Economics Research Worksheet

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Problem Set 8
EC 15 Introduction to Econometrics
Spring 2022
Problem 1 (Difference in Differences)
In this problem, you will replicate one of the results in Card and Krueger (1994). Read this article
and answer the following questions:
(a) What is the research question?
(b) What is the treatment, the treated group, and the control group, here?
(c) By using cardkrueger1994.dta (see the Table 1 below for the variable descriptions),
Table 1: Variable Description
Variable
Description
fte
state
time
full-time equivalent employment
A dummy variable which takes 1 for NJ and 0 for PA
A dummy variable which takes 0 if first survey (2/15/1992 – 3/4/1992)
1 if second survey (11/5/1992 – 12/31/1992)
A unique store ID
store
Fill out the Table 2 below. You can use “summarize” to fill this table out. OR you can install
diff by typing “ssc install diff” and use “diff yvar, t(treatment) p(time)”
Table 2: Full-time Equivalent Employment (FTE)
Control
Treatment
Treatment-Control
Before
After
After-Before
(d) Write the difference-in-differences regression equation you would use to answer the research
question. Describe the expected effects of the coefficients on “treat,” “after” and “treat x after.”
(e) Estimate your difference in differences equation and interpret the results. Display your regression
result using outreg command. Display your estimates and standard errors up to the two decimal
points.
(f) What is the key assumption to interpret this result as “causal”?
1
2
Problem 2 (Instrumental Variables)
In Problem Set 5, you read some parts of Acemoglu, Johnson, and Robinson (2001) and examined
possible issues with the simple OLS regression. Now read ALL sections of Acemoglu, Johnson, and
Robinson (2001). In this problem, you will replicate the first column of Panel A, B, and C of their
Table 4 using an instrumental variables (“two-stage least squares,” or 2SLS) approach. Download the
dataset institution.dta and answer the following questions.
Table 3: Variable Description
Variable
Description
loggdp
protection
setmort
log PPP GDP per capita in 1995, World Bank
average protection against expropriation risk
log settler mortality
(a) Write the na?ive regression for estimating the effect of having better institutions measured as the
average protection against expropriation risk (protection) on the economy (loggdp).
(b) What must be true for the mortality rate (setmort) to be a valid instrument?
(c) Write the reduced-form equation to estimate the effect of the average protection against expropriation risk on log GDP per capita. (Recall: the “reduced-form” equation estimates the
effect of the instrument on the outcome.)
(d) In STATA, estimate the na?ive regression and the reduced-form regression. Display your regression results using outreg command. Display your estimates and standard errors up to the two
decimal points.
(e) In a sentence, interpret the effect of having higher mortality rate on per-capita GDP from the
reduced-form equation you estimated in part (d).
(f) Write out the regression corresponding to the first stage.
(g) Write out the regression corresponding to the second stage.
(h) In STATA, estimate the 2SLS IV regression. You can use “ivreg yvar (xvar=ivvar), first.”
Display your regression result using outreg command. Display your estimates and standard
errors up to the two decimal points.
(i) Does the first or second stage tell you how strongly the instrument is correlated with the endogenous variable?
(j) How do your conclusions about the effect of having better institutions on output in the na?ive
regression and the IV context compare? Which is bigger?
(k) Show how you can derive the 2SLS IV coefficient estimate using the reduced form and first-stage
coefficients. Make sure you can derive your IV estimate from part (g) with your reduced form
estimates from (c) and the first stage of (f).
References
Acemoglu, Daron, Simon Johnson, and James A Robinson. 2001. “The colonial origins of comparative
development: An empirical investigation.” American economic review 91 (5):1369–1401.
3
Card, David and Alan B Krueger. 1994. “Minimum Wages and Employment: A Case Study of the
Fast-Food Industry in New Jersey and Pennsylvania.” American Economic Review 80 (4):772–793.
