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 instit What are the fundamental causes of the N attention in recent 1981).This view rec me support from roperty rights,and less distor- d Be the relationship between prop n School of perty 999) er CA94720 level it is obvious that institution the diverge Richard Lock West Germa where one part of the country dian the effect of instituti ons of Califo
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 institu- tions 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 controlledfor, countries in Africa or those closer to the equator do not have lower incomes. (JEL 011, P16, P51) What are the fundamental causes of the large differences in income per capita across countries? Although there is still little con- sensus on the answer to this question, differ- ences in institutions and property rights have received considerable attention in recent years. Countries with better "institutions," more secure property rights, and less distor- tionary policies will invest more in physical and human capital, and will use these factors more efficiently to achieve a greater level of income (e.g., Douglass C. North and Robert P. Thomas, 1973; Eric L. Jones, 1981; North, 1981). This view receives some support from cross-country correlations between measures of property rights and economic development (e.g., Stephen Knack and Philip Keefer, 1995; Paulo Mauro, 1995; Robert E. Hall and Charles I. Jones, 1999; Dani Rodrik, 1999), and from a few micro studies that investigate the relationship between property rights and investment or output (e.g., Timothy Besley, 1995; Christopher Mazingo, 1999; Johnson et al., 1999). At some level it is obvious that institutions matter. Witness, for example, the divergent paths of North and South Korea, or East and West Germany, where one part of the country stagnated under central planning and collec- tive ownership, while the other prospered with private property and a market economy. Nevertheless, we lack reliable estimates of the effect of institutions on economic perfor- mance. It is quite likely that rich economies choose or can afford better institutions. Per- haps more important, economies that are dif- ferent for a variety of reasons will differ both * Acemoglu: Department of Economics, E52-380b, Massachusetts Institute of Technology, Cambridge, MA 02319, and Canadian Institute for Advanced Research (e-mail: daron@mit.edu); Johnson: Sloan School of Man- agement, Massachusetts Institute of Technology, Cam- bridge, MA 02319 (e-mail: sjohnson@mit.edu); Robinson: Department of Political Science and Department of Eco- nomics, 210 Barrows Hall, University of California, Berke- ley, CA 94720 (e-mail: jamesar@socrates.berkeley.edu). We thank Joshua Angrist, Abhijit Banerjee, Esther Duflo, Stan Engerman, John Gallup, Claudia Goldin, Robert Hall, Chad Jones, Larry Katz, Richard Locke, Andrei Shleifer, Ken Sokoloff, Judith Tendler, three anonymous referees, and seminar participants at the University of California-Berkeley, Brown University, Canadian Insti- tute for Advanced Research, Columbia University, Har- vard University, Massachusetts Institute of Technology, National Bureau of Economic Research, Northwestern University, New York University, Princeton University, University of Rochester, Stanford University, Toulouse University, University of California-Los Angeles, and the World Bank for useful comments. We also thank Robert McCaa for guiding us to the data on bishops' mortality. 1369 This content downloaded from 202.114.238.230 on Mon, 28 Oct 2024 05:17:22 UTC All use subject to /s/about.jstor.org/terms
1370 THE AMERICAN ECONOMIC REVIEW DECEMBER 2001 To estimate the impact of institutions on eco summarized as nomic performance. ource of exog propose a theory of institutional difference (potential)settler →settlements mortality an exogenous variation.Our theory rests on three premises: →institutions→institutions 1.There were different t curren policieswhichcrcead8neateorn performance of the Congo.These instit tions did not introdu ive a did not At the other extreme,many Europeans mi- control the diseases that caused these high mor- grated and d ir tality rates of GDP capita today to replicate European institutions,withs on p nt Colonies wher of this include Australia,New Zealand,Can- Europeans faced higher mortality rates are to a an day hat w ced by h aces where the dis ase environment was not favorable to the insti tutions brought by gainst h tion of Neo Eu and the on e nation of the extractive state was more instrument the latter by settler mortality ates ince oul r focus is on property rights olonial stat spersisted even after independence Political Risk S ervices as a proxy for institu three d by the r stitution settlers in the colonies as an instrument for states and state policies.There is a strong colonized n Sub-Saha
