Economic Institutions and Comparative Economic Development: A Post-Colonial Perspective

54 Pages Posted: 30 May 2018

See all articles by Daniel L. Bennett

Daniel L. Bennett

University of Louisville

Hugo Joaquin Faria

Instituto de Estudios Superiores de Administración (IESA), Finance Center

James D. Gwartney

Florida State University - Department of Economics

Daniel R. Morales

Asunto Económico

Date Written: May 18, 2018

Abstract

Existing literature suggests that either colonial settlement conditions or the identity of colonizer were influential in shaping the post-colonial institutional environment, which in turn has impacted long-run economic development, but has treated the two potential identification strategies as substitutes. We argue that the two factors should instead be treated as complementary and develop an alternative and unified IV approach that simultaneously accounts for both settlement conditions and colonizer identity to estimate the potential causal impact of a broad cluster of economic institutions on log real GDP per capita for a sample of former colonies. Using population density in 1500 as a proxy for settlement conditions, we find that the impact of settlement conditions on institutional development is much stronger among former British colonies than colonies of the other major European colonizers. Conditioning on several geographic factors and ethno-linguistic fractionalization, our baseline 2SLS estimates suggest that a standard deviation increase in economic institutions is associated with a three-fourths standard deviations increase in economic development. Our results are robust to a number of additional control variables, country subsample exclusions, and alternative measures of institutions, GDP, and colonizer classifications. We also find evidence that geography exerts both an indirect and direct effect on economic development.

Keywords: Colonization, Comparative Economic Development, Growth, Geography, Institutions

JEL Classification: P16, P50 O11, O43

Suggested Citation

Bennett, Daniel and Faria, Hugo Joaquin and Gwartney, James D. and Morales, Daniel R., Economic Institutions and Comparative Economic Development: A Post-Colonial Perspective (May 18, 2018). World Development, Vol. 96, 2017, Available at SSRN: https://ssrn.com/abstract=3180894

Hugo Joaquin Faria

Instituto de Estudios Superiores de Administración (IESA), Finance Center ( email )

James D. Gwartney

Florida State University - Department of Economics ( email )

Tallahassee, FL 30306-2180
United States

Daniel R. Morales

Asunto Económico ( email )

Santo Domingo
Dominican Republic

HOME PAGE: http://www.asuntoeconomico.com

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