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«Abstract We examine the effects of precolonial and colonial legacies on the current economic growth rates of ex-colonies. We find that precolonial ...»

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An Empirical Investigation of Precolonial and Colonial Legacies to

Current Economic Growth Rates

DAE HYUNG WOO JIN SEO CHO

Yonsei Economic Research Institute School of Economics

Yonsei University Yonsei University

50 Yonsei-ro, Seodaemun-gu, Seoul, 120-749, Korea 50 Yonsei-ro, Seodaemun-gu, Seoul, 120-749, Korea

E-mail: woodaehyung@gmail.com E-mail: jinseocho@yonsei.ac.kr First version: March 2014. This version: July 2015 Abstract We examine the effects of precolonial and colonial legacies on the current economic growth rates of ex-colonies. We find that precolonial legacies have significant positive relationships with current economic growth rates, as well as high model explanatory power. In contrast, colonial legacies have am- bivalent effects on current economic growth rates. In the latter case, we capture the positive and negative significant relationships using immigration from the colonial ruler countries and colonial duration, re- spectively. Here, we find that Neo-European countries have benefited from the dominant positive effects of their colonial legacy, but that Sub-Saharan African ex-colonies are dominated by negative effects. In the case of Korea, the overall effect of the colonial legacy is not substantially different from zero, and the country’s current high economic growth rate originates mainly from the precolonial legacy.

JEL Classification: N10, O40, O47, O50.

Keywords: Precolonial legacy; positive and negative effects of colonial legacy; current economic growth rate; ex-colonies; Neo-European economic growth rate; Sub-Saharan African economic growth rate;

Korean economic growth rate.

Acknowledgements: The authors benefited from discussions with Jonghee Hahn, Hoon Hong, Sungchan Hong, Sok Chul Hong, Albert Guangzhou Hu, Jinook Jeong, Sunbin Kim, Yong Kim, and other participants at the Spring Conference of the Korean Economic History Society, 2014.

1 Introduction Identifying the factors affecting economic growth rates in different countries is a popular research topic in the field of economic development and growth. For example, Glaeser, La Porta, Lopez-de-Silane, and Shleifer (2004) identify human capital as an important factor. As another example, Acemoglu, Johnson, and Robinson (2001) examine institutional quality as another factor affecting economic growth.

Identifying these factors, along with their roles, is often a primary goal. These factors and roles are critical, as they can be used to argue effective government policies or to inform the key factors for economic growth. Nevertheless, there is little agreement on the roles of different factors, particularly in the case of ex-colonial economies. For example, Bockstette, Chanda, and Putterman (2002) and Chanda and Putterman (2007) argue that the post-war economic growth rates of Korea, Hong Kong, and India originated from the relatively advanced technology levels and sophisticated governing structures of the traditional countries. On the other hand, Acemoglu, Johnson, and Robinson (2002) claim that the legacies of the traditional countries were defunct during the colonial periods of the ex-colonies and, thus, adversely affected the modern economic growth rates of these countries. Based on empirical investigations, Grier (1999) and Feyrer and Sacerdote (2009) claim that ex-colonies with a long colonial duration show greater economic performance, without controlling for other factors discussed below. On the other hand, Bertocchi and Canova (2002) empirically show that the economic growth rates of African countries accelerated after being decolonized.

Furthermore, Price (2003) empirically finds that the economic growth rates of African ex-colonies are negatively correlated with the colonial duration variable or that they show no statistically significant correlation.

Therefore, one goal of this study is to provide a comprehensive view that can treat these different arguments in a single framework, enabling us to evaluate the different views. Here, we empirically examine the current economic growth rates of 64 ex-colonies using the factors identified in prior studies as being correlated with these growth rates.

