1378 THE AMERICAN ECONOMIC REVIEW DECEMBER 2001 lowest protection against expropriation.We use useful since settler mortality is our instrument the average value for each country between for institutions (this variable is described in 1985 and 1995 (values are missing for many more detail in the next section). countries before 1985).This measure is appro- priate for our purposes since the focus here is on B.Ordinary Least-Squares Regressions differences in institutions originating from dif- ferent types of states and state policies.We Table 2 reports ordinary least-squares (OLS) expect our notion of extractive state to corre- regressions of log per capita income on the spond to a low value of this index,while the protection against expropriation variable in a tradition of rule of law and well-enforced prop- variety of samples.The linear regressions are erty rights should correspond to high values.1 for the equation The next row gives an alternative measure,con- straints on the executive in 1990,coded from (1) log yi=u aRi+X'y+8i, the Polity III data set of Ted Robert Gurr and associates (an update of Gurr,1997).Results where y is income per capita in country i,R:is using the constraints on the executive and other the protection against expropriation measure,X measures are reported in Acemoglu et al.(2000) is a vector of other covariates,and e;is a and are not repeated here. random error term.The coefficient of interest The next three rows give measures of early throughout the paper is a,the effect of institu- institutions from the same Gurr data set.The tions on income per capita. first is a measure of constraints on the executive Column (1)shows that in the whole world in 1900 and the second is an index of democ- sample there is a strong correlation between our racy in 1900.This information is not available measure of institutions and income per capita. for countries that were still colonies in 1900,so Column (2)shows that the impact of the insti- we assign these countries the lowest possible tutions variable on income per capita in our base score.In the following row,we report the mean sample is quite similar to that in the whole and standard deviation of constraints on the world,and Figure 2 shows this relationship di- executive in the first year of independence (i.e., agrammatically for our base sample consisting the first year a country enters the Gurr data set) of 64 countries.The R2 of the regression in as an alternative measure of institutions.The column (1)indicates that over 50 percent of the second-to-last row gives the fraction of the pop- variation in income per capita is associated with ulation of European descent in 1900,which is variation in this index of institutions.To get a our measure of European settlement in the col- sense of the magnitude of the effect of institu- onies,constructed from McEvedy and Jones tions on performance,let us compare two coun- (1975)and Curtin et al.(1995).The final row tries,Nigeria,which has approximately the 25th gives the logarithm of the baseline settler mor- percentile of the institutional measure in this tality estimates;the raw data are in Appendix sample,5.6,and Chile,which has approxi- Table A2. mately the 75th percentile of the institutions The remaining columns give descriptive sta- index,7.8.The estimate in column (1),0.52, tistics for groups of countries at different quar- indicates that there should be on average a 1.14- tiles of the settler mortality distribution.This is log-point difference between the log GDPs of the corresponding countries (or approximately a 2-fold difference-e14-1 2.1).In prac- i The protection against expropriation variable is spe- cifically for foreign investment,since Political and Risk tice,this GDP gap is 253 log points (approxi- Services construct these data for foreign investors.How- mately 11-fold).Therefore,if the effect ever,as noted by Knack and Keefer (1995),risk of expro- estimated in Table 2 were causal,it would im- priation of foreign and domestic investments are very highly ply a fairly large effect of institutions on per- correlated,and risk of expropriation of foreign investment formance,but still much less than the actual may be more comparable across countries.In any case,all our results hold also with a variety of other measures of income gap between Nigeria and Chile. institutions (see Tables 4a,b,c,d,and e in Acemoglu et al., Many social scientists,including Monte- 2000,available from the authors). squieu [1784](1989),Diamond (1997),and
