1. The Colonial Origins of Comparative Development: An Empirical Investigation
By Daron Acemoglu, Simon Johnson, and James A. Robinson, 2001
Presentation by Zachary Rosenthal

2. Introduction
Question: What causes large income per capita differences across countries?
Institutions, property rights, and distortionary policies cause differences in capital investment.
Cross-country correlations between property rights and economic development support part of this hypothesis.

3. Background and Argument
European colonies with high mortality rates are more likely to set up extractive institutions
Institutions make a difference
North and South Korea
East and West Germany
Goal: to estimate the effect of institutions on economic performance based on differences in European mortality rates

4. Background Information
No prior research on settler mortality and institutions link
However, research on colonial experience and institutions
Authors here focus on conditions of the colonies rather than identity of the colonizer
Engerman and Sokoloff (1997)
Factor endowments

5. Possible Limitations of the Study
Might greater economic performance influence the rise of certain institutions?
Omitted or lurking variables?
Exclusion restriction: Might mortality rates of European settlers affect current GDP per capita levels directly or through other channels?
Potential correlation with current disease climate

6. Assumptions of the Theory
Different colonization policies created different sets of institutions.
Extractive states
“Neo-Europes” (Alfred Crosby, 1986)
Feasibility of settlement influenced policy.
The colonial state and institutions persisted even after independence.

7. Theory

8. Income and Settler Mortality

9. Methodology Regress current performance on current institutions
Instrument institutions by settler mortality rates
PRS protection against “risk of expropriation” index as proxy for institutions
R2 = 25% for institutions and mortality rates
Overidentification tests

10. The Hypothesis and Historical Background
Mortality and settlements
The paper cites previous studies’ empirical historical evidence on early European expeditions which were terminated due to high mortality rates
Even when “settler colonies” weren’t initially formed, settlers in Australia and New Zealand fought for them, while mercantilist systems were formed in Latin America, Asia, and Africa.

11. Theory: Institutions Link

12. Institutional Persistence: Establishing the Link
Sunk costs of establishing institutions may prevent elites from switching to extractive institutions, and vice versa
Inverse relationship between size of elite and size of revenue shares from an extractive strategy
Irreversible investments lead to persistence

13. OLS Estimators

16. Strengths and Weaknesses
Strong, statistically significant, positive institution-performance relationship
Weaknesses
Predictive failure
Nigeria and Chile
Latitude significance
Other continent dummies
Reverse causality?
Omitted Y determinants
Institution index bias?
Thus the need for an instrument for institutions, namely mortality

17. Sources of European Mortality in the Colonies
Malaria
Yellow fever

18. Data Collection on Potential Settler Mortality
Local people’s mortality rates and population densities before European arrival
Philip Curtin: British, U.S., French, and Dutch East Indies military medical records,

19. Equations

20. Mortality and Institutions

22. Institutions and GDP/Capita

23. Two-Stage Least-Squares Results
A substantial but not implausibly large effect of institutional differences on income per capita
Latitude has wrong sign and no longer significant; correlated with institutions
Resistant to exclusion of the Neo-Europes and addition of insignificant continent dummies

24. Robustness
Only valid if settler mortality has no direct effect on current economic performance
Controls for legal origin and religion verify original results
Temperature, humidity, soil quality all insignificant as well
Malaria, expected to be endogenous, is insignificant

28. Theory

29. Overidentification Tests
Test whether settler mortality, settlements, or early institutions have any direct effect on income per capita
Data support the aforementioned overidentifying restrictions: no additional effects
These variables are already captured in the mortality-current institution regression and thus are not significant as exogenous regressors

32. Conclusions
Differences in colonial experience might be a source of exogenous differences in institutions
Early institutions persisted to the present
The mortality-settlement-institutions link
Income-institution relationship is not driven by outliers and is robust for all conceived controls
However, the results do not imply that current institutions are predetermined by colonial policies and cannot be changed
Economic gains from improving institutions (Japan, South Korea)

33. Areas for Further Study
How to reduce expropriation risk and improve institutions
Institutional features should be treated as an equilibrium outcome related to “fundamental” institution types including presidential and parliamentary
A more detailed analysis of the effect of more fundamental institutions on property rights and expropriation risk
Impact of integration on income? (Rodrick et al.)
Current diseases?
East Asia and other regions?