These factors are mainly classified as precolonial and colonial legacy variables. The precolonial legacy variables are proxies that capture the social standards of the ex-colonies before they were colonized. They are constructed by indexing features such as the political system, technology level, population density, and urbanization (e.g., Bockstette, Chanda, and Putterman, 2002; Chanda, and Putterman 2007; Comin, Easterly, and Gong 2010; Acemoglu, Johnson, and Robinson, 2001; Bandyopadhyay and Green, 2012, etc.). As detailed below, these variables are positively correlated with each other and with Olsson and Hibbs’s (2005) biogeography index, which measures favorable biogeographical conditions that accelerated the Neolithic revolution. In this way, different chronological experiences of the Neolithic revolution can be associated 1 with current social and economic statuses, as argued by Diamond (1997). We use the precolonial legacy variables to capture the effects of historical features on the current economic growth rates. In the same vein, the colonial legacy variables are the proxies of colonial experiences. There are different views on how colonial experiences have affected current economic growth rates. Using colonial duration, Grier (1999), Feyrer and Sacerdote (2009), Bertocchi and Canova (2002), and Price (2003) empirically show contrasting results, as mentioned earlier. Acemoglu, Johnson, and Robinson (2001, 2002), among others, argue that colonial experiences left both positive and negative legacies to current economies. They empirically affirm that greater numbers of immigrants from the colonial ruler countries resulted in more positive economic activities. However, they do not control for the negative effects.





Our comprehensive model framework employs colonial duration and the immigrant ratio to capture possible positive or negative effects of colonial legacies, and we also control for other precolonial legacies. In this way, different views on colonial legacies can be properly evaluated within a single framework (e.g., Bockstette, Chanda, and Putterman, 2002; Chanda and Putterman, 2007; Acemoglu, Johnson, and Robinson, 2002, etc.). Our model framework is also built on initial condition variables that prior studies have identified, theoretically and empirically, as being correlated with current economic growth rates. Typical examples include GDP per capita in the 1960s and the human capital variables suggested by the conditional convergence hypothesis, income distribution, and the socioeconomic status of a developing country (e.g., Barro, 1991; Perotti, 1996; Deininger and Olinto, 1999; Adelman and Morris, 1967; Temple and Johnson, 1998, etc.).

A further goal of this study is to evaluate the current economic growths of different ex-colonies using our model framework. This serves the dual purpose of affirming our empirical model estimation, in line with prior literature, and resolving the issues relevant to the economic growths of these ex-colonies. That is, our model consistently explains the wide variation in the economic growth rates of the sample observations, including Korea, Sub-Saharan African, and Neo-European ex-colonies.

First, Korea is one of the few examples of successful economic growth since the 1960s, which existing literature regards as an exceptional case (e.g., Easterly, 1995). Prior literature on the origin of this success is classified into four different views. First, Amsden (1989), Wade (1990), and the World Bank (1993), among others, address the role played by the government between the 1960s and 1970s in the economic success of Korea. Effective government policies and interventions were key to the success, according to Amsden (1989) and Wade (1990), while the World Bank (1993) points out the market- and export-oriented economic policies as the main reasons for the success. Second, Rodrik (1995) and Temple and Johnson (1998), among others, note that better initial conditions in Korea than in other countries contributed to the economic 2 growth. Rodrik (1995) empirically finds that the Korean economic growth rates between 1960 and 1985 are mostly explained by the relatively equal income distribution and the country’s high school enrollment rate. Temple and Johnson (1998) compare Adelman and Morris’s (1967) social development index across countries and find that Korea was in a favorable condition for high economic growth. Third, Eckert (1991), Hsiao (2003), and Kim (2006), among others, argue that the high economic growth in Korea was rooted in the country’s colonial experiences. According to their views, new capital stocks and advanced technologies were introduced by the Japanese colonial government, and these became the seeds for the high economic growth. Kohli (1994) argues that the colonial government was the most efficient and inclusive state that had ever existed in the Korean peninsula, and Lee (2000) claims that the tax and legal systems of Korea were reorganized more efficiently to protect property rights during the Japanese colonial period. Finally, others argue that the high economic growth in Korea is the result of the traditional Korean economy itself. Kim (1970, 1971), Kwon (1969, 2004), Kang (1973), Hideki (1977), and Miyajima (1994), among others, argue that precolonial and traditional Korea enjoyed a high level of social standards relative to other countries.

