The Colonial Origins of Comparative Development: An Empirical Investigation

1. The Colonial Origins of Comparative Development: An Empirical Investigation

2. “EXPLOITING DIFFERENCES IN THE MORTALITY RATES FACED BY EUROPEAN COLONIALISTS TO ESTIMATE THE EFFECT OF INSTITUTIONS ON ECONOMIC PERFORMANCE” .

3. This NBER working paper was prepared in June 2000 by DaronAcemoglu- MIT-Phd-LSE-Economic dev’t growth- income and wage inequality 17 awards, prizes and honors-Fellow of 10 economic associations-30 Keynote addresses and lectures -2 books and a lot of publications to his name. One is with James Robinson- “Economic Origins of Dictatorship and Democracy” James A. Robinson- David Florence Professor of Govt @ Harvard & a faculty associate at Weather head Center for International Affairs, graduate of LSE, His main research interest is “Why countries are different; particularly why are some more prosperous than others and why some are more democratic than others.” Simon Johnson-Prof of Entrepreneurship –MIT, PhD(MIT)-Senior fellow @Peterson institute for int’l econs in Wash DC member of congressional budget office’s panel of economic advisers. Has public high impact opinion pieces in the New Republic, the Atlantic, Businessweek, Financial times. Co-author of 13 Bankers: the wall street takeover-He was IMF economic counsellor( Chief Economist) in march 2007-august 2008. expertise: Economic crisis, current conditions, trade policy, corporate governance etc

4. What are the fundamental causes of the large differences in income per capita(GDP) across countries? .

5. The mortality rate in areas that were colonized in the past were considered by European colonialists before they made their decision to settle or invest. • The different types of colonization policies , created different sets of institutions set up for these countries by the Europeans. • These methods have had a long term effect on the colonies in running their economies because countries with better “institutions”, more secure property rights, will invest more in physical, and human capital, and will use these factors more efficiently to achieve a greater level of income. • The focus of the paper is to proof that the rate of deaths (mortality- 400 years ago) has affected the kind of institutions of recent times and thus has affected performance. .

6. Neo-Europes • Settling in and replicating European institutions with great emphasis on private property and checks against government power as in the case of the U.S., Australia and New Zealand, they went and settled in the colonies and set-up institutions that enforced the rule of law and encouraged investment. • Settler colonies had representative institutions whichpromoted what the settlers wanted,- freedom and trade. • Private ownership of land and livestock was well established very early. • The French settled in relatively large numbers in Mauritius and even after independence, they continued to support businesses and have significantly expanded the export processing zones. .

7. But the majority of settlers wanted institutions and political rights like those prevailing in England at the time. They demanded jury trials, freedom from arbitrary arrest and electoral representation. Although the British government resisted at first, the settlers argued they were British and deserved the same rights as in the home country. • 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 from ministries from the majority elements in elected legislatures. .

9. Extractive states . • Transfer resources with the minimum amount of investment possible. (In places where the disease environment, weather was not favorable to European settlement, the formation of the extractive states were more likely.) e.g. Belgian colonization of Congo • Mortality in the tropics was from malaria , and yellow fever (with devastating periodic epidemics. Quinine was available but not understood nor used widely. The role of hygiene was also not properly understood

10. In Province of Freedom: European mortality in the 1st year was 46%. In Bulama-( Guinea Bissau) 61%, in Sierra Leone Company-72%, on Mungo Park’s ( Scottish explorer)Second Expedition-87% died during the overland trip from Gambia to the Niger, and all the Europeans died before completing the expedition. • Beauchamp Committee- deliberated on whether to send British convicts to “Island of Lemane” by Gambia-they rejected it because mortality was too high – so took them to Australia .

11. European powers developed the slave trade in Africa for the same reasons.They had little incentive to invest in institutions or in infrastructure in Africa.Before the mid-19th century, colonial powers were mostly restricted to the African coast and concentrated on monopolizing trade in slaves, gold and other valuable commodities- Goldcoast- Ivorycoast .

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14. To estimate the impact of institutions on performance, they used the2 stage least squares method/instrumental variables. • They examined differences in mortality rates faced by European settlers and focused on societies that were colonized by European countries. • This provided them with a set of economies that had relatively similar income levels 400 years ago and still exhibit large differences in per capita income today. .

15. They regressed current performance on current institutions and instrumented the latter by settler mortality rates. • There was a high correlation:- • Between mortality rates faced by soldiers, bishops, and sailors in the colonies and European settlements; • Between European settlements - early measures of institutions; • Between early institutions and institutions today .

16. Their results proved that institutions are a major determinant of per capita income. • Settler mortality alone explains 26 % of the differences in institutions observed today. • Our estimates imply that differences in institutions account for roughly three-quarters of the differences in income per capita. .

17. The differences in mortality rates are not the only, or even the main, cause of variation in institutions. • The colonization policies of European powers had a long-lasting effect on Africa and the current African state is a continuation of the pre-colonial state. • There is a variety of institutional guarantees, including constraints on government expropriation, independent judiciary, property rights enforcement, equal access to education, and respect for civil liberties, that are important to encourage investment and growth. .

18. Interesting fact When the results were obtained for the effect of institutions on performance, countries in Africa or those farther away from the equator did not have lower incomes. My take on this is because of complications in the income distributions comparisons, caused by insufficient data and effective research methods, the figures for predictions concerning “low income countries” might be wrong.