Colonization: Regression Analysis and State History

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DETERMINANTS AND ECONOMIC CONSEQUENCES OF COLONIZATION: A GLOBAL ANALYSIS Arhan S. Ertan, Louis Putterman

Abstract Existing research in the area of economic growth suggests that the era of colonization has had an impact upon the modern levels of economic development of countries around the globe. However, why some countries were colonized early, some late, and others not at all, and what effect these differences have on current national income, has not been studied systematically. In the first part of this paper, we show that both the occurrence and timing of colonization can be explained by (a) differences in levels of pre-1500 development associated with different dates of transition to agriculture (Neolithic revolution) and with the associated history of state-level polities, (b) geographic proximity to the colonizing powers, and (c) the disease environment faced by the colonizers. In the second part, we analyze the developmental consequences of colonization taking the endogeneity of colonizations occurrence and timing into account. We find evidence that history of colonization does not have a direct affect on recent levels of income and recent rates of economic growth. But we also find that the share of the population that migrated from the places of greater pre-modern development had a positive impact both on current level and growth rate of income and on the quality of institutions in the newly settled places. Thus we conclude that the positive effect of colonization on current development works largely through the impact on the quality of institutions of the pre-colonial development levels of the ancestors of current populations.

JEL Classification: O11, O13, O40, O57 Keywords: Colonization, Economic Growth, Institutions, Pre-Modern Development, Migration.

Determinants and Economic Consequences of Colonization: A Global Analysis “The discovery of America and that of a passage to the East Indies by the Cape of Good Hope are the two greatest and most important events recorded in the history of mankind.” Adam Smith, Wealth of Nations (1776)

“...the colonization of America, trade with the colonies, the increase in the means of exchange and in commodities generally, gave to commerce, to navigation, to industry an impulse never before known...” Karl Marx and Friedrich Engels, Manifesto of the Communist Party (1848)

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Introduction

There is little disagreement among historians that the process by which Western European nations set sail into the Atlantic Ocean and began the conquest of its islands and coastlines in the 15th Century, eventually coming to control vast swaths of territory in the Americas, Africa, Asia and the Pacific, is one of the most important factors shaping the economic contours of the modern world. The age of modern colonialism began about 1500 with the European discoveries of a sea route around Africa’s southern coast (1488) and of America (1492) and sea power shifted from the Mediterranean to the Atlantic and to the emerging nation-states of Portugal, Spain, the Dutch Republic, France, and England. By discovery, conquest, and settlement, these nations expanded and colonized throughout the world, spreading European institutions and culture. By the time that the era of colonization ended, the population compositions of countries in the Americas, Australia and New Zealand were radically transformed. Relative standards of living, levels of human and physical capital, and also relative rates of economic growth in recent decades, have all been influenced by the changes brought about by European colonization.

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The chief motives for establishing or winning colonies have been to get control of trade already existing between a territory and the rest of the world; to get possession of precious metals, gems, or raw materials; to get a market in the colony; to provide an outlet in the colony for a surplus population; to take advantage of the cheap labor of native peoples; and to establish naval and...
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