Why are some former colonies, like the United States and Australia, among the world's most prosperous nations, while others struggle with persistent poverty? In their Nobel prize-winning 2001 paper, "The Colonial Origins of Comparative Development," economists Daron Acemoglu, Simon Johnson, and James Robinson provided a compelling answer: it all comes down to whether European colonizers could survive long enough to settle.

The researchers found a stark pattern using historical records of settler mortality rates. In regions where European colonizers faced high death rates from disease and harsh conditions, like the Belgian Congo, they established “extractive institutions" designed to strip resources quickly with minimal investment in local infrastructure. These systems typically lacked property rights, checks on power, or incentives for economic growth. Over time, these institutions evolved slowly (if at all), leaving behind a legacy of unequal distribution of power and limited property rights.

Conversely, in areas where Europeans faced relatively lower mortality, settlers were more likely to establish permanent residences, creating "settler colonies" that replicated European institutions. These included strong property rights, independent courts, and democratic governance – foundations that subsequently proved crucial for long-term economic development.

The long-term effects of these early institutional choices were extremely compelling. Even after independence, the institutional frameworks largely remained intact. Former settler colonies built upon their institutions, while former extractive colonies often struggled with cycles of corruption and weak government.

These powerful findings challenge the idea that geography or natural resources determine economic fate. Instead, it suggests that human-made institutions, shaped by historical circumstances, play a decisive role in economic development. While this implies that historical institutions cast a long shadow over current economic performance, understanding their impact is crucial for meaningful institutional reform.

References:

Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "The Colonial Origins of Comparative Development: An Empirical Investigation," American Economic Review, American Economic Association, vol. 91(5), pages 1369-1401.

“The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2024.” NobelPrize.Org, www.nobelprize.org/prizes/economic-sciences/2024/press-release/. Accessed 14 Feb. 2025.