1370 THE AMERICAN ECONOMIC REVIEW DECEMBER 200 in their institutions and in their income per current institutions in these countries.2 More capita. specifically,our theory can be schematically To estimate the impact of institutions on eco- summarized as nomic performance,we need a source of exog- enous variation in institutions.In this paper,we (potential)settler propose a theory of institutional differences mortality →settlements among countries colonized by Europeans,'and exploit this theory to derive a possible source of exogenous variation.Our theory rests on three early current → institutions 出 institutions premises: 1.There were different types of colonization current → policies which created different sets of insti- performance. tutions.At one extreme,European powers set up "extractive states,"exemplified by the Bel- We use data on the mortality rates of soldiers, gian colonization of the Congo.These institu- bishops,and sailors stationed in the colonies be- tions did not introduce much protection for tween the seventeenth and nineteenth centuries. private property,nor did they provide checks largely based on the work of the historian Philip and balances against government expropria- D.Curtin.These give a good indication of the tion.In fact,the main purpose of the extractive mortality rates faced by settlers.Europeans were state was to transfer as much of the resources well informed about these mortality rates at the of the colony to the colonizer. time,even though they did not know how to At the other extreme,many Europeans mi- control the diseases that caused these high mor- grated and settled in a number of colonies, tality rates. creating what the historian Alfred Crosby Figure 1 plots the logarithm of GDP per (1986)calls"Neo-Europes."The settlers tried capita today against the logarithm of the settler to replicate European institutions,with strong mortality rates per thousand for a sample of 75 emphasis on private property and checks countries (see below for data details).It shows a against government power.Primary examples strong negative relationship.Colonies where of this include Australia,New Zealand,Can- Europeans faced higher mortality rates are to- ada,and the United States. day substantially poorer than colonies that were 2.The colonization strategy was influenced by healthy for Europeans.Our theory is that this the feasibility of settlements.In places where relationship reflects the effect of settler mortal- the disease environment was not favorable to ity working through the institutions brought by European settlement,the cards were stacked Europeans.To substantiate this,we regress cur- against the creation of Neo-Europes,and the rent performance on current institutions,and formation of the extractive state was more instrument the latter by settler mortality rates. likely. Since our focus is on property rights and checks 3.The colonial state and institutions persisted against government power,we use the protec- even after independence. tion against"risk of expropriation"index from Political Risk Services as a proxy for institu- Based on these three premises,we use the tions.This variable measures differences in in- mortality rates expected by the first European stitutions originating from different types of settlers in the colonies as an instrument for states and state policies.3 There is a strong By "colonial experience"we do not only mean the 2 Note that although only some countries were colonized, direct control of the colonies by European powers,but more there is no selection bias here.This is because the question generally,European influence on the rest of the world.So we are interested in is the effect of colonization policy according to this definition,Sub-Saharan Africa was conditional on being colonized. strongly affected by "colonialism"between the sixteenth 3 Government expropriation is not the only institutional and nineteenth centuries because of the Atlantic slave trade. feature that matters.Our view is that there is a "cluster of1370 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 ~uro~eans, ' 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 ' 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. current institutions in these countrie~.~ More specifically, our theory can be schematically summarized as (potential) settler 3 settlements mortality early current institutions institutions current 3 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 '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. Government expropriation is not the only institutional feature that matters. Our view is that there is a "cluster of