The Legacy of European Colonialism on Relevant Determinants of Institutional Development

Abstract

This chapter investigates the effect of European colonialism (measured through colonizer identity and its interaction with endowments) on important determinants of institutional development. The goal of this analysis is to help us understand why the legacy of colonialism has been so pervasive for institutional and economic development, and which factors may potentially act as channels. The percentage of European settlers is thought to be a key determinant of current institutions. Other factors such as early institutions, political instability in the early years of independence, cultural influence, human capital, inequality and social conflict may also be important channels from colonial policies to current institutions. The picture we find is complex. Today’s institutions are not simply the consequence of the persistence of institutions introduced by Europeans in the colonial era. Current institutions are rather the result of processes set in motion or intensified by European colonizers. Our evidence suggests that processes such as inequality, education and to a lower extent social conflict continue to influence the institutions of former colonies today.