Memo Question for March 5

Acemoglu, Johnson, and Robinson state that "It is undoubtedly true that colonial relations with the New World and Asia contributed to European growth." They go on to acknowledge that profits from these trades directly could not have accounted for much growth. How, then, can they, or anyone (i.e. the other readings), so confidently assert that the intercontinental trades caused "European growth." Does the answer depend on the definition of growth, or on a more complex model of the relationship of trade to growth?

Comments

[Mitchell Hoffman]

The Acemoglu, Johnson, and Robinson article, while containing unresolved issues in theory, measurement, and empirical interpretation, is (in my view) an important step in persuasively arguing the importance of New World and Asian trade on European growth.
The largest empirical contribution of the paper is the regression of urbanization, a proxy (argues AJR) for GDP, on Atlantic Trade Potential (ATP) and other variables, ATP being defined as the ratio of Atlantic sea coast to land area. ATP has a large positive effect on urbanization over time. There are several problems with this. First, it’s a little circuitous. I would’ve liked to see as a first step a regression of urbanization (or GDP) on volume of trade; ATP seems more like a candidate for an instrument for trade rather than the main variable of interest. Second, even if we grant that ATP measures trade or capacity for trade, it’s unclear why Atlantic coastal area matters. They argue that the Baltic coast can be excluded because its large trade precludes Atlantic trade. But how about trade from the Mediterranean? Might have ships from Italy, Sicily, France, or North Africa have sailed almost as easily to the New World as from Spain or England? Third, there’s an issue of data size, which is also related to the issue of interpretability. While AJR has around one hundred or even a few hundred observations in their regression tables, these are for the same countries over different time periods. It may be that we are really mainly observing that England and Holland had very high growth, Spain and Portugal slower growth, and other countries less growth. Using standard error clustering might help make their case more convincing. This is related to the issue of interpretability because England and Holland may have had high growth for other reasons (for example, directly related to political institutions as suggested by North and Weingast in a previous week’s reading).
AJR argue that growth from trade came from two effects, “direct effects” and the institutional channel. For the direct effects, AJR observe that historians and economists have calculated modest trade profits. However, this does not decisively establish that trade did not directly significantly affect European growth. Though I know little about formal models of trade, I would be interested in seeing whether there are multiplier effects of trade, or attempting to measure how trade affected productions choices in Europe, seeing whether European countries engaging in trade began to specialize, as predicted by simple Ricardian models where trade often induces large benefits in output. The institutional effect argument is complex. It states that trade led to higher merchant profits, which led to greater power for merchants and less for royal, which led to better property rights, which led to growth. Note that the last part of this argument is that used by North and Weingast in a previous reading: The Glorious Revolution (in their case, an exogenous political event) led to less royal power, leading to better property rights and growth. The AJR argument is less attractive because it’s more complicated, and further, if merchant profits were often not substantial, the effect on increased power for merchants should be smaller.
The line of argumentation in the Austen and Smith article is generally consistent with AJR, in that trade (often selfish trade) led to unintended public economic benefits, in the case of Austen and Smith, the growth of mechanisms to satisfy consumer wants and demands, for AJR, better institutions. The Neal article also generally supports AJR, arguing in parts how trade improved and help develop good financial institutions. The De Vries article challenges common ideas/conceptions of economic growth, arguing that Dutch growth in the Age of Exploration was unprecedented, thereby indirectly supporting the AJR thesis that Holland (a large trading country) experienced large growth because of trade.

[Mauricio Larrain]

Acemoglu et al. (2002) document empirical evidence suggesting that the growth of Atlantic traders played a central role in the growth of Western Europe. They show that urbanization and GDP per capita in Western Europe grew significantly faster than in Eastern Europe after 1500. This differential trend is shown to be due in large part to the growth of Atlantic traders. According to this evidence, the Rise of Europe between 1500 and 1850 is largely the Rise of Atlantic Europe, and is quite different in nature from pre-1500 European growth. This pattern is found to be more consistent with theories that emphasize the importance of profits made in Atlantic trade, colonialism and slavery, than theories that link the Rise of Europe to some distinctive European characteristics, such as culture, religion, or geography.