1370 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 Europeans,' 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 current institutions in these countries.2 More specifically, our theory can be schematically summarized as (potential) settler > settlements mortality early current institutions institutions current 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 1 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. 2 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. 3Government expropriation is not the only institutional feature that matters. Our view is that there is a "cluster of This content downloaded from 202.114.238.230 on Mon, 28 Oct 2024 05:17:22 UTC All use subject to /s/about.jstor.org/terms
VOL 9I NO.5 ACEMOGLU ET AL:THE COLONIAL ORIGINS OF DEVELOPMENT 1371 10 MLT MUS PAN GAB 8 GUY PAKIND GN饑 GVB TZA SLE 6 4 Log of Settler Mortality FIGURE 1.REDUCED-FORM RELATIONSHIP BETWEEN INCOME AND SETTLER MORTALITY nstitutions ong run.lead to as much as a ncome (in practice Chile is over1 than 100 years ago explains restriction implied by our in nt institutions strumental variable on is that,condi ument tha nal on the din the regre mortality rates were a major determinant of than 100 years ago have no effect on GDP pe settlements settle ea major determ capita today,other than their effect through tions in 1900):and there isa stong ith this exclusion restriction is that the mo between early institutions and ins itutions es es 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 s on likely to be the case and that our exclusior estriction is sible The great majority 0 ons,"ihcddn these dis and i ding cess to malapca eases were fatal to Europeans who had no im- riation risk to all 1m1 t on indigen munities.These diseases are therefore unlikel to be the reason why many countr eal approach to v all we need is that they in Section I ion A).This notion is
VOL. 91 NO. 5 ACEMOGLU ET AL.: THE COLONIAL ORIGINS OF DEVELOPMENT 1371 10 'Ivp LO) < PANGA tl FJ GUY AGO Xi PAKIND SDN GMB 0a co BGD NERMD NGA tl 6 ETH TA SI n- 6 0 2 4 6 8 Log of Settler Mortality FIGURE 1. REDUCED-FORM RELATIONSHIP BETWEEN INCOME AND SETTLER MORTALITY (first-stage) relationship between settler mortal- ity rates and current institutions, which is inter- esting in its own right. The regression shows that mortality rates faced by the settlers more than 100 years ago explains over 25 percent of the variation in current institutions.4 We also document that this relationship works through the channels we hypothesize: (potential) settler mortality rates were a major determinant of settlements; settlements were a major determi- nant of early institutions (in practice, institu- tions in 1900); and there is a strong correlation between early institutions and institutions to- day. Our two-stage least-squares estimate of the effect of institutions on performance is rela- tively precisely estimated and large. For ex- ample, it implies that improving Nigeria's institutions to the level of Chile could, in the long run, lead to as much as a 7-fold increase in Nigeria's income (in practice Chile is over 11 times as rich as Nigeria). The exclusion restriction implied by our in- strumental variable regression is that, condi- tional on the controls included in the regression, the mortality rates of European settlers more than 100 years ago have no effect on GDP per capita today, other than their effect through institutional development. The major concern with this exclusion restriction is that the mor- tality rates of settlers could be correlated with the current disease environment, which may have a direct effect on economic performance. In this case, our instrumental-variables esti- mates may be assigning the effect of diseases on income to institutions. We believe that this is unlikely to be the case and that our exclusion restriction is plausible. The great majority of European deaths in the colonies were caused by malaria and yellow fever. Although these dis- eases were fatal to Europeans who had no im- munity, they had limited effect on indigenous adults who had developed various types of im- munities. These diseases are therefore unlikely to be the reason why many countries in Africa and Asia are very poor today (see the discussion in Section III, subsection A). This notion is institutions," including constraints on government expropri- ation, independent judiciary, property rights enforcement, and institutions providing equal access to education and ensuring civil liberties, that are important to encourage investment and growth. Expropriation risk is related to all these institutional features. In Acemoglu et al. (2000), we reported similar results with other institutions variables. 4 Differences in mortality rates are not the only, or even the main, cause of variation in institutions. For our empir- ical approach to work, all we need is that they are a source of exogenous variation. This content downloaded from 202.114.238.230 on Mon, 28 Oct 2024 05:17:22 UTC All use subject to /s/about.jstor.org/terms
