Colonial Origins of Comparative Development

The Colonial Origins of Comparative Development: An Empirical Investigation

Author	Daron Acemoglu, Simon Johnson, James A. Robinson
Language	English
Genre	Economics
Publisher	American Economic Association
Publication date	December 2001

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 impacting upon the economic performance of a country, 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 in the article 'The Colonial Origins Of Comparative Development: An Investigation Of The Settler Mortality Data' who argued that the mortality rates for 28 countries used in the sample size by the authors are from within the country themselves yet there is also another 36 countries within the same sample size in which their mortality rates are judgementally determined by the authors based on similar disease environments as the 28 nations resulting in inaccurate assumptions. Albouy argues that this sample selection of affixing mortality rate to a country based on data of the neighbouring country is dubious since the authors did not provide robust explanation in determining how the two countries have similar disease environment. Albouy explains that there is inconsistency with the author's treatment of mortality rates given that the authors assign certain rates to neighbouring countries but then determine the same mortality rate across other neighbouring countries. Albouy further highlights that the sample selection were questionable given how countries were selected as samples based on the author's confusion over former names of African countries and poor use of unreliable mortality data. The original authors dismissed Albouy's criticism in their subsequent reply with the article 'The Colonial Origins of Comparative Development: An Empirical Investigation: 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 19th 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. This is evident by the high mortality rates (332) incurred by soldiers on campaign compared to low mortality rates (<25) incurred by soldiers in barracks. As a result of the increased exposure to infections, soldiers in wartime saw greater death rates. Albouy also argues that the mortality rates obtained from soldiers does not provide an accurate basis in determining the mortality of civilian settlement since both are unlikely to be in the same living conditions. Soldiers would generally have a lower living condition compared to civilian settlement and will generally have a higher mortality rate and thereby impacting the reliability of the data the authors have used in their findings. Similar to soldiers in peacetime, civilians who have access to good drinking water and sewage disposal can reduce the risk of contracting disease and therefore lower mortality rates.

Response to Criticism

Following the criticism from Albouy in 2011, the authors responded with an article ‘The Colonial Origins of Comparative Development: An Empirical Investigation: Reply' addressing the concerns raised by Albouy. One of the concern relates to the high level of mortality data used in locations such as Africa where outlier events like epidemics were present which would skew the data. The authors responded that this was not an issue since epidemic events were originally flagged in the article and that it should be included in the study if it affected the perception of European settlers. The authors also included a scenario where they capped mortality rate at 250 per 1,000 each year which was the average mortality rate for European soldiers in the early 19th century. This level of mortality rate is still considered as high enough to alarm European settlers from settlement at these locations. The authors find that the capping mortality rate results in the same outcome from their original article.

The authors further argue against Albouy’s justification in removing 60 percent of the sample of nations selected in determining the mortality rate due to unreliable information on the mortality of Europeans in Latin America and much of Africa during the colonial period. The authors states that a high degree of information was collected on nations proposed to be omitted by Albouy and that these data were often viewed by Europeans as a contributing factor for not settling in these nations and therefore is reliable. For example, data used in determining the mortality rate of soldiers in West Africa were primarily obtained from Curtin which is consistent with other sources from the Institute of Actuaries (life insurance literature), Bruce-Chwatt and Kuczynski. A similar case is presented for Central Africa where data primarily sourced from Curtin is consistent with findings from Hunter, Sprague and Kiple.  In addition, the authors also run a scenario which includes all of Albouy’s suggestions however it resulted in inaccurate confidence sets. Even if 60 percent of the samples were removed in order to achieve a different outcome to the original article, the outcome suggested by Albouy is largely a result of the impact from an outlier from Gambia since it had positive settlement and institutional levels and not from the sample removal. The authors conclude by capping mortality rates to 250 in order to exclude factors such as epidemics that increases mortality rates or omitting outliers such as Gambia, Albouy’s suggestions does not result in a significant impact on the author’s findings from their original article.

Albouy also proposes that the twenty remaining countries from the sample size of mortality rates should be removed which are spread across Africa, Caribbean, Asia and Australia given the unreliable information on European mortality rates from those locations. The authors again argue that removing these samples would have minimal impact on the initial results. In addition, doubts over the reliability of the data was refuted by the authors who highlighted that the mortality data used were from independent and credible sources such as Tulloch, Statistical Society of London and public health literature etc. for each of the countries Albouy proposed for removal. Therefore, the authors conclude that there is no justification for the removal of these remaining non-African countries from the original dataset.

In addition, the authors also argued against Albouy’s criticism that military campaigns, where European soldiers are stationed in different geographic locations, 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. The authors also states that major wars were removed from the dataset due to its increase on mortality rates that wouldn’t have otherwise occurred naturally. As a result, there is not much difference between soldiers in campaign and peacetime conditions and therefore the authors argue against distinguishing the two apart. The authors then criticise Albouy’s method of deciding which country sample is considered campaign mortality rate or non-campaign mortality rate. For instance, Albouy considered soldiers stationed at New Zealand as non-campaign rate yet the loss of soldiers as a result of military conflicts against Maori tribes were higher than mortality from diseases and accidents. This would seem that New Zealand should be considered a campaign rate instead of a non-campaign rate given the higher death toll from conflicts. Another similar instance occurred in the Hong Kong sample where Albouy had considered this as a non-campaign rate yet mortality data were sourced from the China Field Force which was a military force used in conflicts. As a result, the authors put into questioning the judgement of campaign and non-campaign rates proposed by Albouy. The authors further point out that the idea of using mortality rate stemming from European soldiers as data is not unique as other studies also utilises the same data for the betterment of society’s public health and industries such as life insurance also use similar data in assessing the risk of overseas travel.  

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