Acemoglu, D.

(2003) ‘Root Causes: A historical approach to assessing the role of

institutions in economic development’, Finance & Development, June 2003.

Current economic environment has large differences in the standard of living between rich and
poor countries
• Sub-Saharan Africa has 1/20th of the US

Proximate cause
● Immediate causes

Proximate causes of discrepancy include

● Lacking functioning markets
● Low education
● Outdated machinery and technology

Two fundamental hypothesis over what the fundamental driver is

● Geography
○ Nature as primary force
● Institutions
○ Human influence as primary force

The three items that make up good institutions are

● Enforcement of property rights for all members of the society
○ Allows incentives for variety of individuals to invest and take part in economic life
● Constraints on elites, politicians, or other powerful groups
○ Cannot create uneven playing field or expropriate income/assets (see property
rights)
● Degree of equal opportunity
○ Allows everyone to make investments and participate in economic life
○ Especially access to education (investment in human capital)

Geography
● Most poor nations are near the equator, hot regions with torrential rains and tropical
diseases
● Correlated, but may not be causation

There is also a correlation between good institutions and economic development, but may not
be causation

In order to go through proving one or the other, need to look at a natural experiment
● Exogenous variation across institutions despite other similarities such as geography and
other unknown omitted potential factors
● Look to colonization
 ○ Colonization allowed for a change in institutions, but did not affect the underlying
geographies of nations
○ Hypothesis for geography as the explanatory variable states that if institutions did
not have an effect, rich nations that were colonized would still be rich even after
the colonization caused a change in their institutions
● Natural experiment shows that there was a reversal of fortunes
○ Those who had extractive institutions in place became poorer
○ Those that had good institutions installed became richer
○ Ex. Plot of 1995 PPP vs. urbanization
■ Urbanization used as proxy, as only rich/developed economies could
sustain high urbanization
● Shows that institutions play a bigger role in their development of economies, consistent
with institutions hypothesis

There is no reason for economies/countries to gravitate towards good institutions

• Institutions affect both
○ The amount of income in a country
○ The distribution of income
● As such, despite good institutions potentially increasing the overall wealth of an
economy, powerful groups may hesitate to set these in place if it reduces their overall
wealth (due to a more even distribution of income)
○ Ex. Austria-Hungary and Russia blocked industrialization in the 19th century as it
would reduce elites’ privilege

Even in the colonization example, good institutions were only chosen when they were
personally beneficial, there were only in place in settler colonies (where the settlers would be
living)
● Chose bad institutions when they could extract resources, maximizing their own utility

Geography could have also impacted the institutions that the colonists decided to put into place
● Ex. Caribbean was good for growing sugar, therefore use extractive institutions

Changing institutions creates winners and losers

● Often the individuals who lose in the scenarios are powerful enough to block change

Institutional change only occurs when

● Groups that want change grow powerful enough
● Those who lose under institutional change (such as the elites) are credibly compensated

Evolving institutions is the fascists way for economic change

Redish, A. (2019) ‘Treaty of Paris vs Treaty of Niagara: Rethinking Canadian economic
history in the 21st century’. Canadian Journal of Economics / Revue canadienne
d’économique 52(4)

Paper argues that as the field of economics focuses on natural resource exports as drivers of
Canadian economic growth, there has been neglect in looking at the Aboriginal individuals who
originally owned these resources
● There has also not been enough focus on Aboriginal individuals and their impact on the
development of the Canadian economy

Current economic view of Canada is the “Staples thesis”

● Developed by Harold A. Innis and William A. MacIntosh
● Canada’s economic growth was focused on exporting natural resources (staples)
● As such, these exports’ characteristics determined the growth of Canada’s economy
● Argued that Canada’s comparative advantage was in this resource base, should export
these resource and import manufactured goods
● St. Lawrence river used as a key transportation route from Canada to Europe
● Fish and furs -> Timber, wheat, oil, and minerals

Literature has ignored Aboriginal peoples

● While large focus on European land resource transfer treaties (Treaty of Paris), the
Aboriginal equivalents (Treaty of Niagara) has not been featured

First Canadian economic theory thesis was focused on the staples thesis
● When individuals went to test this thesis, one assumption they used was that Canada
was “an empty land” before the Europeans arrived
● Ex. St. Lawrence River seaway allowed Canada to grow and conduct trade among other
things
○ While seen as a triumph, was only made possible by flooding Akwesasne
Mohawk lands, lands that were not empty

Nation to Nation
● Period prior to extensive settlement
● Treaty making was how Aboriginal peoples and Europeans defined their relationships
○ If settlement is excluded, the peace and trade brought along with the treaty did
benefit both parties
● 1670, Rupert's Land (area where rivers flowed to Hudson’s Bay) was sold to the HBC,
who had a monopoly
● Prior to 1763, French and English traders
● After 1763, end of 7 years war, Treaty of Paris was signed
○ French gave North American territory to Britain
● Royal proclamation from Britain stated that besides the four territories and Rupert’s Land
the rest would be reserved as “Indian territory”
○ Only Crown would be able to acquire Aboriginal land
 ○ As this was unilateral, this message was sent to Aboriginal peoples across
America
○ Leaders and chiefs gathered in Niagara to ratify the proclamation
■ Signed the Treaty of Niagara