However, other authors (e.g. Engerman, 1972 and O’Brien, 1982) have shown that the contribution of profits from slavery and trade with the rest of the world to European capital accumulation was actually modest. This would suggest that overseas trade and the associated profits were not large enough to be directly responsible for the process of growth in Europe. Thus it appears that Atlantic trade could not have driven European growth solely through its direct impact on profits or resources.

Acemoglu et al. (2002) argue that Atlantic trade and colonialism affected Europe both not only directly through profits, but also indirectly by inducing major institutional changes among Atlantic nations. The key to understand the assertion that the intercontinental trades caused “European growth” lies on this indirect effect of institutional changes. From 1500, and especially from 1600, onwards, the rise in Atlantic trade strengthened new merchant groups via increased profits, and opened the way for changes in political institutions, which constrained expropriation by the monarchy and other established groups, encouraged commerce and production for the market, and enabled the emergence of new organizational forms and technologies. Thus, West European growth during this period reflected the combination of growth opportunities offered by the Atlantic and the emergence of economic institutions providing secure property rights to a broad cross-section of society and allowing free entry into profitable businesses. These economic institutions, in turn, resulted from the development of political institutions constraining the power of the monarchy and other established groups allied with the monarchy.

According to the authors, even if previous empirical evidence has found that profits from Atlantic trade were small relative to GDP, they were still substantial, and most likely much larger than previous trading profits. According to the authors, the recipients of these profits became very rich by the standards of 17th- and 18th-century Europe and typically politically and socially very powerful. Thus, despite the fact that merchant profits were often not substantial, the indirect institutional effect would be an important determinant in explaining why intercontinental trade caused “European growth”.

[K. Powers]

From the viewpoints of Acemoglu, Johnson, and Robinson in The Rise of Europe: Atlantic Trade, Institutional Change and Economic Growth, one would argue that a more complex model of trade’s relationship with growth is necessary to explain the effect of New World and Asia trade on European growth. According to many economic historians, the volumes of trade and of profit seem too small to support assertions that Atlantic trade was a direct and primary factor in European growth (4). Indeed, given that the aggregate savings rate in late 18th century Britain was between 12 and 14 percent, an identical savings rate would imply that trading profits would have only increased aggregate capital accumulation by 5.5 to 7.5 percent (21). On the other hand, though small relative to GDP, Atlantic trade “strengthened new merchant groups, and opened the way for changes in political institutions, which constrained expropriation by the monarchy and other established groups, encouraged commerce and production for the market, and enabled the emergence of new organizational forms and technologies” (2, 4). For instance, the British Parliament’s 1846 repeal of the Importation Act of 1815 (known as the Corn Laws) reduced the landed aristocracy’s power by removing tariffs on imported corn (26)^1. In many cases, Acemoglu, Johnson, and Robinson note, the new bourgeoisie’s “economic power often bought them … power to undertake social unrest and mount threats to the regime,” as when the economic elite in England’s Parliament refused to join the army or offer Charles I any assistance after Scottish troops entered England in 1640 (Acemoglu et al 28)^2.

The authors do qualify this argument with two observations: first, they note the diminished effect of Atlantic trade on societies governed by relatively absolutist institutions before the early modern era (41). In particular, Spain and Portugal experienced much milder relative growth from trade due to the strict control of the monopoly on trade by the monarchies and groups loyal thereto (5). Second, Acemoglu, Johnson, and Robinson differentiate Western Europe from Eastern Europe and place special emphasis on nations “directly involved in Atlantic trade or … with easy access to the Atlantic” (20, 40).

Austin and Smith in Slavery, Sugar, and Industrialization, on the other hand, argue that the importation of colonial goods like sugar, as well as related commodities such as coffee and tea, held a primary role in the transformation of the patterns and significance of European consumption (185). In particular, the authors argue, sugar, coffee, and tea played a large role in the adoption of respectability as a social convention, which “contributed to the conditions that made industrialization historically possible” (195). Additionally, the “importing interest” in Europe waged ideological and political campaigns against anticonsumerist doctrines, thus removing demand-side obstructions to economic growth closer to the Industrial Revolution (196-197). From Austin and Smith, we can add additional indirectness and complexity to the model of the trade-growth relationship.

