Colonial Origins

Acemoglu et al. (AJR). 2001. “The Colonial Origins of Comparative Development: An Empirical Investigation,” American Economic Review, 91(5): 1369-1401. Key Issue: to estimate the effect of institutions on economic performance. Causal Mechanism: This paper does not systematically address the causal mechanism between institutions and economic performance. However, the causal mechanism has been widely discussed by economists and the primary channel is property rights. DV: Economic Performance (measured by log of real GDP per capita in 1995, average from 1985 to 1995) IV: Institutions (measured by an index of protection against expropriation from Political Risk Services, an alternative measure is constraints on the executive, from the Polity III) Control Variables: Latitude, colonial origins, temperature, humidity, percent of European descent, landlocked dummy, religion, legal origins, ehnolinguistic fragmentation etc.. Problems to estimate of the effect of institutions on economic performance: First, endogeneity. Rich economies maybe able to afford, or perhaps prefer, better institutions. Second, there are many omitted determinants of income differences that will naturally be correlated with institutions. Finally, the measures of institutions are constructed ex post, and the analysts may have a natural bias in seeing better institutions in rich places. The authors use setter mortality an instrument for institutions in a 2SLS setting to address above problems. Why setter mortality could be an instrument for institutions? They hypothesize that, (potential) settler mortality rates were a major determinants of settlements; settlements were a major determinant of early institutions; and there is a strong correlation between early institutions and institutions today. European adopted very different colonization policies in different colonies, with different associated institutions. In places where Europeans faced high mortality rates mainly caused by malaria and yellow...