1372 THE AMERICAN ECONOMIC REVIEW DECEMBER 2001 supported by the mortality rates of l mortality)and the current fraction of the popu- 2)reports that the annua mortality rates of oca Naturally.it is impossible to control for all with the B possible va bles that might be correlated with 1000m ese num irical a cmight captur the effect of settler mor we ea working th ugh other channe tality rates of British troops serving in thes overidentification test using measures of Eur f their lac and carly insti t whether sette tween and 0.The view that the mortality has a direct effect on current perfo mance results are ach the for ou sguportedbytherelaitivelyhighpopuliatioidken effect of settler mortality on economic We document that our estimates of the effect out anc schol ch as William nd (1997 have disu change the results,nor does excluding Africa dis on human history.Diamond (1997).in we ho tha the eftect o develop trolled for,neither distanc rom the c quator no ical determinants of the incidence of tho the dummy I These re uiomHeiecrsb h the impo ure geogr divergence in more recent develop ent which or cultural factors,but because of worse focus ofour paper ork by Ro idity of our ap our nd Peter Dui 196 sion n restrictio is threatened if other factors Donald Denoon ()and Philip.Cn correlated with the Hopkins empha izes tha gies to substantiate that our results are not New Zealand are different from other colonies dr ven by o differences were impo his lite variables potentially correlated with setter mor mortality,settlements,and institutions tality an outcom nn gument is most n the sely related to wor ns.Ere ederich A.von Havek (1960)argued trols for the identity of the main colonizer,legal t the Brit sh comr law s soil quality the Na oleonic er to guistic fragmentatio Furthermore the results judges'inte nce with policies(seealso st to the 1009 1000 alence of malaria.life expectancy.and infant the of co(he identity o
1372 THE AMERICAN ECONOMIC REVIEW DECEMBER 2001 supported by the mortality rates of local people in these areas. For example, Curtin (1968 Table 2) reports that the annual mortality rates of local troops serving with the British army in Bengal and Madras were respectively 11 and 13 in 1,000. These numbers are quite comparable to, in fact lower than, the annual mortality rates of British troops serving in Britain, which were approximately 15 in 1,000. In contrast, the mor- tality rates of British troops serving in these colonies were much higher because of their lack of immunity. For example, mortality rates in Bengal and Madras for British troops were be- tween 70 and 170 in 1,000. The view that the disease burden for indigenous adults was not unusual in places like Africa or India is also supported by the relatively high population den- sities in these places before Europeans arrived (Colin McEvedy and Richard Jones, 1975). We document that our estimates of the effect of institutions on performance are not driven by outliers. For example, excluding Australia, New Zealand, Canada, and the United States does not change the results, nor does excluding Africa. Interestingly, we show that once the effect of institutions on economic performance is con- trolled for, neither distance from the equator nor the dummy for Africa is significant. These re- sults suggest that Africa is poorer than the rest of the world not because of pure geographic or cultural factors, but because of worse institutions. The validity of our approach-i.e., our exclu- sion restriction-is threatened if other factors correlated with the estimates of settler mortality affect income per capita. We adopt two strate- gies to substantiate that our results are not driven by omitted factors. First, we investigate whether institutions have a comparable effect on income once we control for a number of variables potentially correlated with settler mor- tality and economic outcomes. We find that none of these overturn our results; the estimates change remarkably little when we include con- trols for the identity of the main colonizer, legal origin, climate, religion, geography, natural re- sources, soil quality, and measures of ethnolin- guistic fragmentation. Furthermore, the results