Working Paper: NBER ID: w9934
Authors: Daron Acemoglu; Simon Johnson
Abstract: This paper evaluates the importance of property rights institutions', which protect citizens against expropriation by the government and powerful elites, and contracting institutions', which enable private contracts between citizens. We exploit exogenous variation in both types of institutions driven by colonial history, and document strong first-stage relationships between property rights institutions and the determinants of European colonization (settler mortality and population density before colonization), and between contracting institutions and the identity of the colonizing power. Using this instrumental variables strategy, we find that property rights institutions have a first-order effect on long-run economic growth, investment, and financial development. Contracting institutions appear to matter only for the form of financial intermediation. A possible interpretation for this pattern is that individuals often find ways of altering the terms of their formal and informal contracts to avoid the adverse effects of contracting institutions but are unable to do so against the risk of expropriation.
Keywords: property rights; contracting institutions; economic growth; colonial history
JEL Codes: E44; G18; K00; N20; P16; P17
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| property rights institutions (P14) | long-run economic growth (O49) |
| property rights institutions (P14) | investment rates (G31) |
| property rights institutions (P14) | financial development (O16) |
| contracting institutions (D02) | financial intermediation (G20) |
| contracting institutions (D02) | long-run economic growth (O49) |
| contracting institutions (D02) | investment rates (G31) |
| property rights institutions (P14) | expropriation risk (H13) |