 to see the notion that the growth of these ports is
whether the move of economic activity away related to the emergence of trading and colo-
from Southern toward Northern Europe can nial opportunities via the Atlantic. In the bot-
explain the rise of Atlantic nations. Once tom panel, we report results from a structured
again the addition of these variables does not specification similar to equation (2). Once
affect the importance of Atlantic trade, and again, the coefficient on the interaction term
the latitude interactions are typically insignif- between the volume of Atlantic trade and the
icant (except in panel B, where the point
estimates have the wrong sign).
16 See the Appendix of Acemoglu et al. (2002b) for the
D. Urban Expansion and Atlantic Ports list of Atlantic ports in our panel. In Figures 4 and 5, we use
the definition of actual Atlantic port. In the regression
We next turn to an analysis of data on the analysis, we also report results with a dummy for potential
population of individual cities compiled by Atlantic port. The distinction between Atlantic port and
potential Atlantic port parallels our use of Atlantic trader
dummy and the coastline-to-area measure of potential for
Atlantic trade in Tables 2, 3, and 4.
15 As an alternative exercise more favorable to the war 17 The focus on a balanced panel of cities avoids
hypothesis, we also controlled for the average numberproblems of of composition bias, which would result from
years at war that ended in victory during the previous 50 theorfact that cities enter the dataset only once they exceed
100 years. To the extent that rich nations are more likely a certain
to threshold (typically 5,000 people). For example,
succeed in war, the coefficient on this variable will be if an area is growing rapidly, the population of the
biased upward. The inclusion of this variable has remark- smaller cities in this area will also grow and exceed the
ably little effect on our estimates of the interaction between relevant threshold, but the addition of cities with popu-
access to the Atlantic (or Atlantic trader) and the post-1500 lation around 5,000 may reduce the average population of
years (or the volume of Atlantic trade), and this war variablethe cities in this area. Nevertheless, in practice this bias
itself is insignificant when the dependent variable is thedoes not seem to be important, and in Acemoglu et al.
urbanization rate and marginally significant with log GDP(2002b) we report similar results using a larger, unbal-
per capita. anced panel of cities.
Year
-- West European cities Atlantic ports -- East European cities
FIGURE 4A. AVERAGE OF LOG CITY POPULATION IN ATLANTIC PORTS, WEST EUROPEAN CITIES
PORTS, AND EASTERN EUROPE (BALANCED PANEL), 1300-1850
5.
4.5
.0
T13 400OT1555 165 1700 1755018015
Year
-- Inland West European cities --*--Atlantic ports - ---Mediterranean ports

FIGURE 4B. AVERAGE OF LOG CITY POPULATION IN ATLANTIC PORTS, MEDITERRANEAN PORTS, AND WEST EUROPEAN C
THAT ARE NOT PORTS (BALANCED PANEL), 1300-1850
Amsterdam to show that the results are not

Atlantic port dummy is highly significant, and
she R2 of this more restrictive regression driven
is by these two major cities. The coeffi-
almost the same as the regression reported incients on Atlantic port times year interactions
the top panel. are approximately halved from 1700 onward,
Column 2 reports estimates from an un- but they remain significant. Column 6 adds a
weighted regression. The results are similar, but full set of country times year interactions to
quantitatively smaller, since large Atlantic show the differential growth of Atlantic ports
ports, such as London and Amsterdam, no relative to other cities in the same country. The
longer get more weight. Columns 3 and 4 report coefficients on Atlantic port times year interac-
weighted and unweighted estimates from simi- tions after 1700 are about half those of column
lar models, with a dummy for potential Atlantic 1, but still highly statistically significant.
port, that is, any city that in our balanced panel
could have been used as a port for Atlantic
trade. The results are similar to those in col-
actual-Atlantic ports from 1400 to 1500, some of the
umns 1 and 2.18 Column 5 drops Londoncoefficients
and on potential Atlantic port are higher than the
corresponding coefficients on Atlantic port. However, cu-
mulative growth between 1500 and any subsequent date is
always higher for Atlantic ports than for potential Atlantic
ports. It should also be noted that some potential Atlantic
18 To allow for the specification test discussed in the text,
these regressions use 1300-1400 as the base period. Be- ports flourished as a result of secondary trade from the
cause there was rapid growth in a few potential-but not Atlantic.
TABLE 5-GROWTH OF ATLANTIC PORTS

Dependent variable is log city population
Balanced panel, Balanced panel,

Balanced 1300-1850, weighted
panel, weighted, Balanced 1300-1850,
Balanced Balanced Balanced Balanced 1300-1850, with full set panel, with
panel, panel, panel, panel, weighted, of country weighted Mediterranean
1300-1850, 1300-1850, 1300-1850, 1300-1850, without London X year 1300-1850, and Atlantic
weighted unweighted weighted unweighted and Amsterdam interactions with Asia ports
(1) (2) (3) (4) (5) (6) (7) (8)
Panel A: Flexible specificati
Atlantic port Potential Atlantic port Atlantic port
p-value for Western Europe [0.34] [0.05] [0.30] [0.16] [0.28] [0.30] [0.41] [0.32]
1850
Atlantic port x 1500 -0.04 -0.05 0.027 0.048 -0.008 -0.072 -0.03 -0.05
(0.19) (0.20) (0.17) (0.16) (0.20) (0.20) (0.20) (0.19)
Atlantic port X 1600 0.36 0.46 0.41 0.43 0.41 0.36 0.36 0.40
(0.16) (0.20) (0.14) (0.16) (0.17) (0.17) (0.16) (0.16)
Atlantic port X 1700 0.71 0.62 0.76 0.76 0.297 0.47 0.71 0.74
(0.14) (0.20) (0.13) (0.16) (0.17) (0.17) (0.15) (0.15)
Atlantic port x 1750 0.70 0.71 0.79 0.89 0.26 0.46 0.7 0.72
(0.14) (0.20) (0.13) (0.16) (0.16) (0.16) (0.15) (0.14)
Atlantic port X 1800 0.79 0.92 0.95 1.10 0.32 0.57 0.799 0.84
(0.14) (0.20) (0.12) (0.16) (0.15) (0.15) (0.14) (0.14)
Atlantic port X 1850 1.09 1.00 1.19 1.23 0.48 0.46 1.09 1.10
(0.13) (0.20) (0.12) (0.16) (0.14) (0.14) (0.14) (0.13)
p-value for Mediterranean
port X year dummies, [0.19]
1500-1850
R-squared 0.92 0.79 0.92 0.80 0.89 0.95 0.94 0.92
p-value for Western Europe [0.23] [0.04] [0.23] [0.10] [0.31] [0.33] [0.30] [0.20]
x year dummies, 1600-
1850
Volume of Atlantic trade x 0.17 0.16 0.17 0.16 0.065 0.078 0.17 0.17
Atlantic port (0.02) (0.02) (0.017) (0.024) (0.019) (0.018) (0.018) (0.017)
p-value for Mediterranean
Port X year dummies, [0.14]
1500-1850
R-squared 0.92 0.79 0.92 0.79 0.89 0.95 0.94 0.92

Notes: Dependent variable is log city population, from Bairoch et al. (1988). Weig
columns report balanced panel regressions for 1300, 1400, 1500, 1600, 1700, 1750
The Atlantic port dummy equals one for a city used as an Atlantic port. Potenti
Atlantic ports plus ports in Belgium, Germany, and Ireland (there are no poten
trade is log average voyages per year; this is multiplied by the Atlantic port dum
is multiplied by 100. Year dummies are included for all years from 1400. Weste
ports and potential Atlantic ports, see the Appendix of Acemoglu et al. (2002b).
Column 7 adds Asian cities from Tertius Chan- column 8 show that Mediterranean ports grew at
dler (1987), so now West European cities are similar rates to inland European cities; what we
being compared to both East European and find is not a general port effect but an Atlantic port
Asian cities. The results are similar, but also effect.
show the differential growth of all West Euro- Was the urban and economic expansion of
pean cities relative to Asian cities.19 Atlantic nations driven solely by the growth of
Is there something special about ports, or is it Atlantic ports? Figure 5A shows the expansion
of Iberian (Spanish and Portuguese) Atlantic
Atlantic ports that are behaving differently after
1500? To answer this question, Figure 4B and ports, other Iberian cities, and West European
inland cities. Almost all of the differential
growth of Spain and Portugal comes from At-
'9 We also investigated the importance of the same controls
lantic
used in Table 4 for country-level growth. The results, which
ports. In fact, non-Atlantic parts of Spain
and Portugal grew more slowly than West Eu-
are reported in Acemoglu et al. (2002b), show that the pattern
in Table 5 is robust to the inclusion of these controls. ropean inland cities. Relevant to our hypothesis
45
4 --Aai o
8A i
.5-
-Iberian cities, not Atlantic ports
- Iberian Atlantic ports
-.- Inland West European cities

