《中级计量经济学》课程教学资源（书籍文献）工具变量IV - IV paper-Acemoglu-ColonialOriginsComparative-2001.pdf_大学文库

The Colonial Origins of Comparative Development: An Empirical Investigation By DARON ACEMOGLU, SIMON JOHNSON, AND JAMES A. ROBINSON* We exploit differences in European mortality rates to estimate the effect of institu- tions on economic performance. Europeans adopted very different colonization policies in different colonies, with different associated institutions. In places where Europeans faced high mortality rates, they could not settle and were more likely to set up extractive institutions. These institutions persisted to the present. Exploiting differences in European mortality rates as an instrument for current institutions, we estimate large effects of institutions on income per capita. Once the effect of institutions is controlledfor, countries in Africa or those closer to the equator do not have lower incomes. (JEL 011, P16, P51) What are the fundamental causes of the large differences in income per capita across countries? Although there is still little con- sensus on the answer to this question, differ- ences in institutions and property rights have received considerable attention in recent years. Countries with better "institutions," more secure property rights, and less distor- tionary policies will invest more in physical and human capital, and will use these factors more efficiently to achieve a greater level of income (e.g., Douglass C. North and Robert P. Thomas, 1973; Eric L. Jones, 1981; North, 1981). This view receives some support from cross-country correlations between measures of property rights and economic development (e.g., Stephen Knack and Philip Keefer, 1995; Paulo Mauro, 1995; Robert E. Hall and Charles I. Jones, 1999; Dani Rodrik, 1999), and from a few micro studies that investigate the relationship between property rights and investment or output (e.g., Timothy Besley, 1995; Christopher Mazingo, 1999; Johnson et al., 1999). At some level it is obvious that institutions matter. Witness, for example, the divergent paths of North and South Korea, or East and West Germany, where one part of the country stagnated under central planning and collec- tive ownership, while the other prospered with private property and a market economy. Nevertheless, we lack reliable estimates of the effect of institutions on economic perfor- mance. It is quite likely that rich economies choose or can afford better institutions. Per- haps more important, economies that are dif- ferent for a variety of reasons will differ both * Acemoglu: Department of Economics, E52-380b, Massachusetts Institute of Technology, Cambridge, MA 02319, and Canadian Institute for Advanced Research (e-mail: daron@mit.edu); Johnson: Sloan School of Man- agement, Massachusetts Institute of Technology, Cam- bridge, MA 02319 (e-mail: sjohnson@mit.edu); Robinson: Department of Political Science and Department of Eco- nomics, 210 Barrows Hall, University of California, Berke- ley, CA 94720 (e-mail: jamesar@socrates.berkeley.edu). We thank Joshua Angrist, Abhijit Banerjee, Esther Duflo, Stan Engerman, John Gallup, Claudia Goldin, Robert Hall, Chad Jones, Larry Katz, Richard Locke, Andrei Shleifer, Ken Sokoloff, Judith Tendler, three anonymous referees, and seminar participants at the University of California-Berkeley, Brown University, Canadian Insti- tute for Advanced Research, Columbia University, Har- vard University, Massachusetts Institute of Technology, National Bureau of Economic Research, Northwestern University, New York University, Princeton University, University of Rochester, Stanford University, Toulouse University, University of California-Los Angeles, and the World Bank for useful comments. We also thank Robert McCaa for guiding us to the data on bishops' mortality. 1369 This content downloaded from 202.114.238.230 on Mon, 28 Oct 2024 05:17:22 UTC All use subject to /s/about.jstor.org/terms

1370 THE AMERICAN ECONOMIC REVIEW DECEMBER 2001 in their institutions and in their income per capita. To estimate the impact of institutions on eco- nomic performance, we need a source of exog- enous variation in institutions. In this paper, we propose a theory of institutional differences among countries colonized by Europeans,' and exploit this theory to derive a possible source of exogenous variation. Our theory rests on three premises: 1. There were different types of colonization policies which created different sets of insti- tutions. At one extreme, European powers set up "extractive states," exemplified by the Bel- gian colonization of the Congo. These institu- tions did not introduce much protection for private property, nor did they provide checks and balances against government expropria- tion. In fact, the main purpose of the extractive state was to transfer as much of the resources of the colony to the colonizer. At the other extreme, many Europeans mi- grated and settled in a number of colonies, creating what the historian Alfred Crosby (1986) calls "Neo-Europes." The settlers tried to replicate European institutions, with strong emphasis on private property and checks against government power. Primary examples of this include Australia, New Zealand, Can- ada, and the United States. 2. The colonization strategy was influenced by the feasibility of settlements. In places where the disease environment was not favorable to European settlement, the cards were stacked against the creation of Neo-Europes, and the formation of the extractive state was more likely. 