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