FIGURE 5A. AVERAGE OF LOG CITY POPULATION IN IBERIAN ATLANTIC PORTS, OTHER IBE
ATLANTIC PORTS, AND INLAND WEST EUROPEAN CITIES (BALANCED PANEL), 13
6-
1300 1400 1500 1600 1700 1750 1800 1850
Year
-x- British cities not Atlantic ports
- British Atlantic ports
-- Inland West European cities

FIGURE 5B. AVERAGE OF LOG CITY POPULATION IN BRITISH ATLANTIC PORTS, OTHER BRITISH CITIES THAT ARE NOT
ATLANTIC PORTS, AND INLAND WEST EUROPEAN CITIES (BALANCED PANEL), 1300-1850
below, this Iberian pattern contrasts with the for Atlantic trade and post-1500 economic de-
steady growth of non-Atlantic British cities velopment, and suggests that the opportunities
shown in Figure 5B. (Notice that the non- to trade via the Atlantic, and the associated
Atlantic British line starts below the West Eu- profits from colonialism and slavery, played an
ropean line and overtakes it by 1850; see important role in the rise of Europe. This evi-
Acemoglu et al., 2002b, for further evidence.) dence weighs against theories linking the rise of
Western Europe to the continuation of pre-1500
E. Interpretation trends driven by certain distinctive characteris-
tics of European nations or cultures, such as
The evidence presented so far has established Roman heritage or religion.
a significant relationship between the potential At face value, this evidence is more consistent
with theories emphasizing

II. Our the
Hypothesisdirect con
bution of profits from Atlantic trade, colo
ism, and slavery, such as those advanced A. The Argument
by Williams (1944), Frank (1978), and Wal-
lerstein (1974-1980). It is undoubtedly true Our hypothesis is that Atlantic trade-the
that colonial relations with the New World and opening of the sea routes to the New World,
Asia contributed to European growth. Neverthe- Africa, and Asia and the building of colonial
less, quantitative analyses, for example, Enger-
empires--contributed to the process of West
man (1972), Engerman and O'Brien (1991), European growth between 1500 and 1850, not
O'Brien (1982), and Bairoch (1993, ch. 5), sug-only through direct economic effects, but also
gest that the volume of trade and the profitsindirectly by inducing fundamental institutional
generated by Atlantic trade appear to be too change. Atlantic trade in Britain and the Neth-
small to account for much of European growth erlands (or, more appropriately, in England and
the Duchy of Burgundy) altered the balance of
directly. Atlantic trade may also have played an
important direct role by inducing a reallocation
political power by enriching and strengthening
commercial interests outside the royal circle,
of resources within Europe, even if profits from
trading were low (as would be the case in including
a various overseas merchants, slave
competitive economy). This direct channel traders,
is and various colonial planters. Through
unlikely to be the whole story, however, since this channel, it contributed to the emergence
the volume of trade was small. For example, of political institutions protecting merchants
Bairoch (1993) calculates that commodity trade against royal power.21 Our hypothesis also im-
between Western Europe and the rest of the plies that the tendency for institutional change
world amounted to less than 4 percent of the to emerge should have been much stronger in
GNP of Western Europe before 1800. Although societies with existing checks on royal power
than in countries with absolutist regimes and
recent work by Inikori (2002) argues that profits
from colonial activities, in particular from the
monarchy-controlled trade monopolies, because
in these latter countries Atlantic trade did not
slave trade, were larger than those estimated by
O'Brien, even with his estimates, the direct enrich and strengthen merchant groups outside
effect of Atlantic trade and colonialism could the royal circle as much, and did not disturb the
political status quo.
account for the rise of Europe only with signif-
icant increasing returns to scale in leadingThis hypothesis can be broken into 4 subhy-
sectors.20 potheses:
Overall, therefore, the weight of evidence
inclines us toward a view in which the rise of(a) Political institutions placing limits and con-
Europe reflects not only the direct effects of straints on state power are essential for the
Atlantic trade and colonialism but also a major incentives to undertake investments and for
social transformation induced by these sustained economic growth;
opportunities. (b) In early modern Europe, such political in-
stitutions were favored by commercial in-
terests outside the royal circle, but were not
welcome by the monarchy and its allies;
20 For example, O'Brien (1982) calculates that total prof-
(c) Institutions favored by economically and
its from British trade with less developed regions of the
world during the late eighteenth century were approxi-
mately ?5.6 million, while total gross investment during the
same period stood at ?10.3 million. Inikori (2002, Table
4.2) suggests that imports from the periphery around 1800 21 An additional channel via which Atlantic trade may
were about double O'Brien's estimate. During this period, have contributed to institutional change may be the desire of
the aggregate savings rate was between 12 and 14 percent, the monarchy to secure the property rights of merchants in
so if we assume that this savings rate also applies to profits order to encourage long-term investments in long-distance
from trade, the contribution of these profits to aggregate trade. Our reading of the relevant history, discussed below,
capital accumulation would be less than 15 percent, even makes us believe that the greater contribution of Atlantic
using Inikori's estimates. Even assuming considerably trade to the development of capitalist institutions was by
higher savings rates, the contribution would remain rela- strengthening commercial interests in favor of political
tively small. change in their fight against the monarchy.
B. Atlantic Trade
politically powerful groups are and Commercial
more Interests
likely
to prevail; and
We now discuss the major
(d) In countries with nonabsolutist initialchanges in the
polit-
ical institutions, Atlantic trade of
political institutions and colonial
Britain and the Nether-
activity enriched and lands. Our argument highlights
strengthened commer- that in both
cases: new
cial interests, including (a) the political
groups institutions at the begin-
without
ties to the monarchy.ning of the sixteenth century, though not as
absolutist as in Spain and Portugal, did not
Together these four subhypotheses
provide secure property rights to yield
commercial
our main hypothesis.interests
In countries with
outside the royal circle;23 easy
(b) there was
access to the Atlantic and without
significant conflict betweena strong
these merchant
absolutist monarchy, groups and the monarchy;
Atlantic trade (c)provided
Atlantic trade
substantial profits and political
created large profits for power
some of these for mer-
commercial interests chants
outsidewho were the
in favorroyal
of institutional
circle.
This group could then demand
change, and who then and obtain
used part of these profit
significant institutional reforms
to support protecting
the conflict against the crown.
their property rights. With their newly gained
power and property rights, Britain.-In the British case
they the two mile-
took advan-
tage of the growth opportunities stones in the emergence of offered by
political institutions
Atlantic trade, invested more, traded more, constraining royal power are the (English) Civil
and fueled the First Great Divergence.22 War of 1642-1649, when Parliamentarian
Initial institutions placing sufficient checks forces defeated Charles I, and the Glorious Rev-
on the monarchy are essential for the fourth olution of 1688-1689, where James II was de-
subhypothesis, so that merchants not directly posed by Parliament with the help of an
associated with the crown benefit signifi- invading Dutch army, and replaced by William
cantly from Atlantic trade. When the power of of Orange and a parliamentary regime with a
the crown was relatively unchecked, as in constitutional monarchy. Although there is no
Spain, Portugal, and France, trade was largely consensus among historians on the relative im-
monopolized and regulated, the crown and its portance of these two events, this is secondary
allies became the main beneficiaries of the for our focus. What is important is that there
Atlantic expansion, and institutional change was a major improvement in British political
did not take place. Therefore, our hypothesis institutions between the mid-seventeenth and
explains not only the major role played by
early-eighteenth centuries.
Atlantic trade in West European growth, Although but after the War of the Roses, Britain
also why economic growth took off in Britain was never as absolutist as France, Portugal, and
and the Netherlands, and not in Spain Spain, and both the Tudor and Stuart monarchs con-
Portugal. sistently attempted to expand their powers. The
Acemoglu et al. (2002b) provide historical insecurity of property rights was clear during
evidence consistent with these subhypotheses. the reign of Henry VIII, when there were con-
Space constraints preclude us from going tinual into attempts to regulate trade and undermine
details here. We refer the reader to that paper the powers of Parliament (see Geoffrey R. El-
for a more detailed discussion, and briefly dis-
ton, 1991). A significant attempt to establish a
cuss the evidence related to the fourth subhy- form of absolutism came during the period of
pothesis, which is perhaps the most important so-called "personal rule" of Charles I, after he
for our argument. dissolved his third Parliament in 1629, raised
taxes in an unconstitutional way, and used the
22 The establishment of political institutions limiting the23 More explicitly, these commercial interests included
power of the monarchy may have also created positive
merchants not receiving crown-granted monopolies, slave
traders, various producers in the colonies and parts of the
spillovers in the rest of the economy, especially for indus-
trial capitalists (consistent with the subsequent growth of
gentry in Britain, and the majority of the Dutch merchants
non-Atlantic British cities in Figure 5B). not allied with the Habsburg monarchy in the Netherlands.
Star Chamber to manipulate legal