Evidence from Larry Neal's International Capital Markets in the Age of Reason would add further complexity to such a relationship. Starting with the 16th century “price revolution,” whereby the importation of precious metals from Africa and Latin America caused severe inflation, financial innovations and markets for financial capital associated with claims on physical stocks achieved relatively quick growth (3-5). Indeed, the Dutch and English East India companies successfully transformed per-voyage capital into capital for the overall firm in the 1700s and later utilized the Amsterdam and London stock exchanges as a tool for their “flourishing” long-term success (118-119). The stock markets also provided additional efficiency and growth incentives as insurance against stockholder revolts (139). Along with the other readings, Neal’s article supports the existence of a more complex and indirect relationship between colonial trade and European productive growth.

1. Iain McLean and Camilla Bustani, “Irish Potatoes and British Politics: Interests, Ideology, Heresthetic and the Repeal of the Corn Laws,” Political Studies, Dec. 99 (47:5): 817.
2. Brandon Duke, “Jack Goldstone’s Model and the English Civil War,” Gaines Junction (Spring 2004).

[Gabriel Chodorow-Reich]

Acemoglu, Johnson and Robinson (hereafter AJR), in a remarkable echo of Marx’s theory of the international origins of primitive capital in Europe, argue that the emergence of Atlantic trade in the sixteenth century created new wealth in Britain and the Netherlands which strengthened the political power of the new merchant class. Crucially, these merchants demanded and obtained beneficial institutional arrangements from their respective monarchies, setting the stage for greater commerce and thereby generating a positive feedback mechanism whereby the economic institutions of these two countries developed favorably relative to the rest of Europe and the world. In this sense, inter-continental trade caused better institutions which induced economic growth in Europe.

AJR support their hypothesis by running a series of reduced-form regressions with a measure of economic development on the left hand side and access to the Atlantic as the principle explanatory variable of interest. They also conduct a remarkable number of robustness checks and tests of alternative hypotheses. From these, it is difficult to dispute their finding that access to Atlantic trade had an impact on development.

Still, I find two aspects of their argument not entirely convincing. The first concerns their treatment of the other European countries with Atlantic access: Portugal, France and Spain. None of these countries received the same immediate positive shock to institutional quality and growth from the opening of trade routes as did England and Holland. AJR therefore caveat their story to allow that the accumulation of wealth and hence political power by non-crown actors required sufficiently benevolent initial conditions so that the crown did not monopolize all of the benefits from the overseas trade. Spain and Portugal flunk this requirement, while France presents an intermediate case. The AJR explanation sounds plausible, but also a bit ad hoc. More to the point, if institutional quality differed among these countries in 1500, what else did that might co-vary with institutional arrangements?

This raises the final point, on drawing inference from reduced form regressions. Particularly for so small a sample (in the country dimension), achieving identification becomes difficult. Anything that affected Britain and the Netherlands differently in 1500 from the rest of Europe would yield similar econometric results to what AJR report. Their robustness checks and pursuit of alternative hypotheses is promising in this regard, but the issue remains.

Also encouraging is the narrative confirmation provided in AJR and to some extent in de Vries and Neal. I have one minor quibble, which is that (given the emphasis of our assigned readings) one might be forgiven for thinking that the entirety of British and Dutch trade occurred through the EIC and the VOC. The emphasis on these two companies in the literature probably stems in part from data availability bias.

[willa]

Based on these four readings, the answer to the question of how trade (and colonial relations) could have contributed to European growth so certainly without directly influencing growth through profits lies in a more complex model of the relationship of trade to growth. One article argues convincingly for an increase in the demand for non-essentials and the rise of consumerism as a result of trade and a cause of growth (Austen and Smith). Two argue for the role of trade in creating institutions that allowed for future growth (Acemoglu, Johnson, Robinson; Neal), and all point to other subtle factors that contributed to the influence of international trade on growth in Western Europe.

