Transcript The Colonial Origins of Comparative Development: An

The Colonial Origins of
Comparative Development:
An Empirical Investigation
(NBER Working paper series)
By: Daron Acemoglu, Simon Johnson, James A. Robinson
Eshna Chapagain
Authors’ introduction (NBER)
• The NBER is the nation's leading nonprofit economic research
organization. Eighteen Nobel Prize winners in Economics and
twelve past chairs of the President's Council of Economic
Advisers have been researchers at the NBER.
Kamer Daron Acemoğlu
• A Turkish economist of Armenian origin
• He is currently the Elizabeth and James Killian Professor of
Economics at Massachusetts Institute of Technology and
winner of the 2005John Bates Clark Medal. He is among the
10 most cited economists in the world according to
IDEAS/RePEc.
• He is a member of the Economic Growth program of the
Canadian Institute of Advanced Research. He is also affiliated
with the National Bureau of Economic Research, Center for
Economic Performance, and Centre for Economic Policy
Research.
Simon Johnson
• A British American economist.
• He is the Ronald A. Kurtz Professor of Entrepreneurship at the
MIT Sloan School of Management and a senior fellow at the
Peterson Institute for International Economics.
• He has held a wide variety of academic and policy-related
positions, including Professor of Economics at Duke
University's Fuqua School of Business. From March 2007
through the end of August 2008, he was Chief Economist of
the International Monetary Fund.
James A. Robinson
• He is an American academic who, between 1974 and 1987,
served as the second president of the University of West
Florida.
• A political science professor, James A. Robinson established
the Marion Viccars Award, which recognizes superior
performance and accomplishments of faculty and
administrators. He is also the author of a biography of
President Richard Nixon
Introduction
• What are the fundamental causes of the large differences in
income per capita across countries?
• Differences in institutions and property rights
• Countries with better “institutions”, more secure property rights,
and less distortionary policies will invest more in physical and
human capital, and will use these factors more efficiently to
achieve greater level of income
Introduction
• Examples: North and South Korea, East and West Germany,
where one part of the country is stagnated under central
planning and collective ownership, while the other prospered
with private property and market economy.
• However, it may be that the rich countries choose or can afford
better institutions (endogenity problem)
Introduction
• Source of exogenous variation: mortality rates faced by
European settlers at the time of colonization
• The paper was provided with set of economies that had
relatively similar income levels 400 years ago and still exhibit
large differences in per capita income today
• Institutions in these countries were shaped, at least in part, by
their colonization experience
Colonization process
• Different types of colonization policies created different sets of
institution:
• “Extractive states” (Belgian colonization of the Congo): the main
purpose of the extractive state was to transfer as much of the resources
of the colony to the colonizer, with minimum amount of investment
possible
• Neo-Europes: the settlers tried to replicate European institutions, with
great emphasis on private property, and checks against government
power; Australia, New Zealand, Canada and the US
• the colonization strategy was influenced by the feasibility of
settlements; disease
• the colonial state and institutions persisted even after independence
The Hypothesis
Current performances
Current institutions
Early institutions
Settlements
Settler mortality
Mortality and Settlements
• The mortality rates were a key determinant of European
settlements:
• Early European attempts to settle in West Africa foundered due to high
mortality from disease.
• On Mungo Park's Second Expedition, 87 percent of Europeans died
during the overland trip from Gambia to the Niger, and all the
Europeans died before completing the expedition.
• Also, the Pilgrim Fathers decided to migrate to the U.S rather than
Guyana because of the very high mortality rates in Guyana.
• Beauchamp Committee in 1795 was set up to decide where to send
British convicts, who had previously been sent to the U.S. Lemane, 400
miles up Gambia river was rejected because they decided mortality
rates would be too high even for the convicts; South-West Africa was
also rejected for health reasons; final decision was to send convicts to
Australia
Types of Colonization and
Settlements
• There was a wide range of different types of colonization and the
presence or absence of Europe settlers was a key determinant of the
form colonization took.