similar. The East India Company underdecisio
the con-
his favor (Kevin Sharpe, trol of Josiah 1992).
Child supported James II, his
Although undoubtedly complex social claim to tax without consent of Parliament, and
events, both the Civil War and the Glorious his right to grant trading monopolies-of which
Revolution were also battles over the rights and it was the main beneficiary. But the majority of
prerogatives of the monarchy.24 In both cases, commercial interests, alienated by James II's
commercial interests (including large segments, grants of various monopoly privileges, and es-
but not all, of the merchants and the gentry) pecially the interlopers-merchants trying to
predominantly sided with those demanding re- break into trade with Asia-were on the side of
strictions on the power of the monarchy. During the revolution (Bruce G. Carruthers, 1996; Pin-
the Civil War, for example, the majority of the cus, 2002). These merchants also received
merchants, and even many of those with royal strong support from Whigs who sought to con-
monopolies, supported Parliament (see Brenner, strain the king (Henry Horwitz, 1978). Summa-
1973, 2003; Mary Keeler, 1954; Douglas Brun- rizing the evidence, Pincus (2002, p. 34)
ton and D. H. Pennington, 1954).25 Members of concludes, "England's merchant community ac-
the Commons from the City of London, which tively supported William's plan for invasion,
was the main center of mercantile activity, as
and provided a key financial prop to the regime
well as many non-London commercial constit- in the critical early months."
uencies, such as Southampton, Newcastle, and The victory of Parliament in the Civil War
Liverpool, supported Parliament against the and after the Glorious Revolution introduced
King. David H. Sacks (1991, pp. 230-47) major checks on royal power and strengthened
shows that in Bristol trading, commercial and the rights of merchants. After the Civil War, the
industrial interests outside of the Merchant Ad- fraction of MPs who were merchants increased
venturers (the trading company then enjoying dramatically. Although even in the 1690s this
the royal monopoly) were Parliamentarians. number was not large enough to constitute a
Brunton and Pennington (1954, p. 62) also note majority on its own, as David Stasavage (2003)
that "in the country as a whole there was prob-shows, the interests of merchants were assured
ably a preponderance of Parliamentarian feelingby the formation of the Whig coalition of mer-
among merchants." chants and Protestant landowners. This period
The situation for the Glorious Revolution is also witnessed a series of policies favoring mer-
chants, including the Navigation Acts of 1651
and 1660, which restricted trade with British
24 Other prominent interpretations of the English Civil
War have emphasized various factors apart from those we
colonies to British ships and merchants (J. E.
stress here. Conrad Russell (1990) argues that the Civil WarFarnell, 1964; J. P. Cooper, 1972) and strength-
was a plot by the traditional aristocracy to regain power itened the position of British overseas traders,
had lost under the Tudors. Many, for example, John especiallyS. slave traders (see Geoffrey Holmes,
Morrill (1993), focus on the role of religious differences in
1993, p. 64). Similarly, the Glorious Revolution
determining who supported which side, and recent work by
Brian Manning (1996) stresses more general class conflict. led to a series of economic reforms sought by
Although there are doubtless elements of truth in these merchants outside the royal circle, including the
approaches, the general role of mercantile interests seems dismantling of all monopoly charters, except the
undeniable (see Roger C. Richardson, 1998, for a balanced
East India Company (Perry Gauci, 2001) and
overview of the debate).
25 Valerie Pearl's seminal study (1961) argued that there
the establishment of the Bank of England. The
were political divisions between such groups as the Mer- conventional wisdom in economic history em-
chant Adventurers, who benefited from monopolies granted phasizes the importance of these institutional
by the crown, and new merchants, who did not. For exam- changes for the protection of property rights,
ple, the two pre-Civil War MPs for Bristol, Humphrey
and how they led to a wave of innovations in
Hooke and Richard Long, were Royalists. Robert Ashton
(1979, 1996), on the other hand, documented that even economic institutions, particularly in financial
merchants who enjoyed monopolies tended to oppose the markets (e.g., North and Weingast, 1989; Car-
crown by the time of the Civil War, and argued "the
ruthers, 1996; Larry Neal, 2000).
majority of the City fathers, far from being the natural
Critically for our thesis, the major changes in
supporters of Stuart absolutism at the end of the period of
political
Charles I's personal rule in the late 1630's, were as alien-
institutions and the new assertiveness
ated from royal policies as were the vast majority of the of merchant groups coincided with the expan-
political nation" (1996, p. 3). sion of British mercantile groups trading
through the Atlantic. men's

The wages
East from India
E. H. Phelps Brown and
Company
was founded in 1600, and from 1600 to 1630 Sheila V. Hopkins, 1955). These profits were
there was an unprecedented wave of investment substantial relative to the personal wealth of
by merchants, gentry, and even some aristoc- merchants and gentry during this time period.
racy in overseas ventures (Theodore K. Rabb, For example, personal wealth of ?10,000 in the
1967). Virginia tobacco cultivation boomed in early seventeenth century was enough to be
the 1620s, and beginning in the 1640s, the very rich. A minimum investment of ?2,000
highly profitable Caribbean sugar colonies de- was required to become a director of the East
veloped. Finally, in the 1650s the British began India Company, and ?200 represented a sub-
to take over the Atlantic slave trade. stantial investment (Brenner, 1973, pp. 62-63;
A number of historians, most notably Bren- Brenner, 2003, p. 78). Moreover, because prof-
ner (2003), have emphasized that Atlantic mer-its from Atlantic trade were highly concen-
chants were critical in ensuring the military trated, they created a number of very wealthy
victory of Parliament in the Civil War. In hismerchants (see Grassby, 1995, pp. 248 and
famous book, Lawrence Stone also points out
263). These profits were also large relative to
the resources necessary to make a difference
that "... other important merchant elements can
now be identified, men interested especially in
politically and militarily.26
the American trades, in New England coloniza- Many merchants used their profits from At-
tion, and in breaking the monopoly of the Eastlantic trade to support the conflict against the
India and Levant Companies. They were new crown. For example, the Earl of Warwick, who
men in new fields of entrepreneurial endeavor earned at least ?50,000 from privateering in one
who chafed at the political and economic stran-
year prior to the Civil War (W. Frank Craven,
glehold of the older established monopolistic 1930), applied his fortune and experience with
oligarchies. These men were important mem- naval warfare to effectively oppose the king.27
More generally, Parliament during the Civil
bers of the group of radicals who seized control
of London at a critical moment in 1641, and soWar was partly financed by taxes on, and profits
swung the power and influence of the city de- from, Atlantic trade. Parliamentary leaders such
cisively on the side of Parliament" (1973, p. as Sir Edwin Sandys and John Pym were active
144). in colonization and trade with the Americas.
Atlantic trade indeed created large profits for James I, well aware of the links between major
the fortunate who succeeded in this high-risk Atlantic trading ventures and parliamentary
endeavor. In the Appendix, we use data on
profits from K. N. Chaudhuri (1965) and de
Vries and van der Woude (1997), on investment 26 From 1550 to 1688, the English monarch was always
from Rabb (1967), on trade from Inikori (2002) short of cash, and war typically required additional funds.
and de Vries (2003), and on rates of return from For example, King Charles I was forced to recall Parliament
in 1640 because he needed to raise about ?300,000
Richard Grassby (1969, 1995) and O'Brien (?250,000 in 1600 prices) for war against Scotland-
(1982) to estimate profits of various merchant enough to pay and equip about 12,000 soldiers for a year
companies, slave traders, and colonial planters (Ashton, 1960, p. 176). Total English government revenues
from Atlantic trade during this period. These were around ?500,000 in 1600 and about ?850,000 in 1640
(Richard Bean, 1973). Armies on both sides of the English
estimates suggest that profits from Atlantic
Civil War were small, 10,000 to 20,000 men, and most of
trade were negligible before 1575, about the conflict was small-scale local operations by regional
?40,000 on average per annum from 1576 to forces (Geoffrey Parker, 1988, pp. 28 and 41). Parliament
1600 (mostly from a few highly profitable pri- fielded 27,000 at the battle of Marston Moor and just 13,000
vateering expeditions), perhaps ?200,000 on av- at Naseby; the presence or absence of a few thousand troops
was therefore decisive (Parker, 1988, p. 41). Kennedy
erage per annum from 1601 to 1650, and around
(1987, p. 63) estimates that the average annual cost of a
?500,000 per annum from 1651 to 1675. Profits soldier was around ?27 in 1657 (about ?20 in 1600 prices).
then rose with the expansion of sugar and the 27 A privateer is an armed private vessel bearing the
slave trade to around ?900,000 per annum from authorization or commission of a sovereign power to attack
an enemy, i.e., a privately funded and manned extension of
1676 to 1700, ?1.7m per annum from 1701 to
a country's naval forces. Privateers typically engaged in
1750, and probably about ?5m per annum in the trading activities as well as fighting (see, for example, the
late eighteenth century (all figures adjusted to case of John Hawkins discussed in N. A. M. Rodger, 1997,
1600 prices using the index of building crafts- p. 201).
opposition, 1590, thein

