Working Paper Series, UCD Centre for Economic Research 05/18
The interplay between factor endowments, institutional development and economic performance has received considerable attention in recent years. This paper exploits the importance of geographic factors and institutional structures for explaining patterns of settlement and examines how these influenced growth outcomes. I find evidence that prospective European migrants preferred to settle in regions with favourable natural endowments and institutional packages designed to attract them. These settlers not only benefited from a growth-inducing institutional framework but also contributed actively to its quality in a mutually reinforcing relationship. Countries that competed for migrants achieved higher income levels through institutional development and better provision of public goods. Finally, my findings show that the link between European migrants and economic development is not linear, as the positive effects of attracting European settlers on institutions and public goods are set off only when European populations grow to outnumber other ethnic groups. Countries where European migrants remained a minority were more likely to develop institutions that advantaged a small elite and eliminated opportunities for the bulk of the population.