3. The colonial state and institutions persisted even after independence. Based on these three premises, we use the mortality rates expected by the first European settlers in the colonies as an instrument for current institutions in these countries.2 More specifically, our theory can be schematically summarized as (potential) settler > settlements mortality early current institutions institutions current performance. We use data on the mortality rates of soldiers, bishops, and sailors stationed in the colonies be- tween the seventeenth and nineteenth centuries, largely based on the work of the historian Philip D. Curtin. These give a good indication of the mortality rates faced by settlers. Europeans were well informed about these mortality rates at the time, even though they did not know how to control the diseases that caused these high mor- tality rates. Figure 1 plots the logarithm of GDP per capita today against the logarithm of the settler mortality rates per thousand for a sample of 75 countries (see below for data details). It shows a strong negative relationship. Colonies where Europeans faced higher mortality rates are to- day substantially poorer than colonies that were healthy for Europeans. Our theory is that this relationship reflects the effect of settler mortal- ity working through the institutions brought by Europeans. To substantiate this, we regress cur- rent performance on current institutions, and instrument the latter by settler mortality rates. Since our focus is on property rights and checks against government power, we use the protec- tion against "risk of expropriation" index from Political Risk Services as a proxy for institu- tions. This variable measures differences in in- stitutions originating from different types of states and state policies.3 There is a strong 1 By "colonial experience" we do not only mean the direct control of the colonies by European powers, but more generally, European influence on the rest of the world. So according to this definition, Sub-Saharan Africa was strongly affected by "colonialism" between the sixteenth and nineteenth centuries because of the Atlantic slave trade. 2 Note that although only some countries were colonized, there is no selection bias here. This is because the question we are interested in is the effect of colonization policy conditional on being colonized. 3Government expropriation is not the only institutional feature that matters. Our view is that there is a "cluster of This content downloaded from 202.114.238.230 on Mon, 28 Oct 2024 05:17:22 UTC All use subject to /s/about.jstor.org/terms

VOL. 91 NO. 5 ACEMOGLU ET AL.: THE COLONIAL ORIGINS OF DEVELOPMENT 1371 10 'Ivp LO) < PANGA tl FJ GUY AGO Xi PAKIND SDN GMB 0a co BGD NERMD NGA tl 6 ETH TA SI n- 6 0 2 4 6 8 Log of Settler Mortality FIGURE 1. REDUCED-FORM RELATIONSHIP BETWEEN INCOME AND SETTLER MORTALITY (first-stage) relationship between settler mortal- ity rates and current institutions, which is inter- esting in its own right. The regression shows that mortality rates faced by the settlers more than 100 years ago explains over 25 percent of the variation in current institutions.4 We also document that this relationship works through the channels we hypothesize: (potential) settler mortality rates were a major determinant of settlements; settlements were a major determi- nant of early institutions (in practice, institu- tions in 1900); and there is a strong correlation between early institutions and institutions to- day. Our two-stage least-squares estimate of the effect of institutions on performance is rela- tively precisely estimated and large. For ex- ample, it implies that improving Nigeria's institutions to the level of Chile could, in the long run, lead to as much as a 7-fold increase in Nigeria's income (in practice Chile is over 11 times as rich as Nigeria). The exclusion restriction implied by our in- strumental variable regression is that, condi- tional on the controls included in the regression, the mortality rates of European settlers more than 100 years ago have no effect on GDP per capita today, other than their effect through institutional development. The major concern with this exclusion restriction is that the mor- tality rates of settlers could be correlated with the current disease environment, which may have a direct effect on economic performance. In this case, our instrumental-variables esti- mates may be assigning the effect of diseases on income to institutions. We believe that this is unlikely to be the case and that our exclusion restriction is plausible. The great majority of European deaths in the colonies were caused by malaria and yellow fever. Although these dis- eases were fatal to Europeans who had no im- munity, they had limited effect on indigenous adults who had developed various types of im- munities. These diseases are therefore unlikely to be the reason why many countries in Africa and Asia are very poor today (see the discussion in Section III, subsection A). This notion is institutions," including constraints on government expropri- ation, independent judiciary, property rights enforcement, and institutions providing equal access to education and ensuring civil liberties, that are important to encourage investment and growth. Expropriation risk is related to all these institutional features. In Acemoglu et al. (2000), we reported similar results with other institutions variables. 4 Differences in mortality rates are not the only, or even the main, cause of variation in institutions. For our empir- ical approach to work, all we need is that they are a source of exogenous variation. This content downloaded from 202.114.238.230 on Mon, 28 Oct 2024 05:17:22 UTC All use subject to /s/about.jstor.org/terms