intervened successful
the Dutch offensives of 1591-of t
election
surer 1597 under theCompany,
for
Virginia the command of Maurice of Nassau, sayin
"Choose the devil if the
youembargoes
will,against Dutch
but tradenot
with SpainSir E
Sandys" (Rabb, 1998, and p.
Portugal
349). in 1585-1590, 1598-1609, and for
Similarly,
Glorious Revolution, 1621-1647, and the Twelve(2002,
Pincus Years Truce from pp. 3
1609 to 1621.
provides evidence that "the merchant com
nity poured moneyThe into
major turningWilliam
point came in the of Ora
1590s
coffers in 1688"--perhaps
when important changes around
in Dutch military?800,
and
(about ?500,000 in 1600
commercialprices),
strategy becameenoughevident. New mil- to
for a sizable army. itary tactics made it possible for the Dutch to
hold their own against experienced Spanish in-
The Netherlands.-Dutch
fantry (Geoffreymerchants
Parker, 1988, pp. 19-20). This alw
was combined with aand
had considerable autonomy fiscal and access
financial "rev- to p
olution" that allowed
itable trade opportunities. states, particularly Hol-
Nevertheless, pri
the Dutch Revolt, theland, both to increase their tax revenues
Netherlands (inand fact
entire Duchy of Burgundy)
borrow against future taxes wasin orderpart
to finance of
Habsburg Empire, the
andwar effort
the (Fritschy, 2003). At the pow
political same
Dutch merchants was
time, the limited. The
Dutch took the critical strategic Habs
step of
seekingattempted
monarchy consistently direct access to Asian toand American
increa
political dominance over
trade and
centers. This fiscal
both enriched reve
a generation of
from the Netherlands Dutch (W.
merchants and undermined Spanish
Fritschy et al.,and 2
The critical improvement Portuguese revenues sufficiently politica
in Dutch to induce
stitutions was therefore the establishment of the Philip III to offer peace. By 1605 it was clear to
independent Dutch Republic, with political a Spanish royal councillor, the Count of Oli-
dominance and economic security for mer- vares, that victory would go to "whoever is left
chants, including both the established wealthy with the last escudo" (Parker, 1977, p. 238).
regents and the new merchants immigrating Merchants were naturally the primary politi-
from Antwerp and Germany.28 cal and economic force on the side of indepen-
Dutch politics was shaped by the conflict dence. De Vries and van der Woude (1997)
between Dutch merchants and the Habsburg argue that "urban economic interests ultimately
monarchy starting in the fifteenth century, and believed it advantageous to escape the
before then by the conflict between merchants Habsburg imperial framework" (p. 369). They
and the Duke of Burgundy. By 1493 Maximil- also note that, in the case of Amsterdam, the
ian of Habsburg had reversed the Grand Privi- "[Habsburgs'] opponents included most of the
lege of 1477, which gave the states general the city's international merchants .... [I]n 1578 a
right to gather on their own initiative and curbed new Amsterdam city council threw the city's lot
the right of the ruler to raise taxes. After 1552, in with the Prince of Orange ... among the mer-
war with France and England increased the chants returning from ... exile were [those
Habsburgs' fiscal needs and led them to impose whose families] and several generations of their
a large tax burden on the Netherlands. Growing descendents would long dominate the city"
fiscal and religious resentment in 1572 led to a (1997, p. 365).
series of uprisings, mostly orchestrated by com- Commercial interests involved in the Atlantic
mercial interests (see Jonathan I. Israel, 1995). were particularly important in the shaping of the
These culminated in a war of independence, conflict (see, for example, Israel, 1982, 1995;
which began with the Revolt in the 1570s and Herman van der Wee, 1993, pp. 272-73). In
did not end until 1648, punctuated by Philip II 1609, in an attempt to prevent the creation of
diverting resources to intervene in France after the Dutch West India Company, Philip III of-
fered peace and independence in return for a
Dutch withdrawal from both the West and East
28 By the year 1600, a third of the population of Amster-
Indies. But these terms were "simply not feasi-
dam was immigrants (Israel, 1995, p. 309). In 1631, there
were 685 citizens of Amsterdam with wealth over 25,000ble politically because many regents and elite
florins. Only half of them were native Hollanders (Parker,merchants had invested heavily in the [Dutch
1977, p. 251). East India Company]" (Israel, 1995, p. 402).
Critical wascamp
Prominent in the anti-peace the Dutch was
merchants'
theimprov-
fa-
mous Dutch leader anding economic fortunes,
general partly from
Maurice ofAtlantic
Nas-
sau, who was heavily involved
trade, in
which were used colonial
to field a powerful
trades, and "Reynier Pauw, army againstthe the preeminent
Habsburg Empire. The Bal-
fig-
ure and leader of the anti-truce faction in Hol- tic trade is widely recognized as important for
land who, besides being a champion of the West the Dutch economy in the sixteenth century,
India Company project, had been a founder but profits from Atlantic trade quickly sur-
member of the East India Company and for passed those from Baltic trade and provided
many years a director of its Amsterdam cham- the funds necessary for the Dutch military
ber" (Israel, 1982, p. 40). effort against the Habsburgs (Israel, 1989).
De Vries and van der Woude (1997) estimate
It is therefore no surprise that independence
that the annual profits of the Dutch East India
put merchants firmly in control of the political
process. De Vries and van der Woude (1997, p. Company alone between 1630 and 1670, 2.1
587) describe the new political elite following million guilders per annum, were more than
the Dutch Revolt as "6 to 8% of urban house- twice the total annual profits from the Baltic
holds with incomes in excess of 1,000 guilders grain trade between 1590 and 1599 (pp. 373
per year. This was the grote burgerij from and 447).
whom was drawn the political and commercialFritschy (2003) estimates that, as a result of
leadership of the country. Here we find, first these
and developments, tax revenue per head in
foremost, the merchants." They also point out Holland rose nearly fivefold from 1575 to
how merchants dominated the governments1610, of while population increased by a third
Leiden, Rotterdam, and the cities in the two (see also Tracy, 2001, Table 7.2). These rev-
largest states, Zeeland and Holland. enues enabled Holland to provide 960,000
The Dutch economy had been expanding guilders for the war in 1579 and to pay five
since the fifteenth century and experienced ad- million guilders in 1599 (Parker, 1977, p.
vances in economic institutions, including in 251). Israel (1995, pp. 241-42) summarizes
shipping, agriculture, and finance, particularly the basic reason for the Dutch victory as
public finance, prior to this revolt (James D. follows: "From 1590, there was a dramatic
Tracy, 1985; Jan Luiten van Zanden, 1993). improvement in the Republic's economic cir-
Nevertheless, the potential of these institutions cumstances. Commerce and shipping ex-
was severely limited under the Habsburg yoke panded enormously, as did the towns. As a
because of the threat of arbitrary taxation. For result, the financial power of the states rapidly
example, Marjolien Hart et al. (1997, fig. 2.3, p. grew, and it was possible to improve the army
19) show that, despite the changes in financial vastly, both qualitatively, and quantitatively,
institutions in the mid-sixteenth century, inter- within a short space of time. The army in-
est rates did not fall systematically until after creased from 20,000 men in 1588 to 32,000
1600, when they declined to about one-third of by 1595, and its artillery, methods of trans-
their pre-revolt level. Consequently, the econ- portation, and training were transformed." By
omy appears to have experienced a major trans- 1629, the Dutch were able to field an army of
formation after the process of political change 77,000 men, 50 percent larger than the Span-
began. Van Zanden (1993) notes, "We can see ish army of Flanders (Israel, 1995, p. 507).
the starting point of the rapid urbanization at Overall, both the British and Dutch evidence,
1580" (pp. 35-36), and continues, "during this therefore, appears favorable to our hypothesis
transformation process, the pre-1580 proto- that Atlantic trade enriched a group of mer-
capitalist structure disappeared ... out of this chants who then played a critical role in the
'unspecialised' class of small-holders, fisher- emergence of new political institutions con-
men, homeworkers and sailors, separate classes straining the power of the crown.
of large farmers, agricultural laborers and
craftsmen arose" (p. 39). Similarly, Braudel
(1995, p. 547) dates the start of the divergence Spain, Portugal and France.-There is gen-
between the South and North of Europe to 1590 eral agreement that Spanish and Portuguese po-
with the "explosion" of Dutch commerce and litical institutions at the turn of the sixteenth
the rise of Amsterdam. century were more absolutist than those in
France, on the other and