1378 THE AMERICAN ECONOMIC REVIEW DECEMBER 2001 lowest protection against expropriation. We use the average value for each country between 1985 and 1995 (values are missing for many countries before 1985). This measure is appropriate for our purposes since the focus here is on differences in institutions originating from different types of states and state policies. We expect our notion of extractive state to conespond to a low value of this index, while the tradition of rule of law and well-enforced property rights should correspond to high values." The next row gives an alternative measure, constraints on the executive in 1990, coded from the Polity 111 data set of Ted Robert Gun and associates (an update of Gun, 1997). Results using the constraints on the executive and other measures are reported in Acemoglu et al. (2000) and are not repeated here. The next three rows give measures of early institutions from the same Gun data set. The first is a measure of constraints on the executive in 1900 and the second is an index of democracy in 1900. This information is not available for countries that were still colonies in 1900, so we assign these countries the lowest possible score. In the following row, we report the mean and standard deviation of constraints on the executive in the first year of independence (i.e., the first year a country enters the Gun data set) as an alternative measure of institutions. The second-to-last row gives the fraction of the population of European descent in 1900, which is our measure of European settlement in the colonies, constructed from McEvedy and Jones (1975) and Curtin et al. (1995). The final row gives the logarithm of the baseline settler mortality estimates; the raw data are in Appendix Table A2. The remaining columns give descriptive statistics for groups of countries at different quartiles of the settler mortality distribution. This is l1 The protection against expropriation variable is specifically for foreign investment, since Political and Risk Services construct these data for foreign investors. However, as noted by Knack and Keefer (1995), risk of expropriation of foreign and domestic investments are very highly correlated, and risk of expropriation of foreign investment may be more comparable across countries. In any case, all our results hold also with a variety of other measures of institutions (see Tables 4a, b, c, d, and e in Acemoglu et al., 2000, available from the authors). useful since settler mortality is our instrument for institutions (this variable is described in more detail in the next section). B. Ordinary Least-Squares Regressions Table 2 reports ordinary least-squares (OLS) regressions of log per capita income on the protection against expropriation variable in a variety of samples. The linear regressions are for the equation (1) log yi = p + aRi + X:y + si, where y, is income per capita in country i, R iis the protection against expropriation measure, Xi is a vector of other covariates, and si is a random enor term. The coefficient of interest throughout the paper is a, the effect of institutions on income per capita. Column (1) shows that in the whole world sample there is a strong correlation between our measure of institutions and income per capita. Column (2) shows that the impact of the institutions variable on income per capita in our base sample is quite similar to that in the whole world, and Figure 2 shows this relationship diagrammatically for our base sample consisting of 64 countries. The R~ of the regression in column (1) indicates that over 50 percent of the variation in income per capita is associated with variation in this index of institutions. To get a sense of the magnitude of the effect of institutions on performance, let us compare two countries, Nigeria, which has approximately the 25th percentile of the institutional measure in this sample, 5.6, and Chile, which has approximately the 75th percentile of the institutions index, 7.8. The estimate in column (I), 0.52, indicates that there should be on average a 1.14- log-point difference between the log GDPs of the corresponding countries (or approximately a 2-fold difference-e1.14 - 1 = 2.1). In practice, this GDP gap is 253 log points (approximately I I-fold). Therefore, if the effect estimated in Table 2 were causal, it would imply a fairly large effect of institutions on performance, but still much less than the actual income gap between Nigeria and Chile. Many social scientists, including Montesquieu [I7841 (1989), Diamond (1997), and
VOL.91 NO.5 ACEMOGLU ET AL:THE COLONIAL ORIGINS OF DEVELOPMENT 1379 TABLE 2-OLS REGRESSIONS Whole Base Whole Whole Base Base Whole Base world sample world world sample sample world sample (1) (2) (3) (4) (5) (6) (7) (8) Dependent variable is log output per Dependent variable is log GDP per capita in 1995 worker in 1988 Average protection 0.54 0.52 0.47 0.43 0.47 0.41 0.45 0.46 against expropriation (0.04) (0.06 (0.06) (0.05) (0.06) (0.06) (0.04) (0.06) risk,1985-1995 Latitude 0.89 0.37 1.60 0.92 (0.49) (0.51) (0.70) (0.63) Asia dummy -0.62 -0.60 0.19) (0.23) Africa dummy -1.00 -0.90 (0.15) (0.17) "Other"continent dummy -0.25 -0.04 (0.20) (0.32) P2 0.62 0.54 0.63 0.73 0.56 0.69 0.55 0.49 Number of observations 110 64 110 110 6 64 108 61 Notes:Dependent variable:columns(1)-(6),log GDP per capita (PPP basis)in 1995,current prices(from the World Bank's World Development Indicators 1999);columns (7)-(8),log output per worker in 1988 from Hall and Jones (1999).Average protection against expropriation risk is measured on a scale from 0 to 10,where a higher score means more protection against expropriation,averaged over 1985 to 1995,from Political Risk Services.Standard errors are in parentheses.In regressions with continent dummies,the dummy for America is omitted.See Appendix Table Al for more detailed variable definitions and sources.Of the countries in our base sample,Hall and Jones do not report output per worker in the Bahamas,Ethiopia. and Vietnam Sachs and coauthors,have argued for a direct and(⑧)，we repeat our basic regressions using effect of climate on performance,and Gallup et the log of output per worker from Hall and al.