1372 THE AMERICAN ECONOMIC REVIEW DECEMBER 2001 supported by the mortality rates of local people in these areas. For example, Curtin (1968 Table 2) reports that the annual mortality rates of local troops serving with the British army in Bengal and Madras were respectively 11 and 13 in 1,000. These numbers are quite comparable to, in fact lower than, the annual mortality rates of British troops serving in Britain, which were approximately 15 in 1,000. In contrast, the mor- tality rates of British troops serving in these colonies were much higher because of their lack of immunity. For example, mortality rates in Bengal and Madras for British troops were be- tween 70 and 170 in 1,000. The view that the disease burden for indigenous adults was not unusual in places like Africa or India is also supported by the relatively high population den- sities in these places before Europeans arrived (Colin McEvedy and Richard Jones, 1975). We document that our estimates of the effect of institutions on performance are not driven by outliers. For example, excluding Australia, New Zealand, Canada, and the United States does not change the results, nor does excluding Africa. Interestingly, we show that once the effect of institutions on economic performance is con- trolled for, neither distance from the equator nor the dummy for Africa is significant. These re- sults suggest that Africa is poorer than the rest of the world not because of pure geographic or cultural factors, but because of worse institutions. The validity of our approach-i.e., our exclu- sion restriction-is threatened if other factors correlated with the estimates of settler mortality affect income per capita. We adopt two strate- gies to substantiate that our results are not driven by omitted factors. First, we investigate whether institutions have a comparable effect on income once we control for a number of variables potentially correlated with settler mor- tality and economic outcomes. We find that none of these overturn our results; the estimates change remarkably little when we include con- trols for the identity of the main colonizer, legal origin, climate, religion, geography, natural re- sources, soil quality, and measures of ethnolin- guistic fragmentation. Furthermore, the results are also robust to the inclusion of controls for the current disease environment (e.g., the prev- alence of malaria, life expectancy, and infant mortality) and the current fraction of the popu- lation of European descent. Naturally, it is impossible to control for all possible variables that might be correlated with settler mortality and economic outcomes. Fur- thermore, our empirical approach might capture the effect of settler mortality on economic per- formance, but working through other channels. We deal with these problems by using a simple overidentification test using measures of Euro- pean migration to the colonies and early insti- tutions as additional instruments. We then use overidentification tests to detect whether settler mortality has a direct effect on current perfor- mance. The results are encouraging for our approach; they generate no evidence for a direct effect of settler mortality on economic outcomes. We are not aware of others who have pointed out the link between settler mortality and insti- tutions, though scholars such as William H. McNeill (1976), Crosby (1986), and Jared M. Diamond (1997) have discussed the influence of diseases on human history. Diamond (1997), in particular, emphasizes comparative develop- ment, but his theory is based on the geograph- ical determinants of the incidence of the neolithic revolution. He ignores both the impor- tance of institutions and the potential causes of divergence in more recent development, which are the main focus of our paper. Work by Ro- nald E. Robinson and John Gallagher (1961), Lewis H. Gann and Peter Duignan (1962), Donald Denoon (1983), and Philip J. Cain and Anthony G. Hopkins (1993) emphasizes that settler colonies such as the United States and New Zealand are different from other colonies, and point out that these differences were impor- tant for their economic success. Nevertheless, this literature does not develop the link between mortality, settlements, and institutions. Our argument is most closely related to work on the influence of colonial experience on insti- tutions. Frederich A. von Hayek (1960) argued that the British common law tradition was su- perior to the French civil law, which was devel- oped during the Napoleonic era to restrain judges' interference with state policies (see also Seymour M. Lipset, 1994). More recently, Rafael La Porta et al. (1998, 1999) emphasize the importance of colonial origin (the identity of This content downloaded from 202.114.238.230 on Mon, 28 Oct 2024 05:17:22 UTC All use subject to /s/about.jstor.org/terms