Numbered Treaties
● By Confederation (1867), there were many more settlers who had immigrated to
Canada, and were looking for land
● Through Confederation, 4 colonies united into Canada, who also purchased back
Rupert’s Land and North Western Territories
● Canada was looking to build the railroad which would unite BC with the rest of the
Eastern coast
● In this process, the government negotiated land rights treaties (numbered treaties) with
the Aboriginal peoples
○ These typically had the Aboriginal peoples giving up with land for government
commitments, which would include cash, supplies, and land reserves
● Canada did these treaties as Aboriginal peoples were impeding the way of the telegraph
line and the railway
● Aboriginal people received an explicit limit on settlements and the supplies would be
needed after many groups’ way of life (such as the elimination of the buffalo in Prairie
lands) impeded the traditional way of life, hope for future economic security through
these treaties
● Numbered treaties were mostly in the Prairies
● BC settlement and development proceeded without treaties

Supreme Court
● Nisga’a Nation never ceded/sold their land rights, pursued a land right claim in 1887
● Indian Act barred land claims in 1927
● Once Indian Act was amended in 1951, went to court again, went to Supreme Court
● Split verdict in 1973, went back to lower courts
● However, Supreme Court did state that Aboriginal title existed and did not derive from
colonial law
● In 1982, Constitution was repatriated, Aboriginal rights were enshrined into the Charter
of Rights
○ Existing Aboriginal and treaty rights of Aboriginal peoples are recognized and
affirmed
● Courts said that Aboriginal title exists if there was exclusive occupation/possession of
the territory prior to assertion of colonial or Canadian sovereignty
● Aboriginal title allows for exclusive use and occupation
● However Crown can infringe on this title
○ Sparrow test
○ Must be for broader public purpose
○ Consult with aboriginal title holders
○ Compensation must be given
 ○ Use must be consistent with Crown fiduciary obligations

These changes created uncertainty for Canadian resource sector firms

● Largest economic impact was legal uncertainty
● Research show that share prices of firms changed (either positive or negative) reflecting
whether they allowed the Crown more rights, or created greater property rights
uncertainty

While resource sector has always been important, the history of the ownership of the underlying
resources should include analysis of the relationship between Aboriginal and non-Aboriginal
peoples and its effects
● However, there is a lack of data

Economy of the fur trade

In 1670, HBC received Rupert’s Land

● Monopoly
● Established trading posts along the bay, exchanged manufactured goods for furs

Through examining HBC records, research shows that Aboriginal individuals did not behave
differently from Europeans with respect to the elasticity of their labour

In the 18th century, as more goods were available, workers started working longer hours to earn
income in order to purchase these goods
● The general belief was that Europeans were maximizers, but Aboriginal individuals were
satisficers, okay with good enough
● The incorrect argument was that Aboriginal individuals brought less furs to trade when
prices went up, (less items but same level of income because higher price)
● However, it was shown that Aboriginal individuals acted the same way as Europeans,
they began to hunt more beavers and used their increased wealth to purchase luxuries,
while the average spend on essentials remained constant
● As such, despite the differences in preferences, Aboriginals lived a life that had similar
material living standards (diet, clothing, shelter) as British labourer individuals

Slaughter of the buffalo

Anthropometric (body measurement) data is used as an alternative to GDP per capita data
(which is often unavailable or unreliable)
● The men of the great plains were the tallest in the world
● Due in part of the culture’s focus on the bison, which provided high nutrition
● However, by 1889, there were very few bison left (almost extinct), uprooted their culture
● Not only were there short term costs, but also explains the difference in income
differentials even today
While the general causes of the bison slaughter was the US railroad and introduction of the
repeating rifle, trade also played a big role
● When new technology came out that allowed for commercial tanning of bison hides, an
international market was created
○ Demand for the hides was elastic, despite an increased supply, price did not
change
● Trade and technology in addition to an open access resource

Although there is little data about the bison slaughter

● There was the ability to estimate the exports based on total hide exports
● Eliminating cattle hide exports gives bison hide exports
● Bison hide exports rose from 1870 (at an average of 170,000) to a 1 million peak in
1875, before declining to 3000 in 1880

Researcher analyzed economic outcomes in areas where there was bison decline vs.
surrounding areas that were just outside the range of bison
● Categorized into rapid-loss areas, slow-loss areas, and areas outside of bison range
● Found that bison-reliant tribes in the rapid loss group were the tallest, but experienced
the largest height loss
● Looking at GDP for 2000, the researchers looked at long term impacts of the bison
slaughter
○ Trend still held true, slow loss areas had lower GDP than surrounding areas, and
rapid loss areas had the lowest GDP of all
○ Trend holds true for nighttime light density data

This was also reflected in the numbered treaties, increasing bargaining power of the
government
● Timeline
○ Bison slaughtered
○ Government wants to build railroad
○ Signing of the numbered treaties
● Shown in the treaties, where Aboriginal peoples were explicitly concerned with the
impact of the dwindling bison population

While Aboriginal peoples are a growing share of the population, their socio-economic standards
are much lower than the rest of the population
● Ex. Unemployment rates, education completion, median income
● Aboriginals on reserve were worst, Aboroginals off reserve slightly better

Truth and Reconciliation Committee had two calls to action

● Reject the concept of “empty lands” prior to settlement
● Provide education to public servants on Aboriginal history, including treaties and rights

Economic history is important as it

● Provides a metanarrative
● Provides evidence for hypothesis testing (through long periods of data)
● Identifies roots of present day economy