Britain and the Netherlands, hand, candid
be viewed as
not
rience similar reform.29
an intermediate case. Although French institu-
A key difference tions were equally
between absolutist (W.
these F. Church,
cases and
British-Dutch 1969; David Parrott,
patterns is the 2001), organizati
early Atlantic ac-
trade which, in turn, reflected
tivity enriched some merchantdifferenc
groups, in par-
political institutions. Throughout
ticular the protestant Huguenots. this per
However, the
the granting of trade monarchymonopolies was the
soon clashed with and defeated a ce
tool for the rulers to raise revenue. When the Huguenots, first with the siege of La Rochelle
power of the monarchs was constrained, theyby Louis XIII and then the outlawing of the
Protestant church by Louis XIV (see, e.g., War-
were unable to use this fiscal tool. For example,
the English Parliament successfully blocked ren C. Scoville, 1960). The monarchy then kept
many attempts of both Tudor and Stuart mon- much of overseas trading activity as a royal
archs to create such monopolies (Christopher
monopoly, especially under Colbert (see, e.g.,
Hill, 1969). Consequently, in Britain "mostDavis, 1973b, pp. 222-24; William Doyle,
trade was carried on by individuals and small
1974; pp. 210-11). Nevertheless, certain strong
partnerships, and not by the Company of Mer-French commercial and industrial interests de-
chant Adventurers, the Levant Company ... orveloped and, arguably, forced institutional
change before, during, and after the French
others of their kind" (Davis, 1973a, p. 41). At
Revolution (see G. Lefebvre, 1947, and Doyle,
least by 1600 there was quite free entry into the
British merchant class (R. G. Lang, 1974). In 1988, for the debate on the origins of the French
contrast, Rondo Cameron (1993, p. 127) de-Revolution).
scribes the Portuguese situation as follows: Overall, the evidence is therefore consistent
"The spice trade in the East Indies of the Por-with our thesis that in Spain and Portugal, and
tuguese Empire was a crown monopoly; the also largely in France, merchant interests with
Portuguese navy doubled as a merchant fleet, sufficient power to challenge the crown did not
and all spices had to be sold through the Casa develop because the crown, and groups allied to
da India (India House) in Lisbon ... no com- it, were the main beneficiaries of the profits
merce existed between Portugal and the East from transoceanic trade and plunder.
except that organized and controlled by the
state." (See also Charles R. Boxer, 1985; Earl J. III. Atlantic Trade and Institutional Change
Hamilton, 1948.) Similarly, in Spain colonial
trade was a monopoly of the Crown of Castille We now attempt to substantiate our hypoth-
esis further by providing empirical evidence on
and was delegated to the Casa de Contratacid6n
(House of Trade) in Seville, which was itselfthe link between changes in political institutions
closely monitored by the government (James H.and Atlantic trade. A prerequisite for this exer-
Parry, 1966, ch. 2). cise is a measure of relevant political institu-
tions. Unfortunately, no such measure exists for
this period.30 So as a first step, we attempted to
29 Davis (1973a, p. 66), for example, emphasizes the create a measure of political institutions for
high degree of absolute control by the monarchy in Spain, as European countries between 1300 and 1850,
follows: [in Castille] "the king ruled subject only to weak
constitutional restraints. In the first decades of the sixteenth
adapting the definition of "constraint on the
century the crown had reduced the pretensions of the Castil-
executive" from Gurr's Polity dataset. This is a
lian nobility and towns, so that the representative body, the useful concept since it measures limitations on
Cortes, could obstruct but not in the last resort prevent royal the arbitrary use of power by the executive (for
tax raising," and contrasts this with the situation in Britain the relevant time period, the monarchy), and is
(e.g., Davis, 1973a, p. 210).
The modem literature, in particular, I. A. A. Thompson
(1994) and Michael A. R. Graves (2001), suggests that the
extent of Spanish absolutism has been overemphasized by 30 An alternative approach would be to use the terms of
scholars such as North and Thomas (1973), and points out finance for trading entities, as suggested by one of our
important differences between Castille and such other parts reviewers. Although there are some data on this, the cov-
of Iberia as Aragon and Catalonia. Nevertheless, it is cer- erage is not broad enough for our purposes. Moreover, the
tainly true that the Spanish Crown was able to create trade terms of finance may be affected by the demand for and
monopolies and raise taxes in ways that the Tudor and supply of financial resources, as well as the underlying
Stuart monarchies could not. security of property rights.
results show
presumably correlated with the significant
securitydifferential
of improve-
prop-
ments inand
erty rights for merchants institutions
the among Atlantic over
control traders
the monopoly of overseas trade by the and no evidence of differential existing
monarchy.31 trends. Unlike our results when urbanization
We follow the Polity IV coding handbook, was the dependent variable, however, even
giving a score of between 1 and 7 for constraint after the inclusion of Atlantic trade interac-
on the executive to each country.32 For 1800 tions, there is some evidence of differential
and 1850, we use the Polity coding for con- West European effects.
straint on the executive, where available. For Other columns use the same controls and
earlier periods, we coded these measures our- time interactions as in Table 4. Although the
selves. The main source for this exercise was F-statistics show that many of these time inter-
William L. Langer (1972), a classic historical
actions are significant, neither Protestantism,
encyclopedia, written with a focus on constitu-nor wars, nor Roman heritage, nor latitude ap-
tional events. We supplemented this work with pears to have led to greater institutional change
the more recent edition by Peter N. Stearns after 1500 (for example, institutions in Protes-
(2001). While there may be disagreement about tant countries improved more rapidly until
the precise values used in particular years, the
1750, and significantly more slowly thereafter).
general level of constraint on the executive doesOverall, these results suggest that, following
the surge in Atlantic trade, there were greater
not appear to be controversial. For example, the
absolutist regimes of France, Portugal, and strides toward better political institutions in na-
Spain clearly had much less constraint on tions the engaged in Atlantic trade and colonialism
executive than did the Netherlands after inde- (or in those with a greater potential to engage in
pendence or England after the Civil War. Atlantic trade).
Acemoglu et al. (2002b) give further details and
report the entire series. IV. The Role of Initial Institutions
Table 6 documents the differential changes
in institutions between Atlantic traders and We now investigate whether, as implied by
other West European nations by estimatingour an hypothesis, it was predominantly societ-
equation similar to (1) with constraint onies with less absolutist initial institutions (and
the
executive as the left-hand-side variable. The relatedly, those without widespread royal
granted monopoly rights in overseas trade)
that took advantage of the opportunities of-
fered by Atlantic trade. We also investigate
31 The measure of constraint on the executive may not be
the
ideal for our purposes, however, since a number of signif-related hypothesis of North and Thomas
icant constraints on monarchs were imposed by the (1973)
nobles and Jones (1981) that post-1500 de-
velopments
and did not necessarily serve to protect the rights of mer- largely reflect divergence be-
chants. For example, in much of the 1500-1750 period,
tween societies that had very different
Poland had a highly constrained executive. But there was
political
relatively little protection for urban merchants; most of the institutions at the turn of the fifteenth
century. This differs from our hypothesis,
rights rested with the nobility. For this reason, we modified
the definition of constraint on the executive to create an which emphasizes the interaction between
alternative measure, which we refer to as "protection for initial political institutions and Atlantic trade.
capital." The coding of this measure depends on the formal
rights given to urban merchants, particularly their protection
To investigate these ideas, we estimate mod-
in the event of a dispute with the nobility or monarch. The els of the following form:
results using this measure are similar to those using con-
straint on the executive, and are contained in Acemoglu et
al. (2002b).
(3) ut = d,+ j+ 8 a~ * WEj, * d
t;1600
32 A value of 1 means "there are no regular limitations on

the executive's actions," 3 means "there are some real but
limited restraints on the executive," 5 means "the executive +/3 In AT, PATj
has more effective authority than any accountability group,
but is subject to substantial constraints by them," and 7
means "accountability groups have effective authority equal +t 1500
Yt "-j,1415 dt
to or greater than the executive in most activity." Scores of
2, 4, and 6 are used for intermediate values. See Monty G.
Marshall and Keith Jaggers (2000). + r . In AT, PATj . Ij,1415 + Ejt
TABLE 6--ATLANTIC TRADE AND INSTITUTIONS

