Colonial Origins of Comparative Development

The Colonial Origins of Comparative Development is a 2001 article written by Daron Acemoglu, Simon Johnson, and James A. Robinson and published in American Economic Review. It is considered a seminal contribution to development economics through its use of European settler mortality as an instrumental variable of institutional development in former colonies. The theory proposed in the article is that Europeans only set up growth-inducing institutions in areas where the disease environment was favourable, so that they could settle. In areas with unfavourable disease environment to Europeans, such as central Africa, they instead set up extractive institutions which persist to the present day and explain much of the variation in income across countries. Other theories explored in the article argues that it is the choice of institutions by the country that results in the effective and efficient use of resources in leading to a successful development of that country. Important issues with the data and analysis have been identified, causing some doubt as to the accuracy of these results.

Resume of the article

The first question authors ask is simple: "What are the fundamental causes of the large differences in income per capita across countries?". Although the authors are aware of the fact that no consensus has been reached in this question, they suggest that institutions might have something to do with this problem.

In this paper, they offer theory of variation in institutions among former colonies of European countries, based on 3 premises:

1. Extractive states were set up in colonies in order to extract as much resources as possible which were then transferred to the colonizer. Consequently, these extractive states did not perform well economically as there were no proper institutions set in place to govern the state. This lack of institutions meant that there were no checks and balances on the governing body who then can exert its power without oversight. On the other hand, states where proper institutions were put in place resulted in economic success.

2. The choice of settling at particular geographic locations by the colony also played a part in determining whether an extractive state or colony were set up by the colonizer. In regions where European settlement faced high mortality rates due to disease, the colonizer were likely to inhibit an extractive state as it is difficult to create a sustainable settlement.

3. Another indicator of economic performance pertains to whether a colony and its institutions still exists after independence has been formed. In the scenario where colony and institutions remains, this would allow pre-existing wealth generating assets to continue to operate in a similar manner.

By diversity of colonization policies, the authors mean different nature and degree of various policies, with the presence of European colonisers being important factor influencing colonialism form.

Countries with a significant number of European settlers and policies or rights similar to those of their mother lands are given tag "Neo-Europes" (name first introduced by historian Alfred Crosby in 1986). In these colonies, established institutions followed the model of their home country. If not so, settlers were prepared to enforce them by force. Their argument was that they were still citizens of their native country and thus have right to be treated as in homeland. This was the case of Australia in 1840s, where most of settlers were former criminals, whereas landowners were mostly former jailors, which led to pressure to constitutional changes.  

On the other side, states with little protection of property rights and expropriation by government are labelled by the authors as “extractive states”. Especially in Spanish and Portuguese American colonies, the main object was to extract as much metals and other commodities as possible. Similar situation was observable in West African British colonies, in the Ivory Coast and Gold Coast and possibly the most extreme case was Belgian Congo.

Feasibility of settlements were mostly related to presence of various diseases in potential colonies. It is documented that this factor was of a great importance, as it was, for example, in the case of the Pilgrim fathers. When choosing their destination, they decided to migrate to what was to become the United States and not to another British colony, Guyana, because of lower mortality in the United States. When deciding where to send criminals, several locations were rejected due to high mortality rates and Australia was chosen as the final destination of convicts. Mortality rate was also one of the significant factors influencing the development of new settlements – higher probability to survive was more attractive to potential new colonists.      

Persistence of institutions works with concept that institutions introduced by colonists prevailed in countries even after they declared independence from their colonizers. There are several possibilities, the authors of this paper offer three of them. Firstly, introducing of new institutions is costly. Elites may prefer to keep functioning institutions instead of introducing new, costly ones. Secondly, the smaller ruling elite, the higher gain from extractive strategy, the bigger incentive to keep running institutions. Thirdly, agents who irreversibly invested (directly or indirectly) in institutions might be more willing to keep those institutions.  

These 3 premises authors exploit as a base to use mortality of European colonists as instrument for present institutions in those countries. Their hypothesis is following: mortality rate of settlers influenced settlements, settlements affected early institutions and those, in turn, created the ground of current institutions.

On sample of 75 former European colonies, they find strong negative relationship between current GDP per capita and mortality rate per thousand of former settlers in these countries (from seventeenth to nineteenth century). The authors claim that lethality of colonists in the past explains more than 25% of variety in institutions in the present, adding that mortality of colonists has no impact on current GDP per capita in those countries but the one caused by institutional development.

