Download Lecture 8: European Colonization and Institutions

European colonization and development
The Colonial Origins of Comparative Development: An
Empirical Investigation (Acemoglu et al., AER 2001)
The macroeconomic consequences of European
colonization.
The importance of institutions.
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European influence and development in history
Slave trade has negative impact on current day GDP per
capita through the trust level.
Higher slave intensity leads to higher uncertainty and
consequently to lower trust
But Europeans also colonized most of the world during the
period 1500-1900.
How does historical European colonization affect current
day GDP per capita in the former colonies?
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European colonization and development
Authors argue that current institutions in former colonies were
introduced by European colonizers.
Institutions are humanly devised constraints that structure
incentives and transaction costs
formal rules (statute law, common law, regulations),
informal constraints (conventions, norms of behavior),
the enforcement characteristics of both
Determined by domestic (global), politics, religion, nature,
etc.
Change only gradually in response to economic (political)
pressures.
As we have seen property rights are especially important for
development
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The idea
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
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The idea
BUT what determined the extent (nature) of colonization
(extensive EU settlement vs sparse settlement)?
settler mortality rates
Examples:
Sierra Leone (1793), Niger expedition (1805)
Pilgrim fathers: US vs. Guyana
convicts: Australia vs. Gambia
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European colonization and development
Why did institutions persist?
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
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Geography vs Institutions
Two opposing views in economics
Geography affects GDP per capita uniquely as a locational
fundamental (direct effect)
Geography affects GDP per capita through institutions
(path dependence)
Unique Equilibrium vs multiple equilibria
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The theory
(potential) settler mortality (1500)
⇓
nature of settlement (1600-1800s)
⇓
early institutions (1900)
⇓
current institutions (1995)
⇓
current performance (1995)
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Lecture 8: European Colonization and Institutions
Reduced Form
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Data
Measures of Institutional Quality
Current institutional quality:
average protection against expropriation
constraints on the executive average 1985-1995
Early institutional quality:
constraints on the executive in 1900
Mortality rates
data available for soldiers in the 19th century
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Lecture 8: European Colonization and Institutions
OLS model
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Structural model
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Structural model
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Econometric issues
But endogeneity is a big problem
Reverse causality
omitted variables
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Econometric issues
Employ IV strategy
Use mortality rates as IV for current day institutions
Exclusion restriction: No direct effect of settler mortality on
current-day GDP per capita
⇒ what about malaria mortality today?
⇒acquired immunity (high social costs, but low economic
costs)
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Lecture 8: European Colonization and Institutions
IV Results
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Establish Causality
Causality? Are results driven by a third unobserved variable
that are correlated with both historical settler mortality and GDP
per capita today?
a) include more potential confounders (observables): e.g.,
climate and current day malaria
b) Overidentification IV strategy
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Take home message
European colonization shaped institutions in former
colonies and consequently income per capital
Geography affects development through institutions
"... the reason why African countries are poorer is not due
to cultural or geographic factors, but mostly accounted for
by the existence of worse institutions in Africa."’
International policies can have large and lasting effects
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Next time
Nunn and Qian, "U.S. Food Aid and Civil Conflict.", AER, 2014
Lecture 8: European Colonization and Institutions
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