Dependent variable is constraint on the executive
Panel, Panel,
1300 to 1850, 1300 to 1850,
Panel, using Atlantic using Atlantic
Panel, Panel, 1300 to 1850, Panel, coastline-to-area coastline-to-area
1300-1850, 1300 to 1850, controlling 1300 to 1850, measure of measure of
Panel, Panel, Panel, controlling controlling for Roman controlling potential for potential for
1300-1850 1300-1850 1300-1850 for religion for wars heritage for latitude Atlantic trade Atlantic trade
(1) (2) (3) (4) (5) (6) (7) (8) (9)
p-value for Western Europe [0.00] [0.35] [0.00] [0.00] [0.00] [0.26] [0.00] [0.00] [0.00]
x year dummies, 1600-
1850
Potential for Atlantic trade -0.42 -20.83
x 1500 (0.47) (22.94)
Potential for Atlantic trade -0.14 10.94
x 1600 (0.52) (22.91)
Potential for Atlantic trade 0.29 62.12
x 1700 (0.48) (21.14)
x 1750 (0.46) (20.78)
x 1800 (0.44) (18.97)
x 1850 (0.41) (17.13)
Potential for Atlantic trade 0.42 0.45 0.43 0.39 0.43 12.99
X volume of Atlantic (0.06) (0.06) (0.06) (0.06) (0.06) (2.31)
trade
p-value for Protestant X [0.00]

year effect
Wars per year in preceding -0.034
century (0.20)
p-value for Roman heritage [0.05]
x year
p-value for latitude X year [0.49]
R-squared 0.75 0.85 0.81 0.84 0.81 0.82 0.81 0.81 0.79
Number of observations 192 192 192 192 176 192 192 192 192
Notes: Standard errors are in parentheses. Weighted panel regressions with fu

year, from McEvedy and Jones (1978). Dependent variable is constraint on ex
arbitrary action by the executive. All columns use the Atlantic trader dummy
measure of potential for Atlantic trade, apart from columns 8 and 9, which u
Germany, Ireland, and Norway). Volume of Atlantic trade is the log average
Protestant in 1600. Protestant X year is the Protestant dummy interacted wit
1700, 1700-1750 for 1750, 1750-1800 for 1800, and 1800-1850 for 1850. Roma
with year dummies for 1600 and after. Latitude is distance from the equator
where, as before, uj, is these

the interaction terms. The In AT, - PATj
urbanization term, onIn A
rate,
the other hand,
is our measure of Atlantic measures thePATj
trade, effect of Atlantic
is agai
trade for a given
either a dummy for Atlantic level of institutions.
trader or the In the table,
Atlant
this term
coastline-to-area ratio, and is evaluated
Ij,1415 at the lowest
isscore of insti-
country
initial institutions, calculated
tutions, i.e., foras the
Ij,1415 = 1, soaverage of it
the coefficient on
constraint on the executive in 1400 and 1500. We this term measures the growth contribution of
choose the average of these two dates to capture Atlantic trade and access to the Atlantic for a
the long-term institutional differences in the pre- society with the worst possible initial institutions.
1500 period. The y, Ij,1415 d, terms allow any The variable In AT, * PATj' 9 Ij,1415 tests the
differential economic trends related to differences hypothesis of interest. A significant coefficient
in initial institutions that would apply even with rq implies that there were divergent paths taken
no access to the Atlantic. Significant coefficients by countries with different initial institutions,
on these interaction terms would imply that at but this divergence relates significantly to
least part of the post-1500 developments in Eu- whether they took advantage of the opportuni-
rope reflect divergent paths taken by countries ties presented by Atlantic trade.
with different initial institutions, independent of The results are reported in Table 7 using the
the effects of Atlantic trade. The table reports the Atlantic trader dummy for the potential for At-
p-value from a joint significance test for all of lantic trade, PATj (results using the coastline-
TABLE 7-INTERACTION BETWEEN INITIAL INSTITUTIONS AND ATLANTIC TRADE
Using Atlantic trader dummy as measure of Atlantic trade
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10)
Panel A: Dependent variable is u

Panel, Panel, Panel, Panel, Panel, Panel, Panel, Panel, Panel, Panel,
1300-1850 1300-1850 1300-1850 1300-1850 1300-1850, 1000-1850 1000-1850 1000-1850 1000-1850 1000-1850,
unweighted unweighted
Atlantic trader dummy x 0.011 0.011 -0.0095 -0.0026 0.0082 0.0084 -0.012 -0.009
p-value for initial institutions [0.61] [0.51] [0.71] [0.85] [0.12] [0.08] [0.42] [0.92]
x year (1600, 1700, 1750,
1800, 1850)
Volume of Atlantic trade x 0.021 0.017 0.021 0.022
initial institutions x (0.004) (0.005) (0.004) (0.004)
Atlantic trader dummy
R-squared 0.87 0.88 0.89 0.90 0.83 0.86 0.86 0.87 0.87 0.81
Panel B: Dependent variable is Log GDP per c

1500-1820 1500-1820 1500-1820 1500-1820 1500-1820, 1500-1870 1500-1870 1500-1870 1500-1870 1500-1870,
Atlantic trader dummy x 0.069 0.069 -0.068 -0.079 0.040 0.040 -0.123 -0.110
X year (1600, 1700, 1750,
1800, 1850)
Volume of Atlantic trade x 0.14 0.12 0.16 0.11
R-squared 0.94 0.96 0.96 0.97 0.97 0.95 0.95 0.95 0.96 0.96
Panel C: Dependent variable is constraint o

1300-1850 1300-1850 1300-1850 1300-1850 1300-1850, 1500-1850 1500-1850 1500-1850 1500-1850 1500-1850,
Atlantic trader dummy X 0.43 0.42 -0.001 -0.096 0.35 0.34 -0.11 -0.15
X year (1600, 1700, 1750,
1800, 1850)
Volume of Atlantic trade X 0.44 0.26 0.47 0.29
R-squared 0.76 0.81 0.82 0.84 0.76 0.72 0.77 0.78 0.70 0.71
Notes: Standard errors are in parentheses. Weighted panel regressio

