Colonial theories of institutional development toward a model of styles of imperialism

Contributions to Economics Daniel Oto-Peralías Diego Romero-Ávila Colonial Theories of Institutional Development Toward a Model of Styles of Imperialism Contributions to Economics More information about this series at http://www.springer.com/series/1262 ´ vila Daniel Oto-Peralı´as • Diego Romero-A Colonial Theories of Institutional Development Toward a Model of Styles of Imperialism Daniel Oto-Peralı´as School of Management University of St Andrews St Andrews, United Kingdom ´ vila Diego Romero-A Department of Economics, Quantitative Methods and Economic History Pablo de Olavide University Seville, Spain ISSN 1431-1933 ISSN 2197-7178 (electronic) Contributions to Economics ISBN 978-3-319-54126-6 ISBN 978-3-319-54127-3 (eBook) DOI 10.1007/978-3-319-54127-3 Library of Congress Control Number: 2017936137 © Springer International Publishing AG 2017 This work is subject to copyright All rights are reserved by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed The use of general descriptive names, registered names, trademarks, service marks, etc in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations Printed on acid-free paper This Springer imprint is published by Springer Nature The registered company is Springer International Publishing AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland Preface ´ vila would like to dedicate this book to the memory of his father, Diego Romero-A ´ vila Aguilar, for encouragement and support throughout ´ Pedro Jose Romero de A ´ ngeles, Jesu´s Crespohis career The authors are particularly indebted to Luis A ´ Cuaresma, Joaquın Maudos, Carlos Usabiaga, and Simon Wren-Lewis for valuable comments and suggestions We also thank seminar participants at Pablo de Olavide University, St Andrews University, and Vienna University of Economics and Business for valuable comments and suggestions The authors acknowledge financial support from the Spanish Ministry of Science and Technology (grant ECO2009-13357), the Spanish Ministry of Economics and Competitiveness (grant ECO2012-35430), and the Andalusian Council of Innovation and Science (Excellence Project SEJ-4546) St Andrews, UK Sevilla, Spain Daniel Oto-Peralı´as ´ vila Diego Romero-A v About This Book This study analyzes the role played by initial endowments and colonizer identity in the explanation of institutional development in former colonies After a brief review of the literature, a model of two styles of imperialism is presented that integrates the colonial origin and endowment views explaining current institutions We argue that Britain and Portugal adopted an “economically oriented” style, which was pragmatic and sensitive to initial conditions For this style of imperialism, the endowment view is applicable, because in territories with large endowments European powers established extractive institutions, with negative consequences for subsequent institutional development In contrast, France followed a “politically oriented” style of imperialism, in which ideological and political motivations were more present This led to a uniform colonial policy largely independent of initial endowments The Spanish case is a hybrid between both models Formally Spain implanted the same institutions across the New World colonies, but in practice, due to the limited resources of the metropolis, the intensity of colonial penetration varied depending on the possibilities to extract rents Our empirical analysis finds remarkable heterogeneity in the relationship of endowments and colonizer identity with current institutions