Hot Working Paper of the Day-Islands as Experiments

An interesting working paper Colonialism and Modern Income -- Islands as Natural Experiments by James Feyrer and Bruce Sacerdote;

"Using a new database of islands throughout the Atlantic, Pacific and Indian Oceans we examine whether colonial origins affect modern economic outcomes. We argue that the nature of discovery and colonization of islands provides random variation in the length and type of colonial experience. We instrument for length of colonization using wind direction and wind speed. Wind patterns which mattered a great deal during the age of sail do not have a direct effect on GDP today, but do affect GDP via their historical impact on colonization. The number of years spent as a European colony is strongly positively related to the island's GDP per capita and negatively related to infant mortality. This basic relationship is also found to hold for a standard dataset of developing countries. We test whether this link is directly related to democratic institutions, trade, and the identity of the colonizing nation. While there is substantial variation in the history of democratic institutions across the islands, such variation does not predict income. Islands with significant export products during the colonial period are wealthier today, but this does not diminish the importance of colonial tenure. The timing of the colonial experience seems to matter. Time spent as a colony after 1700 is more beneficial to modern income than years before 1700, consistent with a change in the nature of colonial relationships over time."

Excerpt from conclusion;

We have argued for an "islands as experiments" approach where random variation in the colonial experiences of islands can be used to think about the long run effects of colonial history on economic performance. The most interesting fact in our sample is a robust positive relationship between the years of European colonialism and current levels of income. While some of this relationship could be driven by smart selection of islands by colonizers, we suspect that part of the relationship is causal. When we instrument for colonization and settlement using wind patterns, we obtain coefficients on years of colonization that are identical to our OLS results.

While the basic results suggest that longer European colonial exposure is good for the modern inhabitants of the islands in our sample, there are a few interesting caveats that we can introduce. First, there is a discernable pecking order amongst the colonizers. Years under US and Dutch colonial rule are significantly better than years under the Spanish and Portuguese.

Second, later years of colonialism are associated with a much larger increase in modern GDP than years before 1700. These findings are consistent with the Acemoglu et al. result that the quality of the colonial experience is important for modern outcomes. It is not difficult to believe that colonialism in the post-enlightenment era led to more efficient and beneficial institution transfer than colonialism under the encomienda system and its contemporaries. This is not to say that we find the early colonial years to be detrimental to modern GDP – we do not. However, given the human toll on the early natives, it is not unreasonable to think that pre 1700 colonialism should be considered as a net negative.

Via Econbrowser