The Colonial Origins of Comparative Development: an Empirical Investigation

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 institutions 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 controlled for, countries in Africa or those closer to the equator do not have lower incomes. (JEL O11, P16, P51) What are the fundamental causes of the tionary policies will invest more in physical large differences in income per capita across and human capital, and will use these factors countries? Although there is still little con- more efficiently to achieve a greater level of sensus on the answer to this question, differ- income (e.g., Douglass C. North and Robert ences in institutions and property rights have P. Thomas, 1973; Eric L. Jones, 1981; North, received considerable attention in recent 1981). This view receives some support from years. Countries with better “institutions,” cross-country correlations between measures more secure property rights, and less distor- of property rights and economic development (e.g., Stephen Knack and Philip Keefer, 1995; Paulo Mauro, 1995; Robert E. Hall and * Acemoglu: Department of Economics, E52-380b, Charles I. Jones, 1999; Dani Rodrik, 1999), Massachusetts Institute of Technology, Cambridge, MA and from a few micro studies that investigate 02319, and Canadian Institute for Advanced Research the relationship between property rights and (e-mail: [email protected]); Johnson: Sloan School of Man- agement, Massachusetts Institute of Technology, Cam- investment or output (e.g., Timothy Besley, bridge, MA 02319 (e-mail: [email protected]); Robinson: 1995; Christopher Mazingo, 1999; Johnson et Department of Political Science and Department of Eco- al., 1999). nomics, 210 Barrows Hall, University of California, Berke- At some level it is obvious that institutions ley, CA 94720 (e-mail: [email protected]). We thank Joshua Angrist, Abhijit Banerjee, Esther Duflo, matter. Witness, for example, the divergent Stan Engerman, John Gallup, Claudia Goldin, Robert paths of North and South Korea, or East and Hall, Chad Jones, Larry Katz, Richard Locke, Andrei West Germany, where one part of the country Shleifer, Ken Sokoloff, Judith Tendler, three anonymous stagnated under central planning and collec- referees, and seminar participants at the University of tive ownership, while the other prospered California-Berkeley, Brown University, Canadian Insti- tute for Advanced Research, Columbia University, Har- with private property and a market economy. vard University, Massachusetts Institute of Technology, Nevertheless, we lack reliable estimates of National Bureau of Economic Research, Northwestern the effect of institutions on economic perfor- University, New York University, Princeton University, mance. It is quite likely that rich economies University of Rochester, Stanford University, Toulouse University, University of California-Los Angeles, and the choose or can afford better institutions. Per- World Bank for useful comments. We also thank Robert haps more important, economies that are dif- McCaa for guiding us to the data on bishops’ mortality. ferent for a variety of reasons will differ both 1369 1370 THE AMERICAN ECONOMIC REVIEW DECEMBER 2001 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 exogenous variation in institutions. In this paper, we ͑potential͒ settler f settlements propose a theory of institutional differences mortality among countries colonized by Europeans,1 and exploit this theory to derive a possible source of early current exogenous variation. Our theory rests on three f f premises: institutions institutions 1. There were different types of colonization f 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 1 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 of VOL. 91 NO. 5 ACEMOGLU ET AL.: THE COLONIAL ORIGINS OF DEVELOPMENT 1371 FIGURE 1. REDUCED-FORM RELATIONSHIP BETWEEN INCOME AND SETTLER MORTALITY (first-stage) relationship between settler mortal- institutions to the level of Chile could, in the ity rates and current institutions, which is inter- long run, lead to as much as a 7-fold increase in esting in its own right. The regression shows Nigeria’s income (in practice Chile is over 11 that mortality rates faced by the settlers more times as rich as Nigeria). than 100 years ago explains over 25 percent The exclusion restriction implied by our in- of the variation in current institutions.4 We also strumental variable regression is that, condi- document that this relationship works through tional on the controls included in the regression, the channels we hypothesize: (potential) settler the mortality rates of European settlers more mortality rates were a major determinant of than 100 years ago have no effect on GDP per settlements; settlements were a major determi- capita today, other than their effect through nant of early institutions (in practice, institu- institutional development. The major concern tions in 1900); and there is a strong correlation with this exclusion restriction is that the mor- between early institutions and institutions to- tality rates of settlers could be correlated with day. Our two-stage least-squares estimate of the the current disease environment, which may effect of institutions on performance is rela- have a direct effect on economic performance. tively precisely estimated and large. For ex- In this case, our instrumental-variables esti- ample, it implies that improving Nigeria’s mates may be assigning the effect of diseases on income to institutions. We believe that this

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