American Economic Association
The Colonial Origins of Comparative Development: An Empirical Investigation
Author(s): Daron Acemoglu, Simon Johnson, James A. Robinson
Source: The American Economic Review, Vol. 91, No. 5 (Dec., 2001), pp. 1369-1401
Published by: American Economic Association
Stable URL: http://www.jstor.org/stable/2677930
Accessed: 21/05/2009 16:59
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The Colonial Originsof Comparative Development:
An EmpiricalInvestigation
By DARON ACEMOGLU,SIMON JOHNSON,AND JAMESA. ROBINSON*
We exploit differences in European mortalityrates to estimate the effect of institutions on economic performance. Europeans adopted very different colonization
policies in differentcolonies, with differentassociated institutions.In places where
Europeansfaced high mortalityrates, they could not settle and were more likely to
set up extractive institutions.These institutionspersisted to the present. Exploiting
differencesin Europeanmortalityrates as an instrumentfor currentinstitutions,we
estimate large effects of institutions on income per capita. Once the effect of
institutionsis controlledfor, countriesin Africa or those closer to the equatordo not
have lower incomes. (JEL 011, P16, P51)
What are the fundamental causes of the
large differences in income per capita across
countries? Although there is still little consensus on the answer to this question, differences in institutions and property rights have
received considerable attention in recent
years. Countries with better “institutions,”
more secure property rights, and less distor* Acemoglu: Department of Economics, E52-380b,
Massachusetts Institute of Technology, Cambridge, MA
02319, and Canadian Institute for Advanced Research
(e-mail: daron@mit.edu);Johnson: Sloan School of Management, Massachusetts Institute of Technology, Cambridge, MA 02319 (e-mail: sjohnson@mit.edu);Robinson:
Department of Political Science and Departmentof Economics, 210 BarrowsHall, University of California,Berkeley, CA 94720 (e-mail: jamesar@socrates.berkeley.edu).
We thank Joshua Angrist, Abhijit Banerjee, Esther Duflo,
Stan Engerman, John Gallup, Claudia Goldin, Robert
Hall, Chad Jones, Larry Katz, Richard Locke, Andrei
Shleifer, Ken Sokoloff, Judith Tendler, three anonymous
referees, and seminar participants at the University of
California-Berkeley, Brown University, Canadian Institute for Advanced Research, Columbia University, Harvard University, Massachusetts Institute of Technology,
National Bureau of Economic Research, Northwestern
University, New York University, Princeton University,
University of Rochester, Stanford University, Toulouse
University, University of California-Los Angeles, and the
World Bank for useful comments. We also thank Robert
McCaa for guiding us to the data on bishops’ mortality.
1369
tionary policies will invest more in physical
and human capital, and will use these factors
more efficiently to achieve a greater level of
income (e.g., Douglass C. North and Robert
P. Thomas, 1973; Eric L. Jones, 1981; North,
1981). This view receives some support from
cross-country correlations between measures
of property rights and economic development
(e.g., Stephen Knack and Philip Keefer, 1995;
Paulo Mauro, 1995; Robert E. Hall and
Charles I. Jones, 1999; Dani Rodrik, 1999),
and from a few micro studies that investigate
the relationship between property rights and
investment or output (e.g., Timothy Besley,
1995; ChristopherMazingo, 1999; Johnson et
al., 1999).
At some level it is obvious that institutions
matter. Witness, for example, the divergent
paths of North and South Korea, or East and
West Germany, where one part of the country
stagnated under central planning and collective ownership, while the other prospered
with private property and a market economy.
Nevertheless, we lack reliable estimates of
the effect of institutions on economic performance. It is quite likely that rich economies
choose or can afford better institutions. Perhaps more important, economies that are different for a variety of reasons will differ both
1370
THEAMERICANECONOMICREVIEW
in their institutions and in their income per
capita.
To estimatethe impactof institutionson economic performance,we need a source of exogenous variationin institutions.In this paper,we
propose a theory of institutional differences
among countriescolonized by Europeans,’ and
exploit this theoryto derive a possible source of
exogenous variation.Our theory rests on three
premises:
1. There were different types of colonization
policies which createddifferent sets of institutions.At one extreme,Europeanpowers set
up “extractivestates,”exemplifiedby the Belgian colonizationof the Congo. These institutions did not introducemuch protectionfor
privateproperty,nor did they providechecks
and balances against governmentexpropriation.In fact, the mainpurposeof the extractive
statewas to transferas much of the resources
of the colony to the colonizer.
At the other extreme, many Europeansmigrated and settled in a number of colonies,
creating what the historian Alfred Crosby
(1986) calls “Neo-Europes.”The settlerstried
to replicateEuropeaninstitutions,with strong
emphasis on private property and checks
againstgovernmentpower. Primaryexamples
of this include Australia,New Zealand,Canada, and the UnitedStates.
2. The colonization strategywas influencedby
the feasibility of settlements.In places where
the disease environmentwas not favorableto
Europeansettlement,the cards were stacked
against the creationof Neo-Europes,and the
formation of the extractive state was more
likely.
3. The colonial state and institutionspersisted
even after independence.
