June 2000 | Daron Acemoglu, Simon Johnson, James A. Robinson
This paper explores the impact of institutions on economic performance, focusing on the differences in mortality rates faced by European colonists in various colonies. The authors argue that the choice of colonization strategy, influenced by the feasibility of settlement, determined the type of institutions established. High mortality rates in certain areas led to the formation of extractive institutions, which persisted and influenced current economic outcomes. Using mortality rates of soldiers, bishops, and sailors as an instrumental variable, the study finds that institutions explain about three-quarters of the income per capita differences across former colonies. The results suggest that better institutions, characterized by property rights and checks against government power, are crucial for economic development. The paper also discusses the robustness of these findings and the historical context that supports the hypothesis.This paper explores the impact of institutions on economic performance, focusing on the differences in mortality rates faced by European colonists in various colonies. The authors argue that the choice of colonization strategy, influenced by the feasibility of settlement, determined the type of institutions established. High mortality rates in certain areas led to the formation of extractive institutions, which persisted and influenced current economic outcomes. Using mortality rates of soldiers, bishops, and sailors as an instrumental variable, the study finds that institutions explain about three-quarters of the income per capita differences across former colonies. The results suggest that better institutions, characterized by property rights and checks against government power, are crucial for economic development. The paper also discusses the robustness of these findings and the historical context that supports the hypothesis.