Neal and A,J,R both argue for the role of trade in creating financial markets in England and the Netherlands. Neal argues that because the voyages took a long time and each one had such large profits, the potential for tradable assets developed as evidenced by the London and Amsterdam financial markets (118).

A,J,R rely more on numbers than stories to argue their point but similarly argue that the growth of trade contributed to financial markets and explicitly make the point that the different government styles led to differences within countries that were active in Atlantic trade. Neal also mentions the political power of the Dutch East India Company (119) but A,J,R make the point stronger by stressing the independence that the trade had from the state, contrary to the situations in Spain and Portugal (29-32).

Austen and Smith argue for another path through which this trade influenced growth: demand for non-essentials. They argue that the increased demand for sugar created “respectability” as a concept and consumerism, which demanded import substitition and the rise of domestic production of other goods previously considered luxuries. Neal alludes to a change in “mental horizons of Europeans.” The point made by Austen and Smith of an increase in demand from those who were previously uninvolved or unconcerned with luxuries is important. A,J,R also mention the rise of the bourgeoisie and their increasing demand and Austen and Smith point out that this increase in demand was not filled for everybody and so many lost as a result. In any case, the role of increased demand as an intermediate step between trade and growth is convincing.

There are still other causes for Western European growth alluded to by the authors. This includes religion either as Neal argues for sending religious refugees throughout the continent and creating long-distance sustained networks or as Weber argues and A,J,R test for the role of Protestantism in incentivizing “hard-work.” A,J,R acknowledge some impact from religion but deny that it was very important relative to Atlantic trade in spurring growth. War was another factor to be mostly dismissed but unconvincingly. Including the presence of wars in a regression does not seem the most likely way to see the influence since wars undeniably hurt as well as help. At least controlling for being the winner would have helped the argument.

Finally, Professor deVries article calls it all into question a bit by pointing out the dangers of looking at aggregated patterns. The data used by A,J,R that has information on intervals of 100 years would have missed nearly all of the early growth in the Netherlands that deVries points out. Also deVries points out that doing well at one point may have led eventually to a lack of growth because there was less of a need to move away from profitable agriculture, which challenges A,J,R’s use of urbanization as a proxy for economic success. This also alludes to earlier readings from this class (notably Marx) about the importance of impoverishment in creating the basis for wage-based capitalism.

All of the articles are very convincing in their arguments FOR different theories of how trade contributed to growth, but the arguments against counter-theories – which may truly be complementary and not therefore in disagreement - are unconvincing.

[Alexandre Poirier]

European growth in the 1500 - 1800 period was a lot higher than before, and this period is often referred to as the “First Great Divergence.” This period also corresponds to a period of great expansion in trade, especially intercontinental trade. Acemoglu et Al. try to relate the growth sustained during this period to this growth in trading. They contend that much of the increase in urbanization occurred in port cities of the Atlantic Ocean, because of their strategic location. Most of the growth of Europe came from Atlantic Nations during that period. They use as evidence a cross-country regression in which they include a variable measuring accessibility to the Ocean.

Secondly, Acemoglu et Al. assert that this growth in trade translated into economic growth through two channels. The first one is the direct channel, i.e. an increase in profits of the owners of the trading companies, consumers getting access to more products, etc. The second channel is an indirect one, because it involves institutional change. They say that trade expansion greatly increased the wealth and income of the merchant, or capitalist class of society, and that, in turn, gave them greater power within society. This greater power allowed them to ask for, or force institutional changes that led these countries to sustained growth. Acemoglu et Al. think that the second, institutional channel was much more important for sustained growth than the first, direct channel.