This result can be read in two ways: the impact of colonizer identity varies with the level of endowments, and the relationship between endowments and institutions is very different across former colonial powers A couple of important consequences can be derived from this finding First, the endowment view is not universally applicable Negative effects of endowments on institutions are only observed for former British colonies and to a lower extent for Spanish and Portuguese colonies but not for the rest Second, former British colonies are not always associated with better institutions since former French colonies at least equal the British when the level of endowments is sufficiently high The form of colonial rule appears to mediate between colonies’ initial endowments and their interaction with metropolis’ domestic conditions and current institutional levels vii Contents Introduction 1.1 On the Importance of Institutions 1.2 Determinants of Institutional Quality: The Key Role of European Colonialism 1.3 Toward a Model of Styles of Imperialism 1.4 Preliminary Empirical Evidence 1.5 Structure of the Study 1 12 Views Linking Colonialism with Institutions 2.1 The Colonial Origin View 2.2 The Endowment View 2.3 The Eclectic View 2.4 Other Related Literature 2.4.1 Additional Studies on Colonialism 2.4.2 Studies about the Importance of Precolonial Institutions 2.4.3 Other Work on the Historical Roots of Comparative Development 13 13 15 17 19 19 A Model of Two Styles of Imperialism 3.1 The Theoretical Framework 3.2 An Application to European Colonial Empires 3.2.1 The British Empire 3.2.2 The French Empire 3.2.3 The Spanish Empire 3.2.4 The Portuguese Empire 3.2.5 The Remainder Empires 3.3 Some General Observations Between Domestic Conditions and the Style of Imperialism 27 28 31 31 33 35 36 37 38 21 23 ix x Contents Empirical Methodology and Baseline Regression Results 4.1 Empirical Strategy and Data Description 4.1.1 Alternative Endowment Variables 4.2 Initial Results: Additive Model Versus Interaction Model 41 42 45 48 Sensitivity to Alternative Theories 5.1 Timing and Duration of Colonization 5.2 Sociological and Anthropological Factors 5.3 Geographic and Climatic Factors 53 54 57 62 Further Sensitivity Analyses 6.1 Robustness to Sample Selection and Outliers 6.2 Robustness to Institutional Indicators 6.3 Robustness to Endowment Indicators 6.4 Limiting the Range in the Distribution of Endowments to French Range 69 69 72 79 82 Exploring the Mechanism of Colonial Rule 7.1 Introduction 7.2 Colonial Rule in the British and French Empires 7.3 Empirical Analysis of the Colonial Rule Mechanism The Legacy of European Colonialism on Relevant Determinants of Institutional Development 105 Conclusions 113 Appendix: Tables and Figures 93 93 95 101 117 References 139 Chapter Introduction “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) 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 1.1 On the Importance of Institutions Institutions are seen as a fundamental requirement for economic development Since the work of North and Thomas (1973) and North (1981, 1991), many economists have been concerned about the economic impact of institutions, © Springer International Publishing AG 2017 ´ vila, Colonial Theories of Institutional Development, D Oto-Peralı´as, D Romero-A Contributions to Economics, DOI 10.1007/978-3-319-54127-3_1 Appendix: Tables and Figures 123 Table A.1 (continued) Variable Description Temperature Urbanization in 1500 Voice and accountability Years since colonization Years since independence Source land suitable for wheat)] It is derived from the “Wheat/Sugar ratio” indicator