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Colonialism, Property Rights and the Modern World Income Distribution

Published online by Cambridge University Press:  01 July 2010

Abstract

Influential studies by Acemoglu, Johnson and Robinson claim that colonial legacies explain the origins of development-promoting property rights and thus account for the modern world income distribution. Specifically, they argue that European colonial powers engineered a global ‘reversal of fortune’, bringing property rights and prosperity to relatively uninhabited colonies while imposing inefficient institutions on locales with less potential for settlement. We re-evaluate their theoretical arguments and empirical findings and come to a different conclusion. We concur that British colonialism dramatically restructured four colonies, resulting in phenomenal economic success. For the majority of the world, however, colonialism had no discernible effect on property rights. We conclude that contemporary development studies must find another explanation for the modern world income distribution.

Type
Research Article
Copyright
Copyright © Cambridge University Press 2010

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References

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5 This phrase is the subtitle of AJR (2002).

6 This citation figure is from the Web of Science database. Other citation trackers provide an even more impressive figure; Google Scholar lists 3,536 citations to AJR (2001). Both figures are accurate as of 18 March 2010.

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13 See AJR (2000) for data on settlement in Africa and Latin America. Note that twenty-eight of the forty African cases are coded as having zero European settlement, and that most of the remaining African cases are close to zero in comparison with the Latin American values.

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16 It is well known that Latin America’s inequality is the world’s highest (e.g., Engerman, and Sokoloff, , ‘Evolution of Suffrage’, p. 894)Google Scholar.

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21 See the ‘Analysis’ section below for a detailed discussion of the specific variables.

22 In Spanish colonies, intermediate levels of European settlement did exist, mostly in Latin America. As argued above, however, the existing literature suggests that Spanish settlement had either a weaker positive effect than British settlement, or perhaps even a negative effect. We, therefore, focus exclusively on British settlement.

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24 These results are available from the authors. Note that AJR’s (2001) two-stage least-squares (2SLS) analyses, which we replicate below, use a base sample size of sixty-four observations. Malta, which is included in these later exercises, does not have data on the settlement variable, accounting for the difference here of a single observation.

25 For a related argument in favour of out-of-sample tests, which are accomplished by evaluating an argument beyond the inductive cases used to generate that theory in the first place, see Ross, Michael, ‘Testing Inductively-Generated Hypotheses with Independent Data Sets’, APSA CP-Newsletter, 14 (2003), 1417Google Scholar.

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32 La Porta et al., ‘Quality of Government’. Our Appendix A provides a complete description of the data sources and samples employed. Appendix B (discussed below) contains a number of supplementary tables. Both appendices are available with the Journal’s website version of this article, published by Cambridge University Press, 2010, doi:10.1017/S0007123410000141, as well as on the authors’ personal websites.

33 These data are derived from subjective indicators of the risk of expropriation, and are taken from AJR’s (2001) published data appendix. In some empirical analyses AJR also measure property rights institutions with the Polity component ‘Constraints on the Executive’, which is commonly used as a measure of democracy. However, prior research has made clear that democracy and property rights are not synonymous and should not be used as proxies of one another, and thus we use the more commonly accepted indicator of expropriation risk. On this later point, see Przeworski, Adam and Limongi, Fernando, ‘Political Regimes and Economic Growth’, Journal of Economic Perspectives, 7 (1993), 5169CrossRefGoogle Scholar.

34 In later work, AJR provide the equivalent of Panels A and B, but they do not comment on the fact that the four Neo-Britains entirely drive the relationships. See ‘Institutions as the Fundamental Cause’.

35 A discussion of the slight differences between our replications and the original published work can be found in Appendix A. AJR’s (2002) original Table 7 also includes a second panel that utilizes latitude as a control variable. We have replicated this specification as well and report the results in our Appendix B Table 3B. Note that the substantive conclusions we draw from that exercise are identical.

36 Bardhan, Pranab, Scarcity, Conflicts, and Cooperation: Essays in the Political and Institutional Economics of Development (Cambridge, Mass.: MIT Press, 2005), p. 4Google Scholar.

37 To be precise, the coefficients in columns 1–3 are close but not exact replications of AJR, as a result of some slight discrepancies in the underlying data, as discussed in Appendix A.

38 We report in Table 4B (Appendix B) standard errors without clustering, and as such, that table is our closest possible replication of AJR’s original analyses, other than the slight data discrepancies noted in the preceding footnote.

39 When two or more units share a single estimate, their error terms are not independently and identically distributed. Failure to correct for this lack of independence can result in biased standard errors, and clustering is a standard way of correcting for this problem. Albouy documents the need for clustering in AJR’s (2001) analysis, given that the sixty-four countries in the sample utilize only thirty-eight independent mortality estimates. Subsequent responses by AJR implicitly accept that clustered standard errors are well suited for the data. See Albouy, , ‘Colonial Origins’; Acemoglu, Johnson and Robinson, ‘Reply’Google Scholar.

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45 Specifically, our column 4 Table 4 is identical to Albouy’s column 3 Table 1 (panel A). He reports the widening second-stage confidence intervals in column 3 Table 2 (panel A), which we report in our column 4 Table 5. See Albouy, ‘Colonial Origins’, p. 13.

46 This is one instance in which clustering does influence the results. As can be seen in Table 4b, column 6 of Appendix B, the instrument does (barely) pass a weak test of instrument relevance. As noted earlier, however, the standard errors can be biased without the cluster correction, and therefore Table 4 is preferable to Table 4b.

47 ‘Institutions Rule’ is the title of Rodrik, Subramanian and Trebbi’s influential paper, see fn. 8.

48 Chong and Calderón, ‘Causality and Feedback’; note that these authors use a composite measure of institutions from the International Country Risk Guide, whereas AJR utilize only the sub-component expropriation risk. Both variants are commonly used in the growth literature.

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50 Easterly makes the more general point that political and social conditions in the developing world have improved over recent decades, and yet economic growth has dramatically slowed. See Easterly, William, ‘The Lost Decades: Developing Countries’ Stagnation in Spite of Policy Reform, 1980–1998’, Journal of Economic Growth, 6 (2001), 135157CrossRefGoogle Scholar.

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52 While colonialism was a central concern in the dependency literature of the 1970s and earlier 1980s, it was not particularly prominent in the late 1980s and 1990s. For an illustrative analysis with no historical variables, see Barro, Robert and Sala-i-Martin, Xavier, Economic Growth (New York: McGraw Hill, 1995)Google Scholar.

53 If the four British clones are excluded, population density still accounts for roughly one-quarter of the variation in modern incomes (R 2 = 0.24).

54 For a recent review – and the source of this phrase – see Nunn, Nathan, ‘The Importance of History for Economic Development’, Annual Review of Economics, 1 (2009), 6592CrossRefGoogle Scholar.

55 Kohli, Atul, State Directed Development: Political Power and Industrialization in the Global Periphery (Cambridge: Cambridge University Press, 2004)CrossRefGoogle Scholar; Mahoney, James, Colonialism and Postcolonial Development: Spanish America in Comparative Perspective (Cambridge: Cambridge University Press, 2010)CrossRefGoogle Scholar.

56 Krieckhaus, Jonathan, Dictating Development: How Europe Shaped the Global Periphery (Pittsburgh: University of Pittsburgh Press, 2006)Google Scholar. For a recent review of the political foundations of development generally, see Dellepiane-Avellaneda, Sebastian, ‘Good Governance, Institutions and Economic Development: Beyond the Conventional Wisdom’, British Journal of Political Science, 40 (2010), 195224CrossRefGoogle Scholar.

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