This process was different across the Atlantic Countries. In England and The Netherlands, trade was directed mostly by individuals, and private corporations, thereby enriching the trading class. On the other hand, Spanish and Portuguese trade was controlled by the government, so the profits went to the king or queen. In these countries, there was little institutional change, because the merchant class could not amass sufficient wealth to gain influence. In England and The Netherlands, this wealth greatly increased the merchant class’ power. France’s case is in between these two extremes. For example, two weeks ago we read about the Glorious Revolution in England, and the positive changes in caused in government accountability. The invasion by William of Orange was in large part financed by the English merchant class, who wanted to diminish the King’s discretionary powers. The financing of the invasion contributed a lot to the subsequent growth in England, according to North and Weingast (1989). An analogous argument can be made for The Netherlands.

Also, Acemoglu et Al. check that better government institutions alone were not sufficient to create this kind of growth. They give as examples the cities of Venice and Genoa, which had good governmental institutions, but lacked access to intercontinental trade. These cities did not experience a high level of growth during this period. Austen and Smith's point goes in the same way as AJR, as they argue that the increased demand for sugar and other higher-end commodities, resulting from an opening to trade, developed consumerism in the middle-class. This, in turn, promoted a higher demand which has led to increased growth.

[Insook Lee]

Acemoglu et al.(2005) tried to show that colonial trade eventually brought about the growth of economy of Western Europe. They tried to explain the “First Great Divergence” within European economy between 1500 and 1850. They argue that the initial institution, which provided merchants with better protection from the whimsical monarchy, triggers more profit from the Atlantic Trade and induce “capitalist institution”. Although the direct and quantitative contribution of profit from trade to GDP is modest, Atlantic trade generated a growth opportunity by empowering the bourgeoisie in Western Europe with economic wealth. In this light, it is not surprising that the capitalist institution and rapid growth was occurred in England and Netherlands, but not in Spain or Portugal.
In line with this, Larry Neal(1990) described quite well developed international financial capital markets in Europe in the late seventeenth century, pointing out its origin as Netherlands Antwerp in late sixteenth century and financial renovation in England later.
However, decorated with several statistical and econometrical evidences, arguing the causality between Colonial trade and economic growth ( Acemoglu et al. 2005) is still on the weak base. First of all, endogeniety problem of regression analysis is not properly addressed. Even free from this source of head ache, still the reasonable differentiation of causality and simple correlation requires full caution before jumping into the conclusion about whether trade actually drove the growth or not. Especially when different interpretation is possible.
And Jan de Vries(2000) cast a skeptical view on this linear logic about economic growth. While Acemoglu et al.(2005) regard economy of England and Netherlands follows the same path of growth, Jan de Vries(2000) showed that it may not in fact. Based on macroeconomic data of nineteenth century of Dutch economy, he found divergence of Dutch economy; that is, even with highest increase in population, the growth of GDP is very low. And, in the long run data of Dutch economy shows that, unlike other European economy, there was no take off. Moreover, in contrast to the hypothesis of Acemoglu et al. (2005) there was economic decline after the Golden age in Netherlands and England after Industrial Revolution. Facing this surreptitious growth of Dutch economy, one would hardly argue that Atlantic trade was obviously determining contributor.
As another view might comes from asking why only seeing the production part as supply side? There is another view; Ralph Austen and Woodruf D. Smith (1992) argued that slave and sugar trade is essential to European industrial development by transforming consumerism in demand side.
Departing from the standard growth model of CRS production function, how we define growth might give us different answer about the role of colonialism to European growth. Even it is the case, the causality would not easily be verified with data, if any. And more complex the model for explanation would be, the more difficult to verify. Nevertheless, this hardship does not necessarily mean that we can neither reconstruct the dynamic picture of economy of this era nor give full credence to the linear modern economy growth theory as Acemoglu et al. did.