DECEMBER2001
current institutions in these countries.2 More
specifically, our theory can be schematically
summarizedas
(potential) settler
> settlements
mortality
early
institutions
current
institutions
current
performance.
Based on these three premises, we use the
mortality rates expected by the first European
settlers in the colonies as an instrument for
We use dataon the mortalityratesof soldiers,
bishops, and sailors stationedin the colonies between the seventeenthand nineteenthcenturies,
largelybased on the work of the historianPhilip
D. Curtin.These give a good indicationof the
mortalityratesfaced by settlers.Europeanswere
well informedabout these mortalityrates at the
time, even though they did not know how to
controlthe diseases that caused these high mortalityrates.
Figure 1 plots the logarithm of GDP per
capita today against the logarithmof the settler
mortalityrates per thousandfor a sample of 75
countries(see below for datadetails). It shows a
strong negative relationship. Colonies where
Europeansfaced higher mortality rates are today substantiallypoorerthan colonies that were
healthy for Europeans. Our theory is that this
relationshipreflects the effect of settler mortality working throughthe institutionsbroughtby
Europeans.To substantiatethis, we regress current performance on current institutions, and
instrumentthe latter by settler mortality rates.
Since our focus is on propertyrights and checks
against governmentpower, we use the protection against “risk of expropriation”index from
Political Risk Services as a proxy for institutions. This variable measures differences in institutions originating from different types of
states and state policies.3 There is a strong
1
By “colonial experience” we do not only mean the
directcontrolof the colonies by Europeanpowers, but more
generally, Europeaninfluence on the rest of the world. So
according to this definition, Sub-Saharan Africa was
strongly affected by “colonialism” between the sixteenth
and nineteenthcenturiesbecause of the Atlantic slave trade.
2
Note thatalthoughonly some countrieswere colonized,
there is no selection bias here. This is because the question
we are interested in is the effect of colonization policy
conditional on being colonized.
3Government expropriationis not the only institutional
feature that matters. Our view is that there is a “clusterof
VOL.91 NO. 5
ACEMOGLUET AL.: THE COLONIALORIGINSOF DEVELOPMENT
10
‘Ivp
PANGA
< LO) tl FJ GUY 0a SDN GMB BGD co tl AGO PAKIND Xi n- 1371 TA ETH 6 NERMD 6 NGA SI 0 2 4 6 Logof SettlerMortality 8 FIGURE 1. REDUCED-FORM RELATIONSHIP BETWEEN INCOME AND SETTLER MORTALITY (first-stage)relationshipbetween settlermortality rates and currentinstitutions,which is interesting in its own right. The regression shows that mortality rates faced by the settlers more than 100 years ago explains over 25 percent of the variationin currentinstitutions.4We also document that this relationship works through the channels we hypothesize: (potential) settler mortality rates were a major determinant of settlements;settlements were a major determinant of early institutions (in practice, institutions in 1900); and there is a strong correlation between early institutions and institutions today. Ourtwo-stage least-squaresestimateof the effect of institutions on performance is relatively precisely estimated and large. For example, it implies that improving Nigeria's institutions,"includingconstraintson governmentexpropriation, independentjudiciary, property rights enforcement, and institutions providing equal access to education and ensuring civil liberties, that are important to encourage investment and growth. Expropriationrisk is related to all these institutionalfeatures. In Acemoglu et al. (2000), we reportedsimilar results with other institutionsvariables. 4 Differences in mortalityrates are not the only, or even the main, cause of variationin institutions.For our empirical approachto work, all we need is that they are a source of exogenous variation. institutions to the level of Chile could, in the long run, lead to as much as a 7-fold increase in Nigeria's income (in practice Chile is over 11 times as rich as Nigeria). The exclusion restrictionimplied by our instrumental variable regression is that, conditional on the controlsincludedin the regression, the mortality rates of European settlers more than 100 years ago have no effect on GDP per capita today, other than their effect through institutional development. The major concern with this exclusion restrictionis that the mortality rates of settlers could be correlatedwith the current disease environment, which may have a direct effect on economic performance. In this case, our instrumental-variablesestimates may be assigning the effect of diseases on income to institutions. We believe that this is unlikely to be the case and that our exclusion restriction is plausible. The great majority of Europeandeaths in the colonies were caused by malaria and yellow fever. Although these diseases were fatal to Europeanswho had no immunity, they had limited effect on indigenous adults who had developed various types of immunities. These diseases are thereforeunlikely to be the reason why many countries in Africa and Asia are very poor today (see the discussion in Section III, subsection A). This notion