(1998)and Hall and Jones (1999)document Jones (1999),with very similar results. the correlation between distance from the equa- Overall,the results in Table 2 show a strong tor and economic performance.To control for correlation between institutions and economic this,in columns (3)-(6),we add latitude as a performance.Nevertheless,there are a number regressor (we follow the literature in using the of important reasons for not interpreting this absolute value measure of latitude,i.e.,distance relationship as causal.First,rich economies from the equator,scaled between 0 and 1).This may be able to afford,or perhaps prefer,better changes the coefficient of the index of institu- institutions.Arguably more important than this tions little.Latitude itself is also significant and reverse causality problem,there are many omit- has the sign found by the previous studies.In ted determinants of income differences that will columns (4)and (6),we also add dummies for naturally be correlated with institutions.Finally, Africa,Asia,and other continents,with Amer- the measures of institutions are constructed ex ica as the omitted group.Although protection post,and the analysts may have had a natural against expropriation risk remains significant, bias in seeing better institutions in richer places. the continent dummies are also statistically and As well as these problems introducing positive quantitatively significant.The Africa dummy in bias in the OLS estimates,the fact that the column(6)indicates that in our sample African institutions variable is measured with consider- countries are 90 log points (approximately 145 able error and corresponds poorly to the "cluster percent)poorer even after taking the effect of of institutions"that matter in practice creates institutions into account.Finally,in columns (7) attenuation and may bias the OLS estimates
VOL. 91 NO. 5 ACEMOGLU ET AL.: THE COLONIAL ORIGINS OF DEVELOPMENT 1379 Whole Base Whole Whole Base Base Whole Base world sample world world sample sample world sample (1) (2) (3) (4) (5) (6) (7) (8) Dependent variable is log output per Dependent variable is log GDP per capita in 1995 worker in 1988 Average protection 0.54 0.52 0.47 against expropriation (0.04) (0.06) (0.06) risk, 1985-1995 Latitude 0.89 (0.49) Asia dummy Africa dummy "Other" continent dummy R~ 0.62 0.54 0.63 Number of observations 110 64 110 Notes: Dependent variable: columns (1)-(6), log GDP per capita (PPP basis) in 1995, current prices (from the World Bank's World Development Indicators 1999); columns (7)-(8), log output per worker in 1988 from Hall and Jones (1999). Average protection against expropriation risk is measured on a scale from 0 to 10, where a higher score means more protection against expropriation, averaged over 1985 to 1995, from Political Risk Services. Standard errors are in parentheses. In regressions with continent dummies, the dummy for America is omitted. See Appendix Table A1 for more detailed variable definitions and sources. Of the countries in our base sample, Hall and Jones do not report output per worker in the Bahamas, Ethiopia, and Vietnam. Sachs and coauthors, have argued for a direct effect of climate on performance, and Gallup et al. (1998) and Hall and Jones (1999) document the correlation between distance from the equator and economic performance. To control for this, in columns (3)-(6), we add latitude as a regressor (we follow the literature in using the absolute value measure of latitude, i.e., distance from the equator, scaled between 0 and 1). This changes the coefficient of the index of institutions little. Latitude itself is also significant and has the sign found by the previous studies. In columns (4) and (6), we also add dummies for Africa, Asia, and other continents, with America as the omitted group. Although protection against expropriation risk remains significant, the continent dummies are also statistically and quantitatively significant. The Africa dummy in column (6) indicates that in our sample African countries are 90 log points (approximately 145 percent) poorer even after taking the effect of institutions into account. Finally, in columns (7) and (8), we repeat our basic regressions using the log of output per worker from Hall and Jones (1999), with very similar results. Overall, the results in Table 2 show a strong correlation between institutions and economic performance. Nevertheless, there are a number of important reasons for not interpreting this relationship as causal. First, rich economies may be able to afford, or perhaps prefer, better institutions. Arguably more important than this reverse causality problem, 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 had a natural bias in seeing better institutions in richer places. As well as these problems introducing positive bias in the OLS estimates, the fact that the institutions variable is measured with considerable error and corresponds poorly to the "cluster of institutions" that matter in practice creates attenuation and may bias the OLS estimates