[Lemin Wu]

The authors cited and accepted some relevant evidence that the profits from the Atlantic trade were modest and the traded commodity amounted to merely a tiny fraction of European GDP. This evidence was against the theories that emphasize the “direct” impact of intercontinental trade on the growth of Europe. However, AJR proposed a theory that focused on some indirect influence. The volume of Atlantic trade, though less than enough to promote growth directly, was sufficient to equip the bourgeoisie who favored “capitalist institutions” against the grabbing intervention of monarchs. The bourgeoisie with the economic and political power gained through Atlantic trade voiced their demand for institutions of better protection of capital and more constraint on executives. The institutions further ensured sustained growth, hence the First Great Divergence during 1500~1850. In this way, AJR’s argument doesn’t depend on a big volume of Atlantic trade.
Their assertion also relies on panel data analysis which compared competing hypotheses. Given the unfavorable fact that the volume of Atlantic trade was modest, they still found significant explanatory power of Atlantic trade for the growth of urbanization and GDP per capita. The introduction of the Atlantic trade factor almost annihilates the significance of the dummy for Western Europe. Besides, further tests with other variables introduced showed little support for the alternative hypotheses such as those of religion, Roman heritage and southward move of economic activity. City-level data also confirmed that it was the Atlantic ports that thrived and accounted for the major part of European growth rather than some general contribution of port effect involving Mediterranean ports.
To confirm the indirect mechanism, the authors also tested the effect of Atlantic trade on institutional changes. The Atlantic trader or access to Atlantic still dwarfed the Western Europe factor. Another noteworthy hypothesis was the contribution of the initial institution to the potential capacity of Atlantic trade to change the institutions. The final test done in the paper confirmed it against another hypothesis that the difference in growth was merely dependent on the initial institution. This test also marked this paper’s contribution after other researchers’ study of the relationship between institution and economic performance.
AJR’s assertion generally doesn’t depend on the definition of growth if the definition ranges between institutional growth and pure output growth. What they noted was that although the Atlantic trade contributed little directly to pure output growth, it improved the institution which provided incentives in favor of sustained growth in output.

[Omar Nayeem]

On page 21 of their working paper, Acemoglu, Johnson, and Robinson state that “it is undoubtedly true that trade with [the New World and Asia] contributed to European growth.” They conclude the same paragraph by noting that “quantitative analyses by economic historians, including, among others, Engerman (1972), Engerman and O’Brien (1981), O’Brien (1982), and Bairoch (1993, chapter 5), show that the volume of trade and the profits generated by trade appear to be too small to account for much of European growth directly.” Acemoglu, Johnson, and Robinson do not disagree with these historians’ analyses, yet they believe that the Atlantic trade with the New World and Asia contributed to European growth. The key to resolving this apparent contradiction is to note their use of the word “directly” in the second sentence quoted above.

Acemoglu, Johnson, and Robinson argue that the higher rate of growth seen in the English and Dutch economies between 1500 and 1800 relied on two crucial factors: involvement in Atlantic trade (that is, “trade and colonialism with the New World and Asia” as they say on page 2) and the formation of what they call “capitalist institutions” (page 4), which limited the monarchy’s power, protected individual property rights, and promoted free entry into profitable markets. They provide abundant econometric evidence in support of their view. Formally, they present four subhypotheses on page 23. These can be summarized as:
1. Capitalist institutions, by creating incentives for investment, are crucial for the type of sustained growth seen in Western Europe during the period.
2. Capitalist institutions typically benefit unprivileged merchants but are opposed by the monarchy and its favored groups.
3. Institutions that have the support of powerful groups are likely to survive.
4. Trade and colonialism made available profitable opportunities to the unprivileged bourgeoisie.
As they note, the fourth point is crucial in their argument in support of their main hypothesis, which is that “Atlantic trade generated growth opportunities and provided substantial profits for a segment of the bourgeoisie in Western Europe, and this group could demand and obtain significant institutional reforms protecting their property rights. With their newly gained property rights, the bourgeoisie of West European nations took advantage of the growth opportunities offered by Atlantic trade, invested more, traded more, and fueled the First Great Divergence.” This statement resolves the apparent contradiction noted at the beginning: Acemoglu, Johnson, and Robinson believe that the direct effects of the Atlantic trade – profits – played an indirect role in European economic growth during this time period; profits eventually led to the creation of the capitalist institutions that enabled the rapid growth to take place. This understanding of the relationship between trade and growth is not the obvious one that first comes to mind, but it is certainly consistent with basic economic theory and is well supported by the data that Acemoglu, Johnson, and Robinson present. The relationship between the Atlantic trade and both the Dutch public’s and the English public’s increased awareness of – and participation in – commercial activities is also made clear in Neal’s Rise of Financial Capitalism, which discusses in great detail the regular dissemination to the public of such information as stock prices and exchange rates, which would have been of interest to anyone that was seeking to profit from the Dutch and English Atlantic trade, particularly to investors in the VOC and EIC. The demand for this information provides strong evidence of the public’s participation in these profitable opportunities.

