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“The Colonial Origins of
Comparative Development: An
Empirical Investigation”, Daron
Acemoglu, Simon Johnson,
James A. Robinson (2001)
THE DIRECTION OF CAUSALITY?
INSTITUTIONS
ECONOMIC
(Property rights)
PERFORMANCE
?
WANTED: AN INSTRUMENT
INSTITUTIONS
ECONOMIC
(Property rights)
PERFORMANCE
MORTALITY RATES FACED BY
EUROPEAN SETTLERS
The argument
• Different types of colonization policies led to
different types of institutions
• Extractive states (e.g. Belgium in Congo)
-> No property rights, no check and balances
against government expropriation
• Neo-Europes (Australia, US) -> Property rights
• The choice of what institutions to set up was in
part determined by the feasibility of settlements
– E.g., in the presence of diseases, europeans were
unlikely to settle
• This choice of institutions PERSISTED over time
Instrument = mortality rates
• They use data on the mortality rates of
soldiers, bishops, and sailors stationed in
the colonies between the 17th and 19th
centuries
• Give a good indication of the mortality
rates faced by settlers
Extractive institutions
• “the colonies should be exploited, not by
the operation of a market economy, but by
state intervention and compulsory
cultivation of cash crops to be sold to and
distributed by the state at controlled
prices.”, King Leopold of Belgium, talking
of Congo
Neo-Europes
• “But, the majority of settlers wanted
institutions and political rights like those
prevailing in England at the time. They
demanded jury trials, freedom from
arbitrary arrest, and electoral
representation. Although the British
government resisted at first, the settlers
argued that they were British and
deserved the same rights as in the home
country.”, AJR (2001)
Institutional persistence
• Costly to change institutions
• There is always someone who would lose
from changing institutions, and thus
opposes it
• There is strong evidence of institutional
persistence
The data
• Economic performance: GDP in 1995
• Institutions: index of protection against
expropriation, from Political Risk Services,
averaged over 1985-1995
• Past institutions:
– Constraints on the executive in 1900
– Index of democracy in 1900
• Measure of european settlement: fraction of the
population of european descent in 1900
• Mortality rates: data available for soldiers in the
19th century
SUMMARY
INSTITUTIONS
ECONOMIC
(Property rights)
PERFORMANCE
POSITIVE
NEGATIVE
MORTALITY RATES FACED BY
EUROPEAN SETTLERS
“Reversal of Fortune: Geography
and Institutions in the Making of
the Modern World Distribution”,
Daron Acemoglu, Simon
Johnson, James A. Robinson
(2002)
Reversal of fortune
• Nations rich in 1500 are poor today
– E.g the Incas, the Aztecs were rich in 1500
– E.g. the US, Australia were poor in 1500
• FACT: negative correlation between prosperity
today and in 1500
• Measures of prosperity in 1500:
– Urbanization
– Population density
– Both are highly correlated with income per capita
The geography hypothesis
• Geography → prosperity
• BUT, geography is constant
• Inconsistent with the observed reversal of
fortune
The institutions hypothesis
• Institutions are chosen by the politically powerful
• Two types of institutions: “extractive” and
“private property”
• Extractive institutions are more likely to be
implemented in previously RICH colonies
• Private property institutions are more likely to be
implemented in previously POOR colonies
• Institutions are persistent
The argument
• Europeans set up extractive institutions in
densely populated areas because:
– 1. They could enslave the local population
– 2. It was easier for them to settle in sparsely
populated areas
Institutions and the reversal
• Once we control for institutions, the
reversal should disappear
• Colonized countries that were poor in
1500 are rich today because Europeans
set up good institutions there.
How to test the argument?
• If we regress GDP on institutions and past
GDP, the coeff. on past GDP should be
non significant
• As before, problem of endogeneity of the
variable institutions
– As before, we use the mortality rate as an
instrument
Summary
• A reversal of fortune occured between
1500 and today among colonized
countries because worse institutions were
set up in richer colonies