1. “The Colonial Origins of Comparative Development: An Empirical Investigation”, Daron Acemoglu, Simon Johnson, James A. Robinson (2001)

2. ? THE DIRECTION OF CAUSALITY? ECONOMIC INSTITUTIONS PERFORMANCE
(Property rights) ?

3. MORTALITY RATES FACED BY EUROPEAN SETTLERS
WANTED: AN INSTRUMENT
ECONOMIC
PERFORMANCE
INSTITUTIONS
(Property rights)
MORTALITY RATES FACED BY EUROPEAN SETTLERS

4. The argument
Different types of colonization policies led to different types of institutions
Extractive states (e.g. Belgium in Congo)
-> No property rights, no check and balances against government expropriation
Neo-Europes (Australia, US) -> Property rights
The choice of what institutions to set up was in part determined by the feasibility of settlements
E.g., in the presence of diseases, europeans were unlikely to settle
This choice of institutions PERSISTED over time

5. Instrument = mortality rates
They use data on the mortality rates of soldiers, bishops, and sailors stationed in the colonies between the 17th and 19th centuries
Give a good indication of the mortality rates faced by settlers

6. Extractive institutions
“the colonies should be exploited, not by the operation of a market economy, but by state intervention and compulsory cultivation of cash crops to be sold to and distributed by the state at controlled prices.”, King Leopold of Belgium, talking of Congo

7. Neo-Europes
“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 that they were British and deserved the same rights as in the home country.”, AJR (2001)

8. Institutional persistence
Costly to change institutions
There is always someone who would lose from changing institutions, and thus opposes it
There is strong evidence of institutional persistence

9. The data Economic performance: GDP in 1995
Institutions: index of protection against expropriation, from Political Risk Services, averaged over
Past institutions:
Constraints on the executive in 1900
Index of democracy in 1900
Measure of european settlement: fraction of the population of european descent in 1900
Mortality rates: data available for soldiers in the 19th century

13. SUMMARY MORTALITY RATES FACED BY EUROPEAN SETTLERS ECONOMIC
PERFORMANCE
INSTITUTIONS
(Property rights)
POSITIVE
NEGATIVE
MORTALITY RATES FACED BY EUROPEAN SETTLERS

14. “Reversal of Fortune: Geography and Institutions in the Making of the Modern World Distribution”, Daron Acemoglu, Simon Johnson, James A. Robinson (2002)

15. Reversal of fortune Nations rich in 1500 are poor today
E.g the Incas, the Aztecs were rich in 1500
E.g. the US, Australia were poor in 1500
FACT: negative correlation between prosperity today and in 1500
Measures of prosperity in 1500:
Urbanization
Population density
Both are highly correlated with income per capita

18. The geography hypothesis
Geography → prosperity
BUT, geography is constant
Inconsistent with the observed reversal of fortune

19. The institutions hypothesis
Institutions are chosen by the politically powerful
Two types of institutions: “extractive” and “private property”
Extractive institutions are more likely to be implemented in previously RICH colonies
Private property institutions are more likely to be implemented in previously POOR colonies
Institutions are persistent

20. The argument
Europeans set up extractive institutions in densely populated areas because:
1. They could enslave the local population
2. It was easier for them to settle in sparsely populated areas

22. Institutions and the reversal
Once we control for institutions, the reversal should disappear
Colonized countries that were poor in 1500 are rich today because Europeans set up good institutions there.

23. How to test the argument?
If we regress GDP on institutions and past GDP, the coeff. on past GDP should be non significant
As before, problem of endogeneity of the variable institutions
As before, we use the mortality rate as an instrument

25. Summary
A reversal of fortune occured between 1500 and today among colonized countries because worse institutions were set up in richer colonies