of Easterly Temperature includes the variables average temperature, minimum and maximum monthly high, and minimum and maximum monthly low The variables are measured in degrees centigrade Percent of population living in urban areas with at least 5000 inhabitants, in 1500 Data for sub-Saharan Africa are not available Indicator measuring perceptions on political rights and civil liberties Year 2000 The scale ranges from À2.5 to 2.5, where a higher value indicates better institutions 2000 minus year of colonization (in hundreds of years) 2000 minus year of independence (in hundreds of years) Acemoglu et al (2002) Acemoglu et al (2002) Kaufmann et al (2009), from Teorell et al (2011) Olsson (2009) Olsson (2009) Table A.2 List of former colonies British colonies French colonies Antigua and Barbuda Australia Bahamas, The Bahrain Bangladesh Barbados Myanmar Algeria Namibia New Zealand Nigeria Pakistan Qatar Belize Sierra Leone Benin Burkina Faso Cambodia Cameroon Central African Rep Chad Botswana Canada Singapore South Africa Comoros Congo, Rep Dominica Sri Lanka Coˆte d’Ivoire Egypt, Arab Rep St Kitts and Nevis Gabon Spanish colonies Argentina Portuguese colonies Angola Bolivia Chile Colombia Costa Rica Cuba Brazil Cape Verde Guinea-Bissau Mozambique Dominican Republic Ecuador El Salvador Equatorial Guinea Guatemala Others empires colonies: Burundi (continued) 124 Appendix: Tables and Figures Table A.2 (continued) British colonies Eritrea Gambia, The Ghana Grenada Guyana India Jamaica Kenya Kuwait Lesotho Malawi Malaysia French colonies St Lucia St Vincent and the G Sudan Swaziland Tanzania Trinidad and Tobago Uganda United Arab Emirates United States Yemen, Rep Zambia Zimbabwe Guinea Haiti Spanish colonies Honduras Mexico Other empires colonies Congo, Dem Rep Indonesia Lao PDR Madagascar Mali Mauritania Nicaragua Panama Paraguay Peru Libya Papua New Guinea Philippines Rwanda Morocco Niger Uruguay Venezuela, RB Somalia Suriname Senegal Togo Tunisia Vietnam Table A.3 Descriptive statistics Variable Dependent variables Rule of law Voice and accountability Political stability Control of corruption Government effectiveness Regulatory quality Law and order Democratic accountability Government stability Corruption Bureaucracy quality Investment profile Legal structure and security of property rights Property rights Executive constraints Endowments indicators Log of population density in 1500 Log of population density before colonization Urbanization in 1500 Settler mortality Std Dev Obs Mean 102 102 101 102 102 102 80 80 80 80 80 80 74 87 86 À0.35 À0.30 À0.34 À0.26 À0.27 À0.20 3.40 3.30 9.99 2.70 1.85 7.20 5.02 46.78 4.28 0.86 0.90 0.97 0.88 0.84 0.85 1.32 1.65 0.83 1.04 1.02 2.51 1.67 22.80 1.91 102 102 43 74 0.49 0.86 6.49 4.79 1.45 1.88 4.86 1.16 Min À2.27 À2.07 À2.79 À1.77 À2.25 À2.50 1.00 0.00 6.58 1.00 0.00 1.00 1.98 10.00 1.00 Max 1.76 1.74 1.29 2.18 2.26 1.96 6.00 6.00 11.17 6.00 4.00 11.00 9.49 90.00 7.00 À3.83 4.61 À4.61 4.70 0.00 17.79 2.15 7.99 (continued) Appendix: Tables and Figures 125 Table A.3 (continued) Variable Sugar/Wheat ratio Mineral resources Ln State Antiquity Index (at time of colonization) Land suitable for sugar Colonial policy indicators and European share Africans per European administrator Log governors’ salaries European share in colonial times Control variables Years since colonization Years since independence Duration of colonization Colonization after 1850 Gap between first sighted and colonized Catholics Muslims Other religions or beliefs Ethnic Fractionalization Several precolonial cultures Precolonial centralization Indigenous mortality Distance