World: The economic legacy of empires

Nations colonised by Europe’s imperial powers had vastly divergent economic fates next the end of colonial policy. Some prospered into extraordinarily rich economies, while others made very little evolution. Could such economic divergence be due to differences in the kind of influence that colonial rulers had on the colonies? Some researchers have speculated that the quality of institutions set up by the imperial powers may have dictated the long-run economic increase of the colonies.

Quality of institutions

Daron Acemoglu and James A. Robinson, for instance, in their famous 2012 book Why Nations Fail, argued that local conditions influenced the nature of institutions set up by Europeans. If the colonies were well-suited for their settlement, the Europeans created institutions that promoted long-term economic development. On the other hand, at the same time as they had little reason to settle in a region, the Europeans set up institutions that were suited only for the quick plunder of resources.

“The European Origins of Economic Development,” a 2016 paper by American economists William Easterly and Ross Levine, sheds additional light on the link between European settlements and economic increase. Easterly and Levine find that there is a strong positive correlation between the share of Europeans in the total colonial people and the per capita gain of the colonies today.

Once again, this suggests that the regions that Europeans found most hospitable, and thus settled in, may have ended up with better institutions. The authors as well find that the share of Europeans in the colonial people is additional strongly correlated with economic development, than the share of European descendants in the colony’s people today.

Thus, the quality of institutions, rather than the quality of human capital supplied by Europeans, may better explain the present economic fate of the colonies.

There is an assumption here that Europeans had significant influence over the quality of institutions in their colonies. Otherwise, these findings can be used as entirely to support other arguments. The majority obvious one being: it was the quality of colonial institutions that influenced the decisions of European powers, either to settle and prosper in a region for the long run or simply plunder and leave quickly.