VOL 91 NO. 5 ACEMOGLU ET AL: THE COLONIAL ORIGINS OF DEVELOPMENT 1373 the colonizer) and legal origin on current insti- tutions, and show that the common-law coun- tries and former British colonies have better property rights and more developed financial markets. Similarly, David Landes (1998 Chap- ters 19 and 20) and North et al. (1998) argue that former British colonies prospered relative to former French, Spanish, and Portuguese col- onies because of the good economic and polit- ical institutions and culture they inherited from Britain. In contrast to this approach which focuses on the identity of the colonizer, we emphasize the conditions in the colonies. Spe- cifically, in our theory-and in the data-it is not the identity of the colonizer or legal origin that matters, but whether European colonialists could safely settle in a particular location: where they could not settle, they created worse institutions. In this respect, our argument is closely related to that of Stanley L. Engerman and Kenneth L. Sokoloff (1997) who also em- phasize institutions, but link them to factor en- dowments and inequality. Empirically, our work is related to a number of other attempts to uncover the link between institutions and development, as well as to Graziella Bertocchi and Fabio Canova (1996) and Robin M. Grier (1999), who investigate the effect of being a colony on postwar growth. Two papers deal with the endogeneity of in- stitutions by using an instrumental variables approach as we do here. Mauro (1995) instru- ments for corruption using ethnolinguistic frag- mentation. Hall and Jones (1999), in turn, use distance from the equator as an instrument for social infrastructure because, they argue, lati- tude is correlated with "Western influence," which leads to good institutions. The theoretical reasoning for these instruments is not entirely convincing. It is not easy to argue that the Belgian influence in the Congo, or Western influence in the Gold Coast during the era of slavery promoted good institutions. Ethnolin- guistic fragmentation, on the other hand, seems endogenous, especially since such fragmenta- tion almost completely disappeared in Europe during the era of growth when a centralized state and market emerged (see, e.g., Eugen J. Weber, 1976; Benedict Anderson, 1983). Econometrically, the problem with both studies is that their instruments can plausibly have a direct effect on performance. For example, Wil- liiam Easterly and Ross Levine (1997) argue that ethnolinguistic fragmentation can affect performance by creating political instability, while Charles de Montesquieu [1748] (1989) and more recently David E. Bloom and Jeffrey D. Sachs (1998) and John Gallup et al. (1998) argue for a direct effect of climate on perfor- mance. If, indeed, these variables have a direct effect, they are invalid instruments and do not establish that it is institutions that matter. The advantage of our approach is that conditional on the variables we already control for, settler mor- tality more than 100 years ago should have no effect on output today, other than through its effect on institutions. Interestingly, our results show that distance from the equator does not have an independent effect on economic perfor- mance, validating the use of this variable as an instrument in the work by Hall and Jones (1999). The next section outlines our hypothesis and provides supporting historical evidence. Section II presents OLS regressions of GDP per capita on our index of institutions. Section III de- scribes our key instrument for institutions, the mortality rates faced by potential settlers at the time of colonization. Section IV presents our main results. Section V investigates the robust- ness of our results, and Section VI concludes. I. The Hypothesis and Historical Background We hypothesize that settler mortality affected settlements; settlements affected early institu- tions; and early institutions persisted and formed the basis of current institutions. In this section, we discuss and substantiate this hypoth- esis. The next subsection discusses the link be- tween mortality rates of settlers and settlement decisions, then we discuss differences in colo- nization policies, and finally, we turn to the causes of institutional persistence. A. Mortality and Settlements There is little doubt that mortality rates were a key determinant of European settlements. Curtin (1964, 1998) documents how both the British and French press informed the public of mortality rates in the colonies. Curtin (1964) This content downloaded from 202.114.238.230 on Mon, 28 Oct 2024 05:17:22 UTC All use subject to /s/about.jstor.org/terms

1374 THE AMERICAN ECONOMIC REVIEW DECEMBER 2001 also documents how early British expectations for settlement in West Africa were dashed by very high mortality among early settlers, about half of whom could be expected to die in the first year. In the "Province of Freedom" (Sierra Leone), European mortality in the first year was 46 percent, in Bulama (April 1792-April 1793) there was 61-percent mortality among Europe- ans. In the first year of the Sierra Leone Com- pany (1792-1793), 72 percent of the European settlers died. On Mungo Park's Second Expedi- tion (May-November 1805), 87 percent of Eu- ropeans died during the overland trip from Gambia to the Niger, and all the Europeans died before completing the expedition. An interesting example of the awareness of the disease environment comes from the Pil- grim fathers. They decided to migrate to the United States rather than Guyana because of the high mortality rates in Guyana (see Crosby, 1986 pp. 143-44). Another example comes from the Beauchamp Committee in 