Acemoglu, Johnson, and Robinson (2005b) studied the impact of Atlantic trade on European economic development. They found that the discovery of the Americas and the development of new trade routes had varying effects on economic growth, depending on the society’s political institutions. In other words, geography played a role in determining economic outcomes via its effect on institutions. Where long-distance commerce was already controlled by the crown, access to the Atlantic strengthened royal power. Two prominent examples of this are Charles V and Phillip II, who ruled Spain for most of the 16th century. Access to the Atlantic – and all of the wealth flowing from South American mines – allowed them to dispense with representative institutions. Thus, while Spain was initially enriched by the Americas, the long-run impact on economic growth was negative, since it resulted in more extractive institutions. In contrast, where monarchs lacked the ability to control or monopolize long-distance trade (such as in England or the Dutch Republic), the discovery of the Americas strengthened the merchant class and enabled them to constrain royal power.


How the world became rich