The Rise of Europe: Atlantic Trade, Institutional Change and Economic Growth

This paper documents that the Rise of Western Europe between 1500 and 1850 is largely accounted for by the growth of European nations with access to the Atlantic and, in particular, by those that engaged in colonialism and transoceanic trade. Significant variation in economics performance among Atlantic trading nations is explained by the fact that countries with relatively non–absolutist initial institutions experienced faster growth.

We suggest that Atlantic trade and colonialism affected Europe not only directly, but also indirectly by inducing institutional changes. In particular, where initial political institutions placed significant checks on the monarchy, the growth of New World and Asian trade after 1500 strengthened merchant groups in favor of constraining the power of the monarchy further, and enabled them to demand and obtain changes in institutions to protect their property rights. These induced changed in political institutions were central to the subsequent process of economic growth. In contrast, when initial political institutions were more absolutist, trade was monopolized by the crown and groups loyal to the monarchy, and a strong coalition in favor of institutional change failed to emerge.