1795, set up to decide where to send British convicts who had previously been sent to the United States. One of the leading proposals was the island of Lemane, up the Gambia River. The committee rejected this possibility because they decided mortality rates would be too high even for the convicts. Southwest Africa was also rejected for health reasons. The final decision was to send convicts to Australia. The eventual expansion of many of the col- onies was also related to the living conditions there. In places where the early settlers faced high mortality rates, there would be less incen- tive for new settlers to come.5 B. Types of Colonization and Settlements The historical evidence supports both the no- tion that there was a wide range of different types of colonization and that the presence or absence of European settlers was a key deter- minant of the form colonialism took. Historians, including Robinson and Gallagher (1961), Gann and Duignan (1962), Denoon (1983), and Cain and Hopkins (1993), have documented the de- velopment of "settler colonies," where Europe- ans settled in large numbers, and life was modeled after the home country. Denoon (1983) emphasizes that settler colonies had representa- tive institutions which promoted what the set- tlers wanted and that what they wanted was freedom and the ability to get rich by engaging in trade. He argues that "there was undeniably something capitalist in the structure of these colonies. Private ownership of land and live- stock was well established very early ." (p. 35). When the establishment of European-like in- stitutions did not arise naturally, the settlers were ready to fight for them against the wishes of the home country. Australia is an interesting example here. Most of the early settlers in Aus- tralia were ex-convicts, but the land was owned largely by ex-jailors, and there was no legal protection against the arbitrary power of land- owners. The settlers wanted institutions and po- litical rights like those prevailing in England at the time. They demanded jury trials, freedom from arbitrary arrest, and electoral representa- tion. Although the British government resisted at first, the settlers argued that they were British and deserved the same rights as in the home country (see Robert Hughes, 1987). Cain and Hopkins write (1993 p. 237) "from the late 1840s the British bowed to local pressures and, in line with observed constitutional changes taking place in Britain herself, accepted the idea that, in mature colonies, governors should in future form ministries from the majority ele- ments in elected legislatures." They also sug- gest that "the enormous boom in public investment after 1870 [in New Zealand] . was an attempt to build up an infrastructure . to maintain high living standards in a country where voters expected politicians actively to promote their economic welfare." (p. 225).6 5 Naturally, other factors also influenced settlements. For example, despite the relatively high mortality rates, many Europeans migrated to the Caribbean because of the very high incomes there at the time (see, e.g., Richard S. Dunn, 1972; David W. Galenson, 1996; Engerman and Sokoloff, 1997; David Eltis, 2000). 6 Robert H. Bates (1983 Chapter 3) gives a nice example of the influence of settlers on policy in Africa. The British colonial government pursued many policies that depressed the price of cocoa, the main produce of the farmers in Ghana. In contrast, the British government supported the prices faced by the commercial cereal farmers in Kenya. This content downloaded from 202.114.238.230 on Mon, 28 Oct 2024 05:17:22 UTC All use subject to /s/about.jstor.org/terms

VOL. 91 NO. 5 ACEMOGLU ET AL.: THE COLONIAL ORIGINS OF DEVELOPMENT 1375 This is in sharp contrast to the colonial expe- rience in Latin America during the seventeenth and eighteenth centuries, and in Asia and Africa during the nineteenth and early twentieth cen- turies. The main objective of the Spanish and the Portuguese colonization was to obtain gold and other valuables from America. Soon after the conquest, the Spanish crown granted rights to land and labor (the encomienda) and set up a complex mercantilist system of monopolies and trade regulations to extract resources from the colonies.7 Europeans developed the slave trade in Af- rica for similar reasons. Before the mid-nine- teenth century, colonial powers were mostly restricted to the African coast and concentrated on monopolizing trade in slaves, gold, and other valuable commodities-witness the names used to describe West Aflican countries: the Gold Coast, the Ivory Coast. Thereafter, colonial pol- icy was driven in part by an element of super- power rivalry, but mostly by economic motives. Michael Crowder (1968 p. 50), for example, notes "it is significant that Britain's largest col- ony on the West Coast [Nigeria] should have been the one where her traders were most active and bears out the contention that, for Britain . flag followed trade."8 Lance E. Davis and Robert A. Huttenback (1987 p. 307) conclude that "the colonial Empire provides strong evi- dence for the belief that government was at- tuned to the interests of business and willing to divert resources to ends that the business com- munity would have found profitable." They find that before 1885 investment in the British em- pire had a return 25 percent higher than that on domestic investment, though afterwards the two converged. Andrew Roberts (1976 p. 193) writes: "[from] . 