VOL 91 NO.5 ACEMOGLU ET AL:THE COLONIAL ORIGINS OF DEVELOPMENT 1373 the colonizer)and legal origin on current insti- direct effect on performance.For example,Wil- tutions,and show that the common-law coun- liiam Easterly and Ross Levine (1997)argue tries and former British colonies have better that ethnolinguistic fragmentation can affect property rights and more developed financial performance by creating political instability, markets.Similarly,David Landes (1998 Chap- while Charles de Montesquieu [1748](1989) ters 19 and 20)and North et al.(1998)argue and more recently David E.Bloom and Jeffrey that former British colonies prospered relative D.Sachs (1998)and John Gallup et al.(1998) to former French,Spanish,and Portuguese col- argue for a direct effect of climate on perfor- onies because of the good economic and polit- mance.If,indeed,these variables have a direct ical institutions and culture they inherited from effect,they are invalid instruments and do not Britain.In contrast to this approach which establish that it is institutions that matter.The focuses on the identity of the colonizer,we advantage of our approach is that conditional on emphasize the conditions in the colonies.Spe- the variables we already control for,settler mor- cifically,in our theory-and in the data-it is tality more than 100 years ago should have no not the identity of the colonizer or legal origin effect on output today,other than through its that matters,but whether European colonialists effect on institutions.Interestingly,our results could safely settle in a particular location: show that distance from the equator does not where they could not settle,they created worse have an independent effect on economic perfor- institutions.In this respect,our argument is mance,validating the use of this variable as an closely related to that of Stanley L.Engerman instrument in the work by Hall and Jones and Kenneth L.Sokoloff(1997)who also em- (1999). phasize institutions,but link them to factor en- The next section outlines our hypothesis and dowments and inequality. provides supporting historical evidence.Section Empirically,our work is related to a number II presents OLS regressions of GDP per capita of other attempts to uncover the link between on our index of institutions.Section III de- institutions and development,as well as to scribes our key instrument for institutions,the Graziella Bertocchi and Fabio Canova (1996) mortality rates faced by potential settlers at the and Robin M.Grier(1999),who investigate the time of colonization.Section IV presents our effect of being a colony on postwar growth. main results.Section V investigates the robust- Two papers deal with the endogeneity of in- ness of our results,and Section VI concludes. stitutions by using an instrumental variables approach as we do here.Mauro (1995)instru- I.The Hypothesis and Historical Background ments for corruption using ethnolinguistic frag- mentation.Hall and Jones (1999),in turn,use We hypothesize that settler mortality affected distance from the equator as an instrument for settlements;settlements affected early institu- social infrastructure because,they argue,lati- tions;and early institutions persisted and tude is correlated with“Western influence,” formed the basis of current institutions.In this which leads to good institutions.The theoretical section,we discuss and substantiate this hypoth- reasoning for these instruments is not entirely esis.The next subsection discusses the link be- convincing.It is not easy to argue that the tween mortality rates of settlers and settlement Belgian influence in the Congo,or Western decisions.then we discuss differences in colo- influence in the Gold Coast during the era of nization policies,and finally,we turn to the slavery promoted good institutions.Ethnolin- causes of institutional persistence. guistic fragmentation,on the other hand,seems endogenous,especially since such fragmenta- A.Mortality and Settlements tion almost completely disappeared in Europe during the era of growth when a centralized There is little doubt that mortality rates were state and market emerged (see,e.g.,Eugen a key determinant of European settlements. J.Weber,1976;Benedict Anderson,1983). Curtin (1964,1998)documents how both the Econometrically,the problem with both studies British and French press informed the public of is that their instruments can plausibly have a mortality rates in the colonies.Curtin (1964)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 ~ortu~uese 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 identitv 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 cormption 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 [I7481 (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 I1 presents OLS regressions of GDP per capita on our index of institutions. Section I11 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)