Furthermore, Korea underwent an economic modernization process even before the colonial period. They further assert that the modernization process stopped during the Japanese colonial period and resumed after being decolonized, resulting in the high economic growth in 1960s and 1970s (e.g., Woo 2008, Lee 2012).

Note that these different views on Korea’s economic success are addressed in parallel with the different views on the factors that determine the economic growth of ex-colonies. Therefore, we empirically examine these views using our model and data that include Korea and, thus, examine which views are more relevant to the Korean economy. We find that the Korean economic success is rooted in the precolonial legacies and the favorable initial conditions. In addition, we find that the colonial legacies made almost no contribution to the current economic growth rate.

Second, Sub-Saharan African ex-colonies have suffered from low economic growth since the 1960s.

Barro (1991), Englebert (2000) and Block (2001), among others, report that the average economic growth rate of the Sub-Saharan African countries is lower than other countries by 1.1%∼1.8%. Furthermore, they find that the Sub-Saharan Africa dummy has significant explanatory power for the economic growth rate.

Sachs and Warner (1997), Bhattacharyya (2009), Easterly and Levine (1997), Temple and Johnson (1998), Price (2003), and Acemoglu, Johnson, and Robinson (2001, 2002) explain the low economic growth rates in terms of the countries’ geographical aspects, ethnic diversities, social capabilities, or the qualities of institutions. Nevertheless, the Sub-Saharan Africa dummy is still statistically significant, even with these variables included in their empirical models. Our empirical model is designed to accommodate all these different views on the Sub-Saharan dummy, and we find that its explanatory power no longer exists in our 3 model estimations. As a result, the current low economic growth rates of Sub-Saharan African ex-colonies can be viewed as the consequence of the low precolonial legacy levels.

Finally, the economic growth rates of Neo-European ex-colonies can also be viewed as another extreme case. As mentioned earlier, prior literature examines their economic growth without separating the positive and negative effects of colonial legacies (e.g., Acemoglu, Johnson, and Robinson, 2001, 2002; Bandyopadhyay and Green, 2012, etc.), although these two contrasting effects are believed to coexist. Therefore, we re-examine the Neo-European ex-colonies to find the dominant effect on the current economic growth rates by specifying our model in a way that captures the negative effects. From our empirical model, we find that the high growth rates of Neo-European ex-colonies are the result of the positive effects of colonial legacies, affirming the reversal-of-fortune hypothesis of Acemoglu, Johnson, and Robinson (2001, 2002).

The remainder of this paper is structured as follows. Section 2 examines the key economic data of 64 countries that have had colonial experiences. Based on these data, we discuss the theoretical and empirical issues relevant to the goals of this study. In particular, we examine the relationships among the precolonial and colonial legacy variables, along with other factors that are well known in prior literature. In Section 3, we specify and estimate a benchmark model for the current economic growth rates of the 64 ex-colonies, which enables us to capture the negative and positive effects of colonial legacies as well as the effects of precolonial legacies. Section 4 specifies a number of variations of the benchmark model and affirms the empirical findings in Section 3 by estimating these models. In particular, we include many other factors that are examined in prior literature on the current economic growth rate, and show that the benchmark model estimations are robust to these inclusions. Here, we also evaluate the main factors that determine the current economic growth in Korea, Sub-Saharan African, and Neo-European ex-colonies. Section 5 provides a summary and conclusion to the paper. Finally, we provide a list of the 64 ex-colonial countries in the appendix, along with the data sources used in our empirical analysis and relevant website information.

For the readers’ convenience, we have collected the data sets into a single file, which is available at the following URL: http://web.yonsei.ac.kr/jinseocho/research.htm.

2 Data and Hypotheses We first examine the empirical features of key economic variables associated with the economic growth rates of the 64 ex-colonial countries and discuss the roles they play in our empirical analysis.

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