is 1372 THEAMERICANECONOMICREVIEW supportedby the mortalityrates of local people in these areas.For example, Curtin(1968 Table 2) reportsthatthe annualmortalityratesof local troops serving with the British army in Bengal and Madras were respectively 11 and 13 in 1,000. These numbersare quite comparableto, in fact lower than, the annualmortalityrates of British troops serving in Britain, which were approximately15 in 1,000. In contrast,the mortality rates of British troops serving in these colonies were much higherbecause of theirlack of immunity. For example, mortality rates in Bengal and Madrasfor British troops were between 70 and 170 in 1,000. The view that the disease burden for indigenous adults was not unusual in places like Africa or India is also supportedby the relativelyhigh populationdensities in these places before Europeansarrived (Colin McEvedy and RichardJones, 1975). We documentthat our estimates of the effect of institutionson performanceare not drivenby outliers.For example, excluding Australia,New Zealand,Canada,and the United States does not change the results, nor does excluding Africa. Interestingly,we show that once the effect of institutions on economic performance is controlledfor, neitherdistancefrom the equatornor the dummy for Africa is significant. These results suggest that Africa is poorer than the rest of the world not because of pure geographic or cultural factors, but because of worse institutions. The validity of our approach-i.e., our exclusion restriction-is threatenedif other factors correlatedwith the estimatesof settlermortality affect income per capita. We adopt two strategies to substantiate that our results are not driven by omitted factors. First, we investigate whether institutions have a comparable effect on income once we control for a number of variablespotentiallycorrelatedwith settlermortality and economic outcomes. We find that none of these overturnour results;the estimates change remarkablylittle when we include controls for the identityof the main colonizer, legal origin, climate, religion, geography, naturalresources, soil quality, and measures of ethnolinguistic fragmentation.Furthermore,the results are also robust to the inclusion of controls for the currentdisease environment(e.g., the prevalence of malaria, life expectancy, and infant DECEMBER2001 mortality)and the currentfraction of the population of Europeandescent. Naturally, it is impossible to control for all possible variablesthat might be correlatedwith settler mortality and economic outcomes. Furthermore,our empiricalapproachmight capture the effect of settler mortalityon economic performance, but working throughother channels. We deal with these problemsby using a simple overidentificationtest using measures of European migration to the colonies and early institutions as additional instruments.We then use overidentificationtests to detect whether settler mortalityhas a direct effect on currentperformance. The results are encouraging for our approach;they generateno evidence for a direct effect of settler mortality on economic outcomes. We are not awareof others who have pointed out the link between settler mortalityand institutions, though scholars such as William H. McNeill (1976), Crosby (1986), and Jared M. Diamond (1997) have discussed the influenceof diseases on humanhistory. Diamond (1997), in particular, emphasizes comparative development, but his theory is based on the geographical determinants of the incidence of the neolithic revolution.He ignores both the importance of institutionsand the potential causes of divergence in more recent development, which are the main focus of our paper. Work by Ronald E. Robinson and John Gallagher (1961), Lewis H. Gann and Peter Duignan (1962), Donald Denoon (1983), and Philip J. Cain and Anthony G. Hopkins (1993) emphasizes that settler colonies such as the United States and New Zealandare differentfrom other colonies, and point out that these differenceswere important for their economic success. Nevertheless, this literaturedoes not develop the link between mortality,settlements, and institutions. Our argumentis most closely relatedto work on the influence of colonial experience on institutions. FrederichA. von Hayek (1960) argued that the British common law traditionwas superiorto the Frenchcivil law, which was developed during the Napoleonic era to restrain judges' interferencewith state policies (see also Seymour M. Lipset, 1994). More recently, Rafael La Porta et al. (1998, 1999) emphasize the importanceof colonial origin (the identityof VOL 91 NO. 5 ACEMOGLUET AL: THE COLONIALORIGINSOF DEVELOPMENT the colonizer) and legal origin on currentinstitutions, and show that the common-law countries and former British colonies have better property rights and more developed financial markets.Similarly, David Landes (1998 Chapters 19 and 20) and North et al. (1998) argue that former British colonies prosperedrelative to formerFrench, Spanish, and Portuguesecolonies because of the good economic and political institutionsand culturethey inheritedfrom Britain. In contrast to this approach which focuses on the identity of the colonizer, we emphasize the conditions in the colonies. Specifically, in our theory-and in the data-it is not the identity of the colonizer or legal origin that