• Historians have documented the development of "settler colonies"
where Europeans settled in large numbers, and life was modeled after
the home country.
• The motives for colonization could be slavery, gold, other valuable
commodities; it was also driven in part by an element of superpower
rivalry, but mostly by economic motives
• With a strategy of exploitation in mind, European powers had little
incentive to invest in institutions or in infrastructure in Africa. In fact,
despite apparently high rates of return, almost no investment went to
Africa
Institutional persistence
• The institutions of law and order and private property established
during the early phase of colonialism in Australia, Canada, New
Zealand and the U.S have been the basis of current day institutions
of these countries
• The paper cites Young (1994), "although we commonly described
the independent polities as 'new states' in reality they were
successors to the colonial regime, inheriting its structures, its
quotidian routines and practices, and its more hidden normative
theories of governance."
Three intuitive economic
mechanisms that led institutional
persistence
• Setting up functioning institutions, which place restrictions on
government power and respect property rights is costly.
• The gains to an extractive strategy may depend on the size of
the ruling elite. Small number of elites means greater share of
revenue. In many cases where European powers set up
authoritarian institutions, they delegated the day-to-day
running of the state to a small domestic elite. The narrow
group often was the one to control the state after
independence and favored extractive institutions.
• If agents make irreversible investments that are
complementary to a particular set of institutions, they will
then be more willing to support them, making institutions
persist.
Data and descriptions
• Income (GDP) per capita was the measure of economic outcome.
Since all ex-colonies in the sample had relatively low levels of
income 400 years ago, current income per capita was a good
measure of long-run economic performance.
• The main variable to capture the institutional differences was index
of protection against expropriation. Political Risk Services resorts a
value between 0 and 10 for each country and year with 0
corresponding to the highest expropriation risk.
Results
• OLS regression
• It implies that differences in institutions would account for
approximately a quarter of the income per capita differences
across countries
• However, they did not report this result as causal because of the
direction of causality and many omitted determinants of income
differences that will naturally be correlated with institutions.
Results
• To solve the problems of causality and omitted variables, they
used instrument for institutions.
• [Instrument: In regression, we study the causal effect of some
variable x on y. And instrument is a third variable z which affects y
only through its effect on x]
• So, here the mortality rate of the early settlers is the
instrument which affects the economic performance through
its effect on institution
INSTITUTIONS AND PERFORMANCE: Instrumental
variables results
• The relationship between the log of mortality rate and the
measure of institution is linear.
• Association between protection against expropriation and
European settlements:
• the fraction of Europeans in 1900 alone explains approximately
29 percent of the variation in our institutions variable today
• the settler mortality alone explains 26 percent of the differences
in institutions we observe today
Results
• The corresponding 2sls estimate of the impact of institutions
on income per capita is 0.95. This implies that over threequarters of the income per capita differences across countries
is due to differences in institutions.
• Latitude does not change the relationship; the result was
different earlier because it was correlated with the institutions
Robustness
• [The result is not affected or influenced by the outliers.]
• They checked whether the results are robust to varying
degrees of data quality and different methods of constructing
the mortality estimates and found the results to hold in
different samples to varying degrees of data reliability
Additional controls
• The validity of 2sls results depends on the assumption that settler
mortality in the past has no direct effect on current economic
performance.
• They checked with the identity of the colonizer, with or without
latitude, legal origin, religion, climate, malaria, ethnolinguistic
fragmentation, measures of soil quality, natural resources and found
that the results didn't change much.
• The estimates also changed relatively little when other controls are
added. Therefore, the paper concludes that the effect of variations in
institutions caused by early colonial experience on income is robust,
and likely captures the causal effect of institutions and government
policies on economic well-being.
Conclusion
• The differences in colonial experience could be a viable source
of exogenous differences in institutions
• They document these hypotheses in the data by showing a
high correlation between mortality rates faced by soldiers,
bishops, and sailors in the colonies and European settlements;
between European settlements and early measures of
institutions; and between early institutions and institutions
today
• The estimates imply that differences in institutions account for
roughly three-quarters of the differences in income per capita.
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