are also robust to the inclusion of controls for the current disease environment (e.g., the prev- alence of malaria, life expectancy, and infant mortality) and the current fraction of the popu- lation of European descent. Naturally, it is impossible to control for all possible variables that might be correlated with settler mortality and economic outcomes. Fur- thermore, our empirical approach might capture the effect of settler mortality on economic per- formance, but working through other channels. We deal with these problems by using a simple overidentification test using measures of Euro- pean migration to the colonies and early insti- tutions as additional instruments. We then use overidentification tests to detect whether settler mortality has a direct effect on current perfor- mance. The results are encouraging for our approach; they generate no evidence for a direct effect of settler mortality on economic outcomes. We are not aware of others who have pointed out the link between settler mortality and insti- tutions, though scholars such as William H. McNeill (1976), Crosby (1986), and Jared M. Diamond (1997) have discussed the influence of diseases on human history. Diamond (1997), in particular, emphasizes comparative develop- ment, but his theory is based on the geograph- ical determinants of the incidence of the neolithic revolution. He ignores both the impor- tance of institutions and the potential causes of divergence in more recent development, which are the main focus of our paper. Work by Ro- nald E. Robinson and John Gallagher (1961), Lewis H. Gann and Peter Duignan (1962), Donald Denoon (1983), and Philip J. Cain and Anthony G. Hopkins (1993) emphasizes that settler colonies such as the United States and New Zealand are different from other colonies, and point out that these differences were impor- tant for their economic success. Nevertheless, this literature does not develop the link between mortality, settlements, and institutions. Our argument is most closely related to work on the influence of colonial experience on insti- tutions. Frederich A. von Hayek (1960) argued that the British common law tradition was su- perior to the French civil law, which was devel- oped during the Napoleonic era to restrain judges' interference with state policies (see also Seymour M. Lipset, 1994). More recently, Rafael La Porta et al. (1998, 1999) emphasize the importance of colonial origin (the identity of This content downloaded from 202.114.238.230 on Mon, 28 Oct 2024 05:17:22 UTC All use subject to /s/about.jstor.org/terms
VOL 91 NO.5 ACEMOGLU ET AL:THE COLONIAL ORIGINS OF DEVELOPMENT 1373 direct effect on perfo trics and former British colonies have bette by cr eating political ilit and ntly David E Bloom and Jeffre D.Sachs(1998)and John Gallup et al.(1998 argue for ical institutions and culture they inherited from effect,the are invalid instruments and do no whic tablish that it is institutions that mat the varables we aready control for,settler mo cifically,in our the itymore than 100 years ago hat the oth could safely settle in a particular location: show that distance from the equator does not hey created wors have an in economic perto ely related to that ley L Engerman and Kenneth 190 ments and inea e.Section Empirically,our work is related to a number of a over the link betwee nt for th Graziella Bertocchi and Fabio Canova (19) mortality rates faced by potential settlers at the and Robin M.Grer ( who inve igate the hheCn2mtw nts ou Two paners deal eity of in ness of our results.and Section VI concludes. stitutions by using an nta app for L.The Hypothesis and Historical Backgroun mentation.Hall and Jones (19)n tum,use We hypothesize that settler mortality affected the ec bor as cst tude is c elated with formed the basis of curent institutions.In thi which leads togood The discuss an It is not eas to argue that the Belgian influence in the Congo Wester isions,the we discuss differences in ng Eth r hand seems since such A.Mortality and Settlements during thec There is little doubt that mortality rates were .Weher.7970. c.g. a dete of European with both dies d the 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 Portuguese 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 identity 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 corruption 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 [1748] (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 II presents OLS regressions of GDP per capita on our index of institutions. Section III 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) This content downloaded from 202.114.238.230 on Mon, 28 Oct 2024 05:17:22 UTC All use subject to /s/about.jstor.org/terms