from metropolis Landlockedness Distance from the coast Altitude Island Latitude Land in geographical tropics (%) Land quality Temperature variable Temperature variable Temperature variable Temperature variable Temperature variable Humidity variable Humidity variable Humidity variable Humidity variable Colonial power Polity2 (nineteenth century) Colonial power population density (nineteenth century) Obs 67 101 84 Mean 0.01 1.20 4.20 Std Dev 0.15 2.91 2.27 Min À0.58 0.00 0.00 Max 0.39 15.57 6.64 88 0.03 0.04 0.00 0.23 33 61 98 35.50 7.69 0.08 35.46 0.72 0.18 5.84 6.42 0.00 203.08 9.24 0.91 102 102 102 102 102 102 102 101 101 68 97 102 102 102 102 86 102 102 90 99 100 100 100 100 100 100 100 100 100 102 102 2.62 0.69 1.94 0.42 179.87 35.16 24.81 27.32 0.52 0.34 0.47 0.37 7.00 0.17 3.15 0.55 0.21 0.18 0.50 0.05 22.57 28.46 37.54 6.18 15.62 69.58 86.05 51.98 72.25 4.99 87.12 1.57 0.60 1.31 0.50 159.13 35.37 36.35 26.00 0.25 0.48 0.42 0.49 2.82 0.37 3.44 0.41 0.41 0.11 0.42 0.03 6.08 6.59 6.11 10.38 7.06 17.51 8.04 17.88 10.58 1.33 41.24 0.78 0.07 0.38 0.00 1.00 0.00 0.00 0.10 0.00 0.00 0.00 0.00 1.02 0.00 0.00 0.03 0.00 0.00 0.00 0.00 4.00 10.00 24.00 À37.00 À1.00 18.00 54.00 10.00 35.00 2.59 0.19 5.38 2.24 5.13 1.00 477.00 96.60 99.80 98.00 0.93 1.00 1.00 1.00 19.15 1.00 14.38 1.89 1.00 0.67 1.00 0.13 31.00 40.00 48.00 20.00 26.00 97.00 98.00 86.00 92.00 9.37 159.14 (continued) 126 Appendix: Tables and Figures Table A.3 (continued) Variable Obs Colonial power surface area 102 Determinants of modern day institutions (Table 8.1) Executive constraints in the first year of indep 91 Institutional instability after indep 91 Education 82 European languages 95 Index of Power Resources 97 Internal conflict 80 Polity fragmentation 91 Mean 510.23 Std Dev 1181.08 Min 30.53 Max 9632.03 3.51 0.49 2.28 0.31 6.73 7.64 0.24 2.18 0.82 2.16 0.42 9.43 2.12 0.75 1.00 0.00 0.00 0.00 0.30 1.97 0.00 7.00 3.13 9.76 1.06 53.35 12.00 3.00 127 CAN AUS NZL USA SGP BRB BHS ATG ARE KWT BWA QAT TTO BHR DMA MYS NAM BLZ ZAF EGY LSO MWI SWZ ZWE SDN t=–2.28 BGD UGA PAK KEN b=–0.14 LKA GMB TZA ERI JAM -1 GUY ZMB GHA KNALCAVCT INDGRD NGA YEM MMR SLE -2 Institutional quality (rule of law) in 2000 Appendix: Tables and Figures -4 -2 Population density in the year ofcolonization A BRITISH COLONIES TUN SEN BEN MRT MDG GAB VNM -.5 MLI BFA TGO -1 TCDNER CIV LAO b = 0.11 KHM DZA CMR t=1.02 COM GIN COG CAF -1.5 Institutional quality (rule of law) in 2000 MAR HTI -1 Population density in the year of colonization B FRENCH COLONIES Fig A.1 The relationship between log of population density in the year of colonization (x-axis) and rule of law in 2000 (y-axis) Appendix: Tables and Figures CHL CRI URY ARG PAN MEX BOL b=–0.07 DOM PER ECU t=–0.63 VEN HND NIC PRY CUB -1 Institutional quality (rule of law) in 2000 128 SLV GTM COL GNQ -2 -1 Population density in the year of colonization CPV -.5 BRA -1 MOZ b=–0.36 t=–7.02 -1.5 Institutional quality (rule of law) in 2000 C SPANISH COLONIES GNB AGO -6 -4 -2 Population density in the year of colonization D PORTUGUESE COLONIES Fig A.1 (continued) 129 -.5 SUR PHL LBY IDN -1 PNG RWA -2 -1.5 BDI COD b=–0.18 SOM t=–2.36 -2.5 Institutional quality (rule of law) in 2000 Appendix: Tables and Figures -2 Population density in the year of colonization E OTHER COLONIES Fig A.1 (continued) Appendix: Tables and Figures NZL AUS CAN USA SGP BRB BHS TTO MYS IND ZAF BLZ LKA EGY GUY GHA JAM BGD -1 PAK UGA KEN b =–0.41 GMB TZA NGA MMR SLE SDN t=–3.97 -2 Institutional quality (rule of law)in 2000 130 European settler mortality MAR TUN SEN BEN MRT GAB MDG -.5 VNM MLI BFA TGO NER -1 TCD CIV LAO DZA CMR b=–0.07 GIN