year, from McEvedy and Jones (1978). Dependent variable is ur
Western Europe dummies interacted with years (from 1600) arein
al. (1988), and urbanization in Asia is from Bairoch (1998). Log G
initial institutions are the average of institutions in 1400 and 1500.
Trade is the log average number of voyages per year and is demean
see Appendix, Table 1.
to-area ratio measure are identical, and are AT, - PATj, is generally significant by itself, and
contained in Acemoglu et al., 2002b). Panel A also when entered against the y, t Ij,1415 ? d,
presents estimates of equation (3), while panel terms. This shows that the ability to take advan-
B presents estimates of a similar equation with tage of Atlantic trade was of major impor-
log income per capita as the dependent variable. tance for post-1500 developments. When we
Panel C shows the role of the interaction be-
tween initial institutions and Atlantic trade for add the triple interaction In AT, > PAT. ?
j,,1415, this is typically the only significant term.33
the evolution of institutions.
The results in all three panels are similar. The
interaction between the aggregate measure of 33 When the In AT, - PATj Ij,1415 term is included, In
Atlantic trade and potential for Atlantic trade, In
AT, ? PATj has typically a negative and sometimes significant
emphasizing distinctive
For example, the coefficient of European
0.021characteris-
on th
interaction term intics
column 4dynamics,
and purely internal implies that
but is consis-
ization in an Atlantic trader with an initial content with those that give a prominent role to
straint on the executive equal to 3, like the
Atlantic trade and deemphasize the continuation
Netherlands, grew by 15.7 percentage points moreof pre-1500 trends or permanent European char-
than urbanization in an Atlantic trader countryacteristics, such as religion, Roman heritage, or
with the worst initial institutions, 1 (0.021 X 2 X
European culture. If these factors are important,
3.74 ; 0.157, where 3.74 is the change in the log it must be because of the interaction between
volume of Atlantic trade between 1500 and 1800). them and the opportunity to trade in the
These results imply that the patterns reported Atlantic.
so far are explained almost entirely by the fact We suggested that Atlantic trade contrib-
that countries with initially constrained rulersuted to European growth through an indirect
were able to take advantage of the opportunities institutional channel as well as via its more
presented by Atlantic trade. Although Spain andobvious direct effects. Our hypothesis is that
Portugal benefited from the transfer of resourcesAtlantic trade generated large profits for com-
mercial interests in favor of institutional
from the New World during the sixteenth century,
they neither developed the political institutionschange in countries that met two crucial pre-
conditions: easy access to the Atlantic and
to support economic growth nor experienced
sustained economic development. Our evidence nonabsolutist initial institutions. These profits
suggests that these differential patterns are
swung the balance of political power away
closely related to the fact that they started thefrom the monarchy and induced significant
post-1500 era with absolutist regimes in controlreforms in political institutions, which intro-
of overseas activity. On the other hand, it ap- duced more secure property rights and paved
pears that the Italian city-states, which startedthe way for further innovations in economic
with relatively nonabsolutist institutions aroundinstitutions. With their newly gained property
1500, did not experience further economic de-rights, English and Dutch merchant nations
velopment because they did not have as easy invested more, traded more, and spurred eco-
access to the Atlantic as Britain and the Neth- nomic growth.
erlands did. Britain and the Netherlands were Our analysis stopped before West European
the economic winners because they had both industrialization, focusing instead on economic
and political developments between the six-
relatively good political institutions to start with
and ready access to the Atlantic. teenth and nineteenth centuries. Consequently,
we did not investigate why some successful
V. Conclusion Atlantic nations, like the Dutch, did not indus-
trialize early, while Britain and some non-
This paper documents a distinctive and inter- Atlantic nations such as Germany did. We
esting fact related to the process of European suspect that the answer is related to interstate
growth: between 1500 and 1850, the growth competition,
of "defensive modernization" re-
nations with access to the Atlantic, and the sponses of certain European nations, and, pos-
growth of Atlantic ports, account for most of the sibly, the adverse effects of oligarchies on
differential growth of Western Europe relative industrialization, but we leave further investiga-
to Eastern Europe. It therefore appears that the tion of this issue for future research.
rise of Europe between 1500 and 1850 was The process of early modern European
largely the rise of Atlantic Europe and the rise growth is undoubtedly multifaceted. We are
of Atlantic ports. This fact weighs against the- aware that our account leaves out many impor-
ories of the origins of European development tant aspects of the social and economic devel-
opment of Western Europe. Our intention is not
to offer a mono-causal explanation for the rise
coefficient, reinforcing the conclusion that nations with of Europe, but rather to suggest that Atlantic
absolutist institutions did not benefit much, or at all, from
trade played a major role in this process. It is
the opportunity to trade in the Atlantic. In addition, in three
specifications in Table 7, the interactions between initial our hope that our hypothesis and the empirical
institutions and dates after 1600 are jointly significant, but patterns documented in this paper will encour-
the coefficients (not shown in the tables) are negative. age further research.
APPENDIX: CONSTRUCTION OF KEY VARIABLES

1601-1650:-Profits for the vertically inte-
grated Dutch East India Company from
Country-Level and City-Level 1630-1670 were 2.1m guilders (de Vries and
Urbanization
Data.-Calculated from vanthe
der Woude,
urban 1997, p. population
447); British trade
dataset of Bairoch et with al. Asia(1988)
was around a half
and of Dutch levels in
country
population estimates from the seventeenth
McEvedy century and(de Vries, 2003); and
Jones
(1978). Details are provided the guilder-pound
in the exchange
Appendix rate fluctuated
of
Acemoglu et al. (2002b). around 10, so total British profits from Asian
trade (including interlopers and suppliers)
Trade Measures.-Acemoglu were likely around
et ?100,000 per annum
al. (2002b)
explain in detail the construction (which is consistent withof Chaudhuri,
Atlantic1965).
and Mediterranean trade volume measures. Around ?10m was invested between 1600 and
These series are annual average voyages 1630 in joint stock companies active in the
equivalent for ships of 400 deadweight tons. New World and Africa (Rabb, 1967). Even
The Mediterranean trade estimates are based when a company failed to show returns, as
on information on Venetian trade levels from with the Virginia Company, individual colo-
Frederic Chapin Lane (1934), but we also nists and their suppliers could earn good prof-
include Genoa, Catalonia, and other trading its. Privateering in the 1630s and 1640s was
centers (Carla Rahn Phillips, 1990). Estimates highly profitable (Craven, 1930). We assume
exclude short-haul coastal trade and trade by the same level of earnings in the New World
the British and Dutch-these countries also as in East India trade, i.e., ?100,000 per an-
engaged in Mediterranean trade as theynum, builtyielding an estimate of average annual
their naval power and trading empiresprofits after of ?200,000 in 1600 prices.
1600.
Key sources for our Atlantic trade series 1651-1675:-From 1650 we use the annual
are de Vries (2003), Tracy (1990), Davis value of export production in British America
(1962), and N. Steensgaard (1974). We have from Inikori (2002, p. 181). This was
also constructed an alternative Atlantic trade ?421,000 in 1651-1670 and ?2.7m per annum
series based on Kevin H. O'Rourke and Jef- for 1711-1760; we take the average value for
frey G. Williamson (2002). Robustness re- 1651-1700 to be ?1m. O'Brien's (1982) num-
sults using this series are reported in bers suggest that profits were 50 percent of
Acemoglu et al. (2002b). The growth of our import volume, implying profits of ?500,000.
volume-based Atlantic trade series matches To this, we add ?100,000 per annum from
closely the sum of annual value of Europe- the East India trade with the same calcula-
Africa-New World commerce series in Inikori tion as above, yielding profits of ?600,000
(2002, Table 4.8, p. 202) and de Vries' (2003) per annum, or approximately ?500,000 in 1600
trade flows with Asia. prices.
Estimates of British Profits from Trade.-All 1676-1700:-Inikori' s British America

trade estimate is ?2.7m per annum for 1
figures are approximately in 1600 prices using
the index of building craftsmen's wages, con-1760; we assume ?2m per annum for 16
structed by Phelps Brown and Hopkins (1955),1700, which implies profits of ?1m. Add
which shows a doubling of wages from 1500 East
to India profits of ?100,000 gives an aver
1600, then a 50 percent increase from 1600 toannual profit estimate of ?1.1m, or ?900,00
1600 prices.
1650, followed by rough stability through 1700
and a further 50 percent increase during the
eighteenth century. 1701-1750:-Inikori's British America trade
estimate is ?6.8m for 1761-1780; we take the
1576-1600:-Rabb (1967, pp. 61-62) calcu-average value for 1701-1750 to be ?4m, thus
lates that total profits from privateering profits
in of ?2m. Adding again profits of
1585-1603 were ?700,000. Dividing by 25 ?100,000 from East India gives an average an-
years gives an average of ?28,000 per year,
nual profit estimate of ?2.1m, about ?1.7m in
approximately ?40,000 in 1600 prices. 1600 prices.
APPENDIX, TABLE 1-VARIABLE DEFINITIO
Variable Description Source
Log GDP per capita in 1500, 1600, 1700, 1820, Logarithm of GDP per capita Maddison (2001)
and 1870
Population in 1000, 1200, 1300, 1400, 1500, Total population McEvedy and Jones (1978)
1600, 1700, 1750, 1800, and 1850
Urban population in 1000, 1200, 1300, 1400, Population living in urban areas Bairoch et al. (1988), as described in the
1500, 1600, 1700, 1750, 1800, and 1850 Appendix. We use Bairoch (1988) for
urbanization in Asia and Chandler (
Asian city population.
Atlantic and Mediterranean ports City that is on the Atlantic or Mediterranean Bairoch et al. (1988) for cities; location from
Doring Kindersley (DK) Publishers (1997).
Ratio of Atlantic coastline to area Length of Atlantic coastline divided by land area. Coastline is from Integrated Coastline
Both assume modern borders. Atlantic coastline Management (on the Web). Land area is from
includes the whole coast of Portugal, Ireland, the World Bank, World Development
Belgium, the Netherlands, and Britain. It also Indicators, CD-Rom, 1999.
includes half the coastline of Spain, two-thirds
the coastline of France, half the coastline of
Germany, one-quarter the coastline of Denmark,
and half the coastline of Norway.
Dummy for Atlantic trader Equals one for Britain, France, the Netherlands, Coded by authors based on composition of
Portugal, and Spain Atlantic trade. Acemoglu et al. (2002b) for
details.
Dummy for Atlantic port Equals one for a city that was used as an Atlantic Bairoch et al. (1988) for cities; location from
port; zero otherwise DK Publishing (1997).
Dummy for potential Atlantic port Equals one for a city that is on the Atlantic; zero Bairoch et al. (1988) for cities; location from
otherwise DK Publishing (1997).
Volume of Atlantic trade Average voyages per year equivalent See Appendix. Acemoglu et al. (2002b) provide
full details.
Constraint on executive in 1800, 1850, 1960, A seven-category scale, from I to 7, with a higher Polity IV dataset, download
1970, 1990, and intervening years score indicating more constraints. Score of I University Consortium for Political and
indicates unlimited authority; score of 3 Social Research. Variable described in Gurr
indicates slight to moderate limitations; score of (1997).
5 indicates substantial limitations; score of 7
indicates executive parity or subordination.
Scores of 2, 4, and 6 indicate intermediate
values.
Constraint on executive from 1000 to 1800 A seven-category scale, from 1 to 7, with a higher Coded by authors from Langer (1972); see
score indicating more constraints. Score of I Appendix for more details.
indicates unlimited authority; score of 3
indicates slight to moderate limitations; score of
5 indicates substantial limitations; score of 7
indicates executive parity or subordination.
Scores of 2, 4, and 6 indicate intermediate
values.
Religion variables Majority religion of city or country Coded by authors from Langer (1972)
Roman heritage Coded equal to one for countries that were part of Coded by authors from Langer (1972)
the Roman Empire and not subsequently part of
the Ottoman Empire.
Wars per year Number of years of war in preceding 50 or 100 Coded by authors from Kohn (1999)
years. Civil wars and colonial wars outside
Europe are excluded.
Latitude Absolute value of the latitude of the country, Country data from La Porta et al. (1999). City
scaled to take values between 0 and I, where 0 data from Bairoch et al. (1988).
is the equator
1751-1800:-Inikori's British America trade Finland, Germany, the Netherlands, Norway,