An important thing worth mentioning is also exclusion of correlation between disease environment and current economic performance. There might be a tendency to connect lethality of settlers to the occurrence of illnesses (which is not wrong), however, it is important to bear in mind that immune system of colonists and local inhabitants, who had been exposed to local diseases for centuries, differs and thus it is very unlikely that economic performance of former European colonies is determined by disease occurrence. Authors illustrate contrast between immunities of local people and settlers on example of troops in British India. Units in this colony consisted of soldiers recruited locally as well as of soldiers who arrived with their units from the British Isles. According to Curtin, 1968, who is cited by the authors, mortality rate of British soldiers in Britain and local conscripts serving in British Army in India was approximately the same. However, the lethality among British soldiers in India was 7–10 times higher than lethality of local Indian soldiers.

The authors also observe that outliers do not change the result. Excluding developed countries such as Australia or New Zealand has no effect, nor has excluding African countries. Another important observation is that estimates barely changed when controls for other variables such as main colonizer, religion, legal origin or culture were included.

The authors also point out that they know about other scholars dealing with mortality of colonizers and institutions, but they consider their approach as new, since nobody before had examined specifically the relationship between mortality, settlements and institutions. Another innovation in this work consists in looking at the above-mentioned factors regardless of nationality of colonizers. Many economists (von Hayek, La Porta, Landes among others) studied the importance of colonial origins, but these works were mostly focused on differences based on nationality of settlers who colonised countries (mostly investigating differences between British colonies and colonies of France or Spain, since these countries were the biggest colonisers at the time). However, this study is centred exclusively on conditions in the colonies, disregarding the origin of the settlers.   

The final result authors examine was that there is a high correlation between mortality rates and settlements, between settlements and early institutions, and between early and current institutions. They also point out that institutions and economic performance are not predestined and thus are possible to be changed (as in case of Republic of Korea in 1960s). Authors also admit that there are still many questions not answered and are subject to further studies.

Criticism

A replication of the study was published in the same journal eleven years later by David Y. Albouy who argued "36 of the 64 countries in the sample are assigned mortality rates from other countries, often based on mistaken or conflicting evidence" and "incomparable mortality rates [...] are combined in a manner that favors the hypothesis. When these data issues are controlled for, the relationship between mortality and expropriation risk lacks robustness." Essentially, where of 28 selected out of 64 nations had mortality rates as a result of factors occurring within the nation, the rates for the remaining 36 nations in the sample are determined by the authors' assumptions that these nations have similar disease settings as the 28 nations resulting in inaccurate assumptions. The original authors dismissed the criticism in their reply.

Another criticism is that human capital, not institutions, are the more basic driver of economic growth. Glaeser et al., using the same settler mortality instrument for human capital, found that it performs better econometrically than institutional quality. Institutions thrive when there is a high level of human and social capital as this is the proponent that drives the modus operandi of institutions and the production of an economy. This is different to what has been proposed by the authors since institutions evidently seem not to have a large impact on economic growth.

Further criticisms were directed at the assumptions the author has used over certain settler rates and fatality rates which were not accurately obtained from European settlers. On the contrary, the author’s rates were relying on 19^th century data from American and European troops which is different to the data of settlers. In certain nations, the author used rates from troops in barracks during peacetime, whereas in others, rates from soldiers on campaign are used. Because soldiers stationed at base are often healthier than when committed to combat, soldiers on campaign have a greater fatality rate from sickness. This is due to the fact that troops in wartime took less illness precautions and lacked access to good drinking water. As a result of the increased exposure to infections, soldiers in wartime saw greater death rates.

Response to Criticism

Following the criticism from Albouy in 2011, the authors responded in 2012 with their reply article 'The Colonial Origins of Comparative Development: An Empirical Investigation: Reply' by arguing that there is no justification in Albouy’s removal of 60 percent of the sample of nations selected in determining the mortality rate in order to pose an argument that there is no reliable information on the mortality of Europeans in Latin America and much of Africa during the colonial period. Even if 60 percent of the samples were removed, Albouy’s results are largely impacted by an outlier.

In addition, the authors also argued that Albouy has inferred that campaigns pushed up mortality rates above what they would be in peacetime. However, soldiers who lived in barracks were just as exposed to local diseases such as contaminated water and insects than the soldiers that were on campaign. As a result, there is not much difference between soldiers in campaign and peacetime conditions.

The authors conclude with that upon inspection of Albouy’s objections to their initial journal findings in 2001, most of the objections are largely inconsequential to the results founded by the authors. In essence, Europeans during the colonial period preferred locations that had low mortality rates and as a result the European settlers imposed better institutions thereby improving the economies of those regions, which have persisted from the colonial period to today.

See also

• History of colonialism
• Law and economics
• New institutional economics