1930 to 1940 Britain had kept for itself 2,400,000 pounds in taxes from the Copperbelt, while Northern Rhodesia received from Britain only 136,000 pounds in grants for development." Similarly, Patrick Manning (1982) estimates that between 1905 and 1914, 50 percent of GDP in Dahomey was extracted by the French, and Crawford Young (1994 p. 125) notes that tax rates in Tunisia were four times as high as in France. Probably the most extreme case of extraction was that of King Leopold of Belgium in the Congo. Gann and Duignan (1979 p. 30) argue that following the example of the Dutch in Indonesia, Leopold's philosophy was that "the colonies should be exploited, not by the opera- tion of a market economy, but by state interven- tion and compulsory cultivation of cash crops to be sold to and distributed by the state at con- trolled prices." Jean-Philippe Peemans (1975) calculates that tax rates on Africans in the Congo approached 60 percent of their income during the 1920's and 1930's. Bogumil Jew- siewicki (1983) writes that during the period when Leopold was directly in charge, policy was "based on the violent exploitation of natural and human resources," with a consequent "de- struction of economic and social life . [and] . dismemberment of political structures." Overall, there were few constraints on state power in the nonsettler colonies. The colonial powers set up authoritarian and absolutist states with the purpose of solidifying their control and facilitating the extraction of resources. Young (1994 p. 101) quotes a French official in Africa: "the European commandant is not posted to observe nature, . He has a mission . to impose regulations, to limit individual liberties., to collect taxes." Manning (1988 p. 84) summa- rizes this as: "In Europe the theories of repre- sentative democracy won out over the theorists of absolutism. But in Africa, the European conquerors set up absolutist governments, based on reasoning similar to that of Louis XIV." Bates shows that this was mainly because in Kenya, but not in Ghana, there were a significant number of European settler farmers, who exerted considerable pressure on policy. 7 See James Lang (1975) and James Lockhart and Stuart B. Schwartz (1983). Migration to Spanish America was limited by the Spanish Crown, in part because of a desire to keep control of the colonists and limit their independence (see, for example, John H. Coatsworth, 1982). This also gives further support to our notion that settlers were able to influence the type of institutions set up in the colonies, even against the wishes of the home country government. 8 Although in almost all cases the main objective of colonial policies was to protect economic interests and obtain profits, the recipients of these profits varied. In the Portuguese case, it was the state; in the Belgian case, it was King Leopold; and in the British case, it was often private enterprises who obtained concessions or monopoly trading rights in Africa (Crowder, 1968 Part III). This content downloaded from 202.114.238.230 on Mon, 28 Oct 2024 05:17:22 UTC All use subject to /s/about.jstor.org/terms

1376 THE AMERICAN ECONOMIC REVIEW DECEMBER 2001 C. Institutional Persistence There is a variety of historical evidence, as well as our regressions in Table 3 below, suggesting that the control structures set up in the nonsettler colonies during the colonial era persisted, while there is little doubt that the institutions of law and order and private property established during the early phases of colonialism in Australia, Canada, New Zealand, the United States, Hong Kong, and Singapore have formed the basis of the current- day institutions of these countries.9 Young emphasizes that the extractive institu- tions set up by the colonialists persisted long after the colonial regime ended. He writes "al- though we commonly described the indepen- dent 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 gov- ernance" (1994 p. 283). An example of the persistence of extractive state institutions into the independence era is provided by the persis- tence of the most prominent extractive policies. In Latin America, the full panoply of monopo- lies and regulations, which had been created by Spain, remained intact after independence, for most of the nineteenth century. Forced labor policies persisted and were even intensified or reintroduced with the expansion of export agri- culture in the latter part of the nineteenth cen- tury. Slavery persisted in Brazil until 1886, and during the sisal boom in Mexico, forced labor was reintroduced and persisted up to the start of the revolution in 1910. Forced labor was also reintroduced in Guatemala and El Salvador to provide labor for coffee growing. In the Guate- malan case, forced labor lasted until the creation of democracy in 1945. Similarly, forced labor was reinstated in many independent African countries, for example, by Mobutu in Zaire. There are a number of economic mechanisms that will lead to institutional persistence of this type. Here, we discuss three possibilities. (1) Setting up institutions that place restrictions on government power and enforce property rights is costly (see, e.g., Acemoglu and Thierry Verdier, 1998). If the costs of cre- ating these institutions have been sunk by the colonial powers, then it may not pay the elites at independence to switch to extrac- tive institutions. In contrast, when the new elites inherit extractive institutions, they may not want to incur the costs of introduc- ing better institutions, and may instead prefer to exploit the existing extractive in- stitutions for their own benefits. (2) The gains to an extractive strategy may depend on the size of the ruling elite. When this elite is small, each member would have a larger share of the revenues, so the elite may have a greater incentive to be extrac- tive. In many cases where European powers set up authoritarian institutions, they dele- gated the day-to-day running of the state to a small domestic elite. This narrow group often was the one to control the state after independence and favored extractive institutions. 