matters,but whether Europeancolonialists could safely settle in a particular location: where they could not settle, they createdworse institutions. In this respect, our argument is closely related to that of Stanley L. Engerman and Kenneth L. Sokoloff (1997) who also emphasize institutions,but link them to factor endowments and inequality. Empirically,our work is related to a number of other attempts to uncover the link between institutions and development, as well as to Graziella Bertocchi and Fabio Canova (1996) and Robin M. Grier(1999), who investigatethe effect of being a colony on postwar growth. Two papers deal with the endogeneity of institutions by using an instrumental variables approachas we do here. Mauro (1995) instruments for corruptionusing ethnolinguisticfragmentation. Hall and Jones (1999), in turn, use distance from the equator as an instrumentfor social infrastructurebecause, they argue, latitude is correlated with "Western influence," which leads to good institutions.The theoretical reasoning for these instrumentsis not entirely convincing. It is not easy to argue that the Belgian influence in the Congo, or Western influence in the Gold Coast during the era of slavery promoted good institutions. Ethnolinguistic fragmentation,on the other hand, seems endogenous, especially since such fragmentation almost completely disappearedin Europe during the era of growth when a centralized state and market emerged (see, e.g., Eugen J. Weber, 1976; Benedict Anderson, 1983). Econometrically,the problem with both studies is that their instrumentscan plausibly have a 1373 directeffect on performance.For example, Williiam Easterly and Ross Levine (1997) argue that ethnolinguistic fragmentation can affect performance by creating political instability, while Charles de Montesquieu [1748] (1989) and more recently David E. Bloom and Jeffrey D. Sachs (1998) and John Gallup et al. (1998) argue for a direct effect of climate on performance. If, indeed, these variableshave a direct effect, they are invalid instrumentsand do not establish that it is institutions that matter. The advantageof our approachis that conditionalon the variableswe alreadycontrolfor, settlermortality more than 100 years ago should have no effect on output today, other than through its effect on institutions. Interestingly,our results show that distance from the equator does not have an independenteffect on economic performance, validatingthe use of this variable as an instrument in the work by Hall and Jones (1999). The next section outlines our hypothesis and provides supportinghistoricalevidence. Section II presents OLS regressions of GDP per capita on our index of institutions. Section III describes our key instrumentfor institutions, the mortalityrates faced by potential settlers at the time of colonization. Section IV presents our main results. Section V investigates the robustness of our results, and Section VI concludes. I. The Hypothesis and Historical Background We hypothesizethat settlermortalityaffected settlements; settlements affected early institutions; and early institutions persisted and formed the basis of currentinstitutions.In this section, we discuss and substantiatethis hypothesis. The next subsection discusses the link between mortalityrates of settlers and settlement decisions, then we discuss differences in colonization policies, and finally, we turn to the causes of institutionalpersistence. A. Mortality and Settlements There is little doubt that mortalityrates were a key determinant of European settlements. Curtin (1964, 1998) documents how both the British and Frenchpress informedthe public of mortality rates in the colonies. Curtin (1964) 1374 THEAMERICANECONOMICREVIEW also documents how early British expectations for settlement in West Africa were dashed by very high mortalityamong early settlers, about half of whom could be expected to die in the first year. In the "Provinceof Freedom"(Sierra Leone), Europeanmortalityin the firstyear was 46 percent, in Bulama (April 1792-April 1793) there was 61-percent mortality among Europeans. In the first year of the Sierra Leone Company (1792-1793), 72 percent of the European settlersdied. On Mungo Park's Second Expedition (May-November 1805), 87 percent of Europeans died during the overland trip from Gambiato the Niger, and all the Europeansdied before completing the expedition. An interesting example of the awareness of the disease environment comes from the Pilgrim fathers. They decided to migrate to the United States ratherthanGuyanabecause of the high mortality rates in Guyana (see Crosby, 1986 pp. 143-44). Another example comes from the BeauchampCommitteein 1795, set up to decide where to send British convicts who had previously been sent to the United States. One of the leading proposals was the island of Lemane, up the Gambia River. The committee rejected this possibility because they decided mortalityrates would be too high even for the convicts. SouthwestAfrica was also rejectedfor health reasons. The final decision was to send convicts to Australia. The eventual expansion of many of the colonies was also related to the living conditions there. In places where the early settlers faced high mortalityrates, there would be less incentive for new settlers to come.5 B. Types of Colonizationand Settlements