The Colonial Origins of Comparative Development: An Empirical Investigation

TLDR

Early institutions established during colonization have persisted to the present. The study exploits differences in colonial mortality rates to estimate how colonial institutions affect current economic performance, arguing that varied colonization policies led to different institutions. The authors use colonial mortality rates of soldiers, bishops, and sailors as an instrument, noting that high mortality limited settlement and led to extractive institutions, to estimate institutional effects on income. The estimates show that institutional differences account for about three‑quarters of income per capita gaps among former colonies, and after controlling for institutions, geographic factors such as being in Africa or near the equator do not explain lower incomes.

Abstract

We exploit differences in the mortality rates faced by European colonialists to estimate the effect of institutions on economic performance. Our argument is that Europeans adopted very different colonization policies in different colonies, with different associated institutions. The choice of colonization strategy was, at least in part, determined by whether Europeans could settle in the colony. In places where Europeans faced high mortality rates, they could not settle and they were more likely to set up worse (extractive) institutions. These early institutions persisted to the present. We document evidence supporting these hypotheses. Exploiting differences in mortality rates faced by soldiers, bishops and sailors in the colonies in the 17th, 18th, and 19th centuries as an instrument for current institutions, we estimate large effects of institutions on income per capita. Our estimates imply that differences in institutions explain approximately three-quarters of the income per capita differences across former colonies. Once we control for the effect of institutions, we find that countries in Africa or those closer to the equator do not have lower incomes.