10 (3) If agents make irreversible investments that are complementary to a particular set of institutions, they will be more willing to support them, making these institutions per- sist (see, e.g., Acemoglu, 1995). For exam- ple, agents who have invested in human and physical capital will be in favor of spending 9 The thesis that institutions persist for a long time goes back at least to Karl A. Wittfogel (1957), who argued that the control structures set up by the large "hydraulic" empires such as China, Russia, and the Ottoman Empire persisted for more than 500 years to the twentieth century. Engerman and Sokoloff (1997), La Porta et al. (1998, 1999), North et al. (1998), and Coatsworth (1999) also argue that colonial insti- tutions persisted. Engerman et al. (1998) provide further evi- dence supporting this view. 10 William Reno (1995), for example, argues that the governments of postindependence Sierra Leone adopted the tactics and institutions of the British colonizers to cement their political power and extract resources from the rest of society. Catherine Boone (1992) provides a similar analysis of the evolution of the modern state in Senegal. Most scholars also view the roots of authoritarianism under Mobutu in the colonial state practices in the Belgian Congo (e.g., Thomas M. Callaghy, 1984, or Thomas Turner and Young, 1985, especially p. 43). The situation in Latin America is similar. Independence of most Latin American countlies came in the early nineteenth century as domestic elites took advantage of the invasion of Spain by Napoleon to capture the control of the state. But, the only thing that changed was the identity of the recipients of the rents (see, for example, Coatsworth, 1978, or John Lynch, 1986). This content downloaded from 202.114.238.230 on Mon, 28 Oct 2024 05:17:22 UTC All use subject to /s/about.jstor.org/terms

VOL 91 NO. 5 ACEMOGLU ET AL.: THE COLONIAL ORIGINS OF DEVELOPMENT 1377 TABLE 1-DESCRIPTIVE STATISTICS By quartiles of mortality Whole world Base sample (1) (2) (3) (4) Log GDP per capita (PPP) in 1995 8.3 8.05 8.9 8.4 7.73 7.2 (1.1) (1.1) Log output per worker in 1988 -1.70 -1.93 -1.03 -1.46 -2.20 -3.03 (with level of United States (1.1) (1.0) normalized to 1) Average protection against 7 6.5 7.9 6.5 6 5.9 expropriation risk, 1985-1995 (1.8) (1.5) Constraint on executive in 1990 3.6 4 5.3 5.1 3.3 2.3 (2.3) (2.3) Constraint on executive in 1900 1.9 2.3 3.7 3.4 1.1 1 (1.8) (2.1) Constraint on executive in first year 3.6 3.3 4.8 2.4 3.1 3.4 of independence (2.4) (2.4) Democracy in 1900 1.1 1.6 3.9 2.8 0.19 0 (2.6) (3.0) European settlements in 1900 0.31 0.16 0.32 0.26 0.08 0.005 (0.4) (0.3) Log European settler mortality n.a. 4.7 3.0 4.3 4.9 6.3 (1.1) Number of observations 163 64 14 18 17 15 Notes: Standard deviations are in parentheses. Mortality is potential settler mortality, measured in terms of deaths per annum per 1,000 "mean strength" (raw mortality numbers are adjusted to what they would be if a force of 1,000 living people were kept in place for a whole year, e.g., it is possible for this number to exceed 1,000 in episodes of extreme mortality as those who die are replaced with new arrivals). Sources and methods for mortality are described in Section III, subsection B, and in the unpublished Appendix (available from the authors; or see Acemoglu et al., 2000). Quartiles of mortality are for our base sample of 64 observations. These are: (1) less than 65.4; (2) greater than or equal to 65.4 and less than 78.1; (3) greater than or equal to 78.1 and less than 280; (4) greater than or equal to 280. The number of observations differs by variable; see Appendix Table Al for details. money to enforce property rights, while those who have less to lose may not be. II. Institutions and Performance: OLS Estimates A. Data and Descriptive Statistics Table 1 provides descriptive statistics for the key variables of interest. The first column is for the whole world, and column (2) is for our base sample, limited to the 64 countries that were ex-colonies and for which we have settler mor- tality, protection against expropriation risk, and GDP data (this is smaller than the sample in Figure 1). The GDP per capita in 1995 is PPP adjusted (a more detailed discussion of all data sources is provided in Appendix Table Al). Income (GDP) per capita will be our measure of economic outcome. There are large differences in income per capita in both the world sample and our basic sample, and the standard devia- tion of log income per capita in both cases is 1.1. In row 3, we also give output per worker in 1988 from Hall and Jones (1999) as an alterna- tive measure of income today. Hall and Jones (1999) prefer this measure since it explicitly refers to worker productivity. On the other hand, given the difficulty of measuring the for- mal labor force, it may be a more noisy measure of economic performance than income per capita. We use a variety of variables to capture in- stitutional differences. Our main variable, re- ported in the second row, is an index of protection against expropriation. These data are from Political Risk Services (see, e.g., William D. Coplin et al., 1991), and were first used in the economics and political science literatures by Knack and Keefer (1995). Political Risk Ser- vices reports a value between 0 and 10 for each country and year, with 0 corresponding to the This content downloaded from 202.114.238.230 on Mon, 28 Oct 2024 05:17:22 UTC All use subject to /s/about.jstor.org/terms