estimates of ?19,545 for 1781-1800 implies Sweden, and Switzerland were majority Protes-
annual profits of around ?10m, i.e., double tant in 1600. Germany was largely Protestant,
O'Brien's profit estimate (approximately ?5m but the balance remained unclear until the end
in 1600 prices). of the 1600s. The results are robust to coding
It is worth noting that our profit estimates Germany as Catholic. We have also tried an
would be significantly higher prior to 1650 if alternative
we specification in which religion is
also included British and Dutch trade in Asian
coded directly as Catholic, Muslim, Orthodox,
goods passing through Portugal, Spain, and the
or Protestant, with essentially identical results.
Levant (Israel, 1989; Brenner, 2003).
Roman Heritage.-From Langer (1972) the
Religion.-From Langer (1972) and Stearns following countries had a Roman heritage: Bel-
(2001), Britain, the Czech Republic, Denmark,
gium, Britain, France, Italy, the Netherlands,
Portugal, Spain, and Acemoglu,

Switzerland. Bulgaria,
Daron; Johnson, Simon and Ro
James A. "Reversal
Greece, Romania, and Yugoslavia of Fortune:
had their Ro- Geog
man traditions eradicated by a long
and Institutions in the period ofM
Making of the
Ottoman rule. If they areWorld Income
also Distribution."
coded with Quarterly
Ro-
man heritage, the effect nal
ofof Economics,
this variable2002a,
is 117(4),
weak- pp.
ened further. 94.
Acemoglu, Daron; Johnson, Simon and Ro
Wars.-George Childs Kohn (1999) lists James A. "The Rise of Europe: Atlantic
the dates of every European war from about Trade, Institutional Change and Economic
AD 1000, and a brief explanation of partici- Growth." National Bureau of Economic Re-
pants, duration, intensity, and outcome. We search, Inc., NBER Working Papers: No.
calculate the average number of years of 9378, 2002b.
war in a time interval before each date in Anderson, Perry. Passages from antiquity tofeu-
our dataset: for the preceding 100 years dalism. London: NLB Press, 1974.
through 1700 and for the preceding 50 years Ashton, Robert. The crown and the money mar-
for 1750, 1800, and 1850, excluding purely ket, 1603-1640. Oxford: Oxford University
civil wars and colonial wars outside Europe. Press, 1960.
Alternative codings such as dropping "minor" Ashton, Robert. The city and the court, 1603-
wars does not affect our main results. Kohn
1643. Cambridge: Cambridge University
Press, 1979.
(1999) does not provide reliable information
on the wars of Finland and Greece during Ashton,
this Robert. "Insurgency, Counter-Insurgency
and Inaction: Three Phases in the Role of the
period, so we drop these countries from re-
gressions involving the "wars per year" City in the Great Rebellion," in Stephen Por-
variable. ter, ed., London and the Civil War. New
York: St. Martin's Press, 1996.
Constraint on Executive.-This variable is Bairoch, Paul. Cities and economic develop-
coded using the method of Polity IV as de- ment: From the dawn of history to the
scribed in footnote 32. Our primary source present.
in Chicago: University of Chicago
this exercise is the historical encyclopediaPress,
of 1988.
Langer (1972), supplemented with Stearns Bairoch, Paul. Economics and world history:
(2001). Acemoglu et al. (2002b) provide more Myths and paradoxes. Chicago: University of
details on our coding, the full series, and Chicago Press, 1993.
robustness checks with some reasonable al- Bairoch, Paul; Batou, Jean and Chevre, Pierre. La
population des villes europeenees de 800 a
ternatives. We also checked our results using
1850: Banque de donnees et analyse som-
the three codings of institutions in De Long
and Shleifer (1993), which are somewhat maire
dif- des resultats. (The population of Euro-
ferent from ours, for example awarding pean
a cities, 800-1850: Data bank and short
summary of results.) Centre of International
much better score to feudal systems than does
coding based on the Polity criteria. Using
Economic History Series, No. 2. Geneva: Li-
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to Droz, 1988.
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State." Journal of Economic History, 1973,
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By DARON ACEMOGLU, SIMON JOHNSON, AND JAMES ROBINSON*

1300 1400 1500 1600 1700 1750 1800 1850

--e-- Western Europe -+- Eastern Europe Asia

1300 1400 1500 1600 1700 1750 1800 1850

1500 1600 1700 1820 1870

---- Western Europe -+- Eastern Europe --- Asia

1500 1600 1700 1820 1870

TABLE 1-DESCRIPTIVE STATISTICS

1300 1400 1500 1600 1700 1750 1800

--Atlantic voyages per year ...... Mediterranean voyages per year

Portugal, and to a large and Andrei Shleifer,

6 See, for example, North (1981), Mancur Olson (1982),

estimates of McEvedyfirm the

Table 1 gives the estimates of urbanization

weighted. The second column is weighted by

TABLE 2-ATLANTIC TRADE AND URBANIZATION

Panel, Panel, Panel, Panel,

Potential for Atlantic trad

Atlantic trader dummy Atlantic coastline-to-area

Panel A: Flexible specification

Panel B: Structured specification

Notes: Standard errors are in parentheses. Panel regressions with ful

the Atlantic trader pean

The results using the of

TABLE 3-ATLANTIC TRADE AND GDP PER CAPITA

Potential for Atlantic trad

Atlantic trader dummy Atlantic coastline-to-area

Panel A: Flexible specification

Panel B: Structured specification

Notes: Standard errors are in parentheses. Panel regressions

TABLE 4-ROBUSTNESS CHECKS

Using Atlantic trader dum

Panel A: Dependent variable

Using Atlantic coastline-to-area mea

Panel C: Dependent variable is level of

Notes: Standard errors are in parentheses. Weighted

-- West European cities Atlantic ports -- East European cities

T13 400OT1555 165 1700 1755018015

-- Inland West European cities --*--Atlantic ports - ---Mediterranean ports

Amsterdam to show that the results are not

TABLE 5-GROWTH OF ATLANTIC PORTS

Balanced panel, Balanced panel,

Panel A: Flexible specificati

Atlantic port Potential Atlantic port Atlantic port

Panel B: Structured specification

R-squared 0.92 0.79 0.92 0.79 0.89 0.95 0.94 0.92

-Iberian cities, not Atlantic ports

- Iberian Atlantic ports

-.- Inland West European cities

1300 1400 1500 1600 1700 1750 1800 1850

-x- British cities not Atlantic ports

- British Atlantic ports

-- Inland West European cities

with theories emphasizing

Star Chamber to manipulate legal

through the Atlantic. men's

opposition, 1590, thein

France, on the other and

32 A value of 1 means "there are no regular limitations on

TABLE 6--ATLANTIC TRADE AND INSTITUTIONS

p-value for Protestant X [0.00]

Notes: Standard errors are in parentheses. Weighted panel regressions with fu