Austen and Smith discuss a different, more specific consequence of the Atlantic trade: the rise of consumerism in English society. They focus on the increased consumption of sugar (and its complements: tea, coffee, and cocoa) among the English bourgeoisie and characterize it as part of a broader trend towards achieving “respectability.” Compared to Acemoglu, Johnson, and Robinson, Austen and Smith provide little evidence in support of many of their claims, but they seem to share the view that a relatively indirect effect of the Atlantic trade – the emergence of consumerism, in this case – provided the main impetus behind the economic growth of the era, at least in England. Similarly, de Vries mentions in his paper that he and van der Woude, in their First Modern Economy, are able to show, among other things, that the Dutch economy during the 17th and 18th centuries had growing domestic and foreign trade sectors that led to improvements in the efficiency of resource allocation. In both of these cases, we see that it is not the trade itself, but rather its consequences, that are so important to economic growth.

[Tijl Vanneste]

As Acemoglu, Johnson and Robinson stated, one of the main problems of intercontinental trade contributing to economic growth is that, according to different scholars, neither the trade volume nor the profits were not high enough to account for a large quantitative growth. The belief however remained that this trade was highly influential. Acemoglu, Johnson and Robinson then constructed an empirical model to prove that it was Atlantic trade that sparked growth for countries that also possessed institutions that were less in favor of monarchic absolutist powers than other countries. When these countries (England and the Netherlands) got deeply involved in Atlantic trade, they managed to secure property rights better so that merchants could do better and commerce flourished. An indirect, not immediately quantifiable effect on Europe’s economy is also acknowledged by Neal and Austen and Smith. Neal wrote about the development of capital markets and international networks of information, and Austen and Smith argued that international trade changed the demand pattern in Europe and the material and consumption culture. It seems, then, one could, in defining growth, make a difference between qualitative and quantitative growth. The important effect is on qualitative growth of economies that, in the long run perhaps, became interwoven, more profoundly rooted, developed ‘modern’ financial markets, developed more sophisticated consumption patterns carried by growing parts of the population, developed flows of information that all became vital for a consequent quantitative growth (although a view in which qualitative growth partially caused by trade preceded a quantitative growth is not free of teleological bias). It doesn’t mean however, if one acknowledges a more complex set of effects of trade on Europe’s economies, that there are no problems. When Acemogly et al. for instance separated the Low Countries and England from France, Spain and Portugal, indicating that the latter category of countries had a different organization of trade, relying on crown monopolies, one cannot help but think it was more complex than that. In Portugal’s case for instance, diamond trade was a different story. The crown sold a mining monopoly to an individual firm, and then sold a trade monopoly to a different firm. During the eighteenth century, the right to trade in Brazilian diamonds remained in the hands of English and Dutch merchants. The extent to which these, especially the English, succeeded in taking Portugal’s gain, was a factor in growth differential. A second problem lies with Neal. Literature exists that connects ‘brain drain’ to economic growth and decline (one famous example being the migration of Protestants to Amsterdam after the siege of Antwerp in 1585). Neal also used this to explain the transfer of financial innovations to for instance Amsterdam, following the migration of Iberian Jews. It is not clear, however, whether the effects of these migrations caused a smoother international trade or whether this trade offered members of these diasporas new and great opportunities. In other words, a chicken and egg question. A last problem seems to be that Acemoglu et al. in their enthusiasm put the Netherlands and England in one and the same category, while the article by Jan de Vries showed that they followed different paths, leading to the demand for a different concept of economic growth, exactly because the traditional linear story of growth and development all the way to the Industrial Revolution is a simplified and inaccurate narrative.