1380 THE AMERICAN ECONOMIC REVIEW DECEMBER 2001 HKG SGP SA 10 AUS CAN ARG MLTBHS CHL PAN 24福9 GTM PER DOME OIGLY IDN 'ddd 8 SLV COG TGO e KEN AR NE股ONGA M山 EPHE TZA 6 6 8 Average Expropriation Risk 1985-95 FIGURE 2.OLS RELATIONSHIP BETWEEN EXPROPRIATION RISK AND INCOME downwards.All of these problems could be Both malaria and yellow fever are transmit- solved if we had an instrument for institutions. ted by mosquito vectors.In the case of malaria, Such an instrument must be an important factor the main transmitter is the Anopheles gambiae in accounting for the institutional variation that complex and the mosquito Anopheles funestus, we observe,but have no direct effect on perfor- while the main carrier of yellow fever is Aedes mance.Our discussion in Section I suggests that aegypti.Both malaria and yellow fever vectors settler mortality during the time of colonization tend to live close to human habitation. is a plausible instrument. In places where the malaria vector is present, such as the West African savanna or forest,an III.Mortality of Early Settlers individual can get as many as several hundred infectious mosquito bites a year.For a person A.Sources of European Mortality without immunity,malaria (particularly Plas- in the Colonies modium falciporum)is often fatal,so Europe- ans in Africa,India,or the Caribbean faced very In this subsection,we give a brief overview high death rates.In contrast,death rates for the of the sources of mortality facing potential set- adult local population were much lower (see tlers.Malaria(particularly Plasmodium falcipo- Curtin [1964]and the discussion in our intro- rum)and yellow fever were the major sources duction above).Curtin(1998 pp.7-8)describes of European mortality in the colonies.In the this as follows: tropics,these two diseases accounted for 80 percent of European deaths,while gastrointes- Children in West Africa...would be in- tinal diseases accounted for another 15 percent fected with malaria parasites shortly after (Curtin,1989 p.30).Throughout the nineteenth birth and were frequently reinfected after- century,areas without malaria and yellow fever, wards;if they lived beyond the age of about five,they acquired an apparent im- such as New Zealand,were more healthy than munity.The parasite remained with them, Europe because the major causes of death in normally in the liver,but clinical symp- Europe-tuberculosis,pneumonia,and small- toms were rare so long as they continued pox-were rare in these places (Curtin,1989 to be infected with the same species of P. P.13). falciporum
THE AMERICAN ECONOMIC REVIEW DECEMBER 2001 HKG I I ARG PAN -. KEN ,,nrrhl CIV MG3 I I I 4 6 8 Average Expropriation Risk 1985-95 FIGURE2. OLS RELATIONSHIP BETWEENEXPROPRIATION RISKAND INCOME I 10 downwards. All of these problems could be solved if we had an instrument for institutions. Such an instrument must be an important factor in accounting for the institutional variation that we observe, but have no direct effect on performance. Our discussion in Section I suggests that settler mortality during the time of colonization is a plausible instrument. 111. Mortality of Early Settlers A. Sources of European Mortality in the Colonies In this subsection, we give a brief overview of the sources of mortality facing potential settlers. Malaria (particularly Plasmodium falciporum) and yellow fever were the major sources of European mortality in the colonies. In the tropics, these two diseases accounted for 80 percent of European deaths, while gastrointestinal diseases accounted for another 15 percent (Curtin, 1989 p. 30). Throughout the nineteenth century, areas without malaria and yellow fever, such as New Zealand, were more healthy than Europe because the major causes of death in Europe-tuberculosis, pneumonia, and smallpox-were rare in these places (Curtin, 1989 p 13). Both malaria and yellow fever are transmitted by mosquito vectors. In the case of malaria, the main transmitter is the Anopheles gambiae complex and the mosquito Anopheles funestus, while the main carrier of yellow fever is Aedes aegypti. Both malaria and yellow fever vectors tend to live close to human habitation. In places where the malaria vector is present, such as the West African savanna or forest. an individual can get as many as several hundred infectious mosquito bites a year. For a person without immunity, malaria (particularly Plasmodium falciporum) is often fatal, so Europeans in Africa, India, or the Caribbean faced very high death rates. In contrast, death rates for the adult local population were much lower (see Curtin [I9641 and the discussion in our introduction above). Curtin (1998 pp. 7-8) describes this as follows: Children in West Africa ... would be infected with malaria parasites shortly after birth and were frequently reinfected afterwards; if they lived beyond the age of about five, they acquired an apparent immunity. The parasite remained with them, normally in the liver, but clinical symptoms were rare so long as they continued to be infected with the same species of P. falciporum