International investment and colonial control: a new interpretation

TLDR

Economic factors have long been debated as drivers of late‑nineteenth‑century colonial imperialism, with primary raw‑material investments and multinational manufacturing affiliates exemplifying the types of cross‑border capital that may influence such expansion, and the framework also offers insights into broader international conflict and cooperation. This article examines the expected relationship between different forms of international investment and different patterns of political ties between developed and developing countries. Using relational contracts and collective action theory, the authors argue that direct colonial control aligns with cross‑border investments whose rents are easily seized or protected without multilateral action, whereas rents that are difficult to seize or protect unilaterally reduce the likelihood of colonialism, and they assess this claim with qualitative evidence and simple quantitative analyses.

Abstract

The impact of economic factors on colonial imperialism in the late nineteenth century has long been a topic of debate. This article examines the expected relationship between different forms of international investment and different patterns of political ties between developed and developing countries. Drawing on the literature on relational contracts and collective action, it argues that direct colonial control was likely to be associated with cross-border investments whose rents were particularly easy to seize or protect, and whose protection did not require multilateral action. Where such rents were difficult to seize or protect unilaterally, colonialism is expected to be less likely. The most common example of the former sort of investment is primary (raw-materials or agricultural) investment; of the latter, multinational manufacturing affiliates. The argument is weighed against both a survey of the qualitative evidence and some simple quantitative evaluations. The approach also has potential applications to more general problems of international conflict and cooperation.