Abstract
Institutions are seen as a fundamental requirement for economic development, since they form the incentive structure of economic agents and are considered essential for the proper functioning of the economy. The immediate question that follows is what factors explain the quality of institutions. Many scholars have sought the answer to this question in colonialism. Our study is rooted in this renewed interest. Several factors have been highlighted to explain this different legacy of colonialism on subsequent institutional development. A first group of authors emphasizes the identity of the colonizer, with the hypothesis that certain colonial powers (particularly Britain) implemented more benign colonial policies and transferred better institutions to their colonies than others, which led to higher institutional development. A second group focuses on the initial conditions existing in colonized territories, arguing that factors such as the disease environment, indigenous population density or resources abundance determined the colonial strategy of all Western powers in largely similar ways, thereby shaping the incentives to create different types of institutions. In this debate we advocate an intermediate (eclectic) view, since historical examples and systematic analysis of the data show that colonial origin and endowments as well as their interaction should be important factors in the formation and subsequent development of institutions. This analysis is framed within a simple model of two styles of imperialism that integrates the colonial origin and endowment views.
“The central issue of economic history and of economic development is to account for the evolution of political and economic institutions that create an economic environment that induces increasing productivity”
Douglass C. North ( 1991, p. 98)
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Notes
- 1.
The World Development Report 2002 is clear about the importance of institutions in economic growth: “The ability of the state to provide those institutions that support growth and poverty reduction—often referred to as good governance—is essential to development. Countries that have failed in this respect have seen incomes stagnate and poverty persist.” (World Bank 2002, p. 115).
- 2.
Even in states not formally colonized, such as China, the influence of European imperialism was clear, as evidenced by the trade liberalization that followed the Opium Wars (1840–1842; 1856–1860).
- 3.
European countries were thrown to the conquest of much of the world and implemented in their colonies different systems of government, policies and institutions. This source of exogenous variation that is attributed to colonialism is key to the analysis of the economic consequences of institutions.
- 4.
- 5.
In India the British made use of the land revenue system that was in place upon their arrival and enjoyed the potential of the Indian market. In the West Indies, the British used slave labor as a main input into the plantation system. The system of indirect rule that was prevalent in large parts of sub-Saharan Africa provided the British with a low-cost means of administering large and populated territories, while taking advantage of the potential economic benefits. Hence, we observe how the British could vary their system of colonial rule in order to exploit the indigenous and natural resources of the colonies.
- 6.
According to Acemoglu et al. (2002), population density in 1500 accounts for the level of precolonial development and prosperity. They postulate that colonizers implanted “extractive” institutions in more prosperous territories, while settler colonies in less developed areas.
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Oto-Peralías, D., Romero-Ávila, D. (2017). Introduction. In: Colonial Theories of Institutional Development. Contributions to Economics. Springer, Cham. https://doi.org/10.1007/978-3-319-54127-3_1
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