Free Societies

Effects of colonial institutions persist in modern economic development prospects

Colonial inst

Colonial settlement and political control of developing countries during the past few centuries has had long-lasting effects the world’s economies that persist to this day. A recent study accepted for publication in the prestigious World Development journal, “Economic Institutions and Comparative Economic Development: A Post-Colonial Perspective,” examines the relationship between colonial identity, colonization conditions, and modern economic prospects, suggesting a strong correlation between the economic institutions that were established during colonial periods and long-term economic development. One of the study’s coauthors, economist Hugo J. Faría, participated in the research in part through his role as senior research and policy consultant with Econintech, an Atlas Network partner based in Venezuela, which sponsors high-quality academic programs through its “Libertarian Venezuela” project.

“Despite certain threats sent by radical supporters of the government and the opposition in Venezuela, Econintech’s directors, Rafael A. Acevedo and Luis B. Cirocco, are committed to contributing to the dissemination of freedom and more inclusive institutions ideals in that country through the ‘Libertarian Venezuela’ program, framed in their ‘Road to Prosperity’ educational project,” Cirocco said. “Thus, the research paper ‘Economic Institutions and Comparative Economic Development: A Post-Colonial Perspective,’ recently accepted for publication in the prestigious World Development journal, is an important step toward the achievement of such a goal. It is one of the most serious intents of Econintech to produce high-quality material on institutional changes conducive to freedom and prosperity, in an attempt to diversify the available reading options — both ordinary and specialized — for the current Venezuelan citizens.”

There have long been two prevailing views in economic development literature about the lasting economic effects of colonization, the study points out, either focusing on the institutional framework of the colonizing country or on the conditions that prevailed in the colonized country as the primary determining factors of long-term economic development. The new analytical framework that this study proposes, however, suggests that both factors play strong roles.

“When settlement conditions were poor, extractive institutions were established, regardless of the identity of the colonizer,” explain Faría and his coauthors. “In this respect, our hypothesis is consistent with the settlement conditions interpretation of colonial events. ... When settlement conditions were favorable for large-scale settlement, however, our unifying view of the historical process diverges from the settlement conditions conjecture ...”

On the other hand, in colonized countries with good conditions for large-scale settlement, the colonizing powers tended to set up institutional systems that largely mirrored those of their homelands.

“Given the vastly different institutional arrangements between the English and continental colonizers, it should not be expected that large-scale colonial settlements resulted in the development of similar institutions irrespective of the colonizer,” the study continues. “Instead, we would expect more liberal economic, legal, and political institutions to arise in colonies with large-scale settlement by the British, relative to large-scale settlement by the other major colonizers.”

Faría’s coauthors include Daniel L. Bennett of Florida State University and the Baugh Center for Entrepreneurship & Free Enterprise at Baylor University, James D. Gwartney of Florida State University and coauthor of Common Sense Economics, and Daniel R. Morales of Instituto Dominicano de Evaluación e Investigación de la Calidad Educativa in the Dominican Republic.