1378 THE AMERICAN ECONOMIC REVIEW DECEMBER 2001 lowest protection against expropriation. We use the average value for each country between 1985 and 1995 (values are missing for many countries before 1985). This measure is appro- priate for our purposes since the focus here is on differences in institutions originating from dif- ferent types of states and state policies. We expect our notion of extractive state to corre- spond to a low value of this index, while the tradition of rule of law and well-enforced prop- erty rights should correspond to high values.11 The next row gives an alternative measure, con- straints on the executive in 1990, coded from the Polity III data set of Ted Robert Gurr and associates (an update of Gurr, 1997). Results using the constraints on the executive and other measures are reported in Acemoglu et al. (2000) and are not repeated here. The next three rows give measures of early institutions from the same Gurr data set. The first is a measure of constraints on the executive in 1900 and the second is an index of democ- racy in 1900. This information is not available for countries that were still colonies in 1900, so we assign these countries the lowest possible score. In the following row, we report the mean and standard deviation of constraints on the executive in the first year of independence (i.e., the first year a country enters the Gurr data set) as an alternative measure of institutions. The second-to-last row gives the fraction of the pop- ulation of European descent in 1900, which is our measure of European settlement in the col- onies, constructed from McEvedy and Jones (1975) and Curtin et al. (1995). The final row gives the logarithm of the baseline settler mor- tality estimates; the raw data are in Appendix Table A2. The remaining columns give descriptive sta- tistics for groups of countries at different quar- tiles of the settler mortality distribution. This is useful since settler mortality is our instrument for institutions (this variable is described in more detail in the next section). B. Ordinary Least-Squares Regressions Table 2 reports ordinary least-squares (OLS) regressions of log per capita income on the protection against expropriation variable in a variety of samples. The linear regressions are for the equation (1) logyi=i+ aRi+Xy+ ei, where yi is income per capita in country i, Ri is the protection against expropriation measure, Xi is a vector of other covariates, and ei is a random error term. The coefficient of interest throughout the paper is a, the effect of institu- tions on income per capita. Column (1) shows that in the whole world sample there is a strong correlation between our measure of institutions and income per capita. Column (2) shows that the impact of the insti- tutions variable on income per capita in our base sample is quite similar to that in the whole world, and Figure 2 shows this relationship di- agrammatically for our base sample consisting of 64 countries. The R2 of the regression in column (1) indicates that over 50 percent of the variation in income per capita is associated with variation in this index of institutions. To get a sense of the magnitude of the effect of institu- tions on performance, let us compare two coun- tries, Nigeria, which has approximately the 25th percentile of the institutional measure in this sample, 5.6, and Chile, which has approxi- mately the 75th percentile of the institutions index, 7.8. The estimate in column (1), 0.52, indicates that there should be on average a 1.14- log-point difference between the log GDPs of the corresponding countries (or approximately a 2-fold difference-e1 . 14- 1 2.1). In prac- tice, this GDP gap is 253 log points (approxi- mately 1-fold). Therefore, if the effect estimated in Table 2 were causal, it would im- ply a fairly large effect of institutions on per- formance, but still much less than the actual income gap between Nigeria and Chile. Many social scientists, including Monte- squieu [1784] (1989), Diamond (1997), and " The protection against expropriation variable is spe- cifically for foreign investment, since Political and Risk Services construct these data for foreign investors. How- ever, as noted by Knack and Keefer (1995), risk of expro- priation of foreign and domestic investments are very highly correlated, and risk of expropriation of foreign investment may be more comparable across countries. In any case, all our results hold also with a variety of other measures of institutions (see Tables 4a, b, c, d, and e in Acemoglu et al., 2000, available from the authors). This content downloaded from 202.114.238.230 on Mon, 28 Oct 2024 05:17:22 UTC All use subject to /s/about.jstor.org/terms