COG CAF t=–0.49 -1.5 Institutional quality (rule of law) in 2000 A BRITISH COLONIES HTI European settler mortality B FRENCH COLONIES Fig A.2 The relationship between the European settler mortality rate (x-axis) and rule of law in 2000 (y-axis) 131 b=–0.36 CHL t=–0.89 URY CRI ARG PAN MEX BOL PER ECU GTM COL -1 Institutional quality (rule of law) in 2000 Appendix: Tables and Figures 4.2 DOM SLV VEN HND PRY NIC 4.4 4.6 4.8 5.2 European settler mortality -1 BRA GNB b=–1.03 AGO t=–5.99 -2 Institutional quality (rule of law) in 2000 C SPANISH COLONIES 4.5 European settler mortality D PORTUGUESE COLONIES Fig A.2 (continued) 5.5 Appendix: Tables and Figures -.5 SUR -1 IDN PNG RWA -2 -1.5 BDI COD b=–0.64 t=–5.65 -2.5 Institutional quality (rule of law) in 2000 132 3.5 4.5 European settler mortality E OTHER COLONIES Fig A.2 (continued) 5.5 133 NZL AUS CAN USA BWA MYS IND ZAF LSO EGY GHA LKA GMB TZA ZMB SWZ GUY -1 BGD PAK KEN JAM UGA NGA ZWE MMR SLE SDN b =–2.73 t=–2.11 -2 Institutional quality (rule of law) in 2000 Appendix: Tables and Figures -.4 -.2 Sugar/Wheat ratio TUN SEN MDG MRT -.5 GAB VNM MLI BFA NER TCD -1 KHM CIV LAO DZA b=–0.28 -1.5 Institutional quality (rule of law) in 2000 A BRITISH COLONIES GIN t=–0.14 -.1 CAF Sugar/Wheat ratio B FRENCH COLONIES Fig A.3 The relationship between the sugar/wheat ratio (x-axis) and rule of law in 2000 (y-axis) Appendix: Tables and Figures CHL CRI URY ARG PAN MEX SLV ECU VEN b=–1.88 -1 Institutional quality (rule of law) in 2000 134 t=–3.48 -.6 -.4 -.2 BOL DOM PER COLHNDNIC PRY GTM Sugar/Wheat ratio -.5 SUR PHL -1 IDN PNG -2 -1.5 RWA -2.5 Institutional quality (rule of law) in 2000 C SPANISH COLONIES BDI b=4.67 t=4.37 05 Sugar/Wheat ratio D OTHER COLONIES Fig A.3 (continued) 15 2 135 NZL AUS CAN USA SGP BRB BWA TTO GRD ZAF MYS IND -1 GUY JAM LKA EGY GHA GMB LSO ZMB MWI SWZ BGD PAK UGA KEN b=–0.15 NGA YEMMMR SDN ZWE SLE t=–2.29 -2 Institutional quality (rule of law) in 2000 Appendix: Tables and Figures Log State Antiquity Index in the year of colonization MAR TUN SEN BEN MDGMRT -.5 GAB MLI VNM BFA TGO -1 TCD NER KHM LAO CIV DZA CMR b=0.06 t=0.84 -1.5 Institutional quality (rule of law) in 2000 A BRITISH COLONIES GIN COG CAF HTI Log State Antiquity Index in the year of colonization B FRENCH COLONIES Fig A.4 The relationship between the log state antiquity index (x-axis) and rule of law in 2000 (y-axis) Appendix: Tables and Figures CHL CRI URY ARG PAN MEXBOL DOM PRY -1 Institutional quality (rule of law) in 2000 136 SLV VEN COL NIC CUB b=–0.06 PER ECU HND GTM t=–1.00 Log State Antiquity Index in the year of colonization CPV -.5 BRA -1 MOZ b=–0.51 -1.5 Institutional quality (rule of law) in 2000 C SPANISH COLONIES t=–1.95 AGO Log State Antiquity Index in the year of colonization D PORTUGUESE COLONIES Fig A.4 (continued) 137 -.5 PHL IDN LBY -1 PNG RWA -2 -1.5 BDI COD b=–0.11 SOM t=–1.51 -2.5 Institutional quality (rule of law) in 2000 Appendix: Tables and Figures Log State Antiquity Index in the year of colonization E OTHER COLONIES Fig A.4 (continued) ... information about this series at http://www.springer.com/series/1262 ´ vila Daniel Oto-Peralı´as • Diego Romero -A Colonial Theories of Institutional Development Toward a Model of Styles of Imperialism. .. different colonial policies adopted France was characterized by a colonial philosophy based on the consideration of the colonial empire as an intrinsic part of the Republic and the ideal of assimilation... the European colonization of islands around the world as a natural experiment and take advantage of wind patterns as an instrument for the length of colonization Their analysis shows a robust