The historicalevidence supportsboth the notion that there was a wide range of different types of colonization and that the presence or absence of European settlers was a key determinantof the form colonialism took. Historians, 5 Naturally,otherfactors also influencedsettlements.For example, despite the relatively high mortality rates, many Europeansmigrated to the Caribbeanbecause of the very high incomes there at the time (see, e.g., RichardS. Dunn, 1972; David W. Galenson, 1996; Engermanand Sokoloff, 1997; David Eltis, 2000). DECEMBER2001 includingRobinsonand Gallagher(1961), Gann and Duignan (1962), Denoon (1983), and Cain and Hopkins (1993), have documentedthe development of "settlercolonies," where Europeans settled in large numbers, and life was modeled afterthe home country.Denoon (1983) emphasizes that settler colonies had representative institutions which promoted what the settlers wanted and that what they wanted was freedom and the ability to get rich by engaging in trade. He argues that "therewas undeniably something capitalist in the structure of these colonies. Private ownership of land and livestock was well established very early ..." (p. 35). When the establishmentof European-likeinstitutions did not arise naturally, the settlers were ready to fight for them against the wishes of the home country.Australiais an interesting example here. Most of the early settlersin Australiawere ex-convicts, but the land was owned largely by ex-jailors, and there was no legal protection against the arbitrarypower of landowners. The settlerswanted institutionsand political rights like those prevailing in England at the time. They demandedjury trials, freedom from arbitraryarrest, and electoral representation. Although the British governmentresisted at first,the settlersarguedthat they were British and deserved the same rights as in the home country (see Robert Hughes, 1987). Cain and Hopkins write (1993 p. 237) "from the late 1840s the British bowed to local pressuresand, in line with observed constitutional changes takingplace in Britainherself, acceptedthe idea that, in mature colonies, governors should in future form ministries from the majority elements in elected legislatures."They also suggest that "the enormous boom in public investment after 1870 [in New Zealand] ... was an attempt to build up an infrastructure... to maintain high living standards in a country where voters expected politicians actively to promote their economic welfare." (p. 225).6 6 RobertH. Bates (1983 Chapter3) gives a nice example of the influence of settlers on policy in Africa. The British colonial governmentpursued many policies that depressed the price of cocoa, the main produce of the farmers in Ghana. In contrast, the British government supportedthe prices faced by the commercial cereal farmers in Kenya. VOL.91 NO. 5 ACEMOGLUET AL.: THE COLONIALORIGINSOF DEVELOPMENT This is in sharpcontrastto the colonial experience in Latin America during the seventeenth and eighteenthcenturies,and in Asia and Africa during the nineteenth and early twentieth centuries. The main objective of the Spanish and the Portuguesecolonization was to obtain gold and other valuables from America. Soon after the conquest, the Spanish crown grantedrights to land and labor (the encomienda)and set up a complex mercantilistsystem of monopolies and trade regulations to extract resources from the colonies.7 Europeansdeveloped the slave trade in Africa for similar reasons. Before the mid-nineteenth century, colonial powers were mostly restrictedto the African coast and concentrated on monopolizingtradein slaves, gold, and other valuable commodities-witness the names used to describe West Aflican countries: the Gold Coast, the Ivory Coast. Thereafter,colonial policy was driven in part by an element of superpower rivalry,but mostly by economic motives. Michael Crowder (1968 p. 50), for example, notes "it is significantthat Britain's largest colony on the West Coast [Nigeria] should have been the one where her traderswere most active and bears out the contention that, for Britain ... flag followed trade."8Lance E. Davis and Robert A. Huttenback(1987 p. 307) conclude that "the colonial Empire provides strong evidence for the belief that government was at- Bates shows that this was mainly because in Kenya, but not in Ghana, there were a significant number of European settler farmers, who exerted considerable pressure on policy. 7 See James Lang (1975) and James Lockhart and StuartB. Schwartz (1983). Migration to Spanish America was limited by the Spanish Crown, in part because of a desire to keep control of the colonists and limit their independence (see, for example, John H. Coatsworth, 1982). This also gives further support to our notion that settlers were able to influence the type of institutions set up in the colonies, even against the wishes of the home country government. 8 Although in almost all cases the main objective of colonial policies was to protect economic interests and obtain profits, the recipients of these profits varied. In the Portuguesecase, it was the state; in the Belgian case, it was King Leopold; and in the British case, it was often private enterpriseswho obtained concessions or monopoly trading rights in Africa (Crowder, 1968 Part III). 1375 tuned to the interest