Colonialism and Modern Income：Islands as Natural Experiments

The Review of Economics and Statistics, May 2009, 91(2): 245–262



James Feyrer and Bruce Sacerdote*

Feyrer: Dartmouth College; Sacerdote: Dartmouth College and NBER.
We thank Esther Duflo for superb editing and three anonymous referees
for very useful comments. We thank Lauren Burrows, Katie Jaxheimer,
and Celia Kujala for outstanding research assistance and the National
Science Foundation for generous support. Seminar participants at MIT,
NBER, Brown, University of Houston, Texas A&M, and other universities
provided helpful comments.


Abstract—Using a new database of islands throughout the Atlantic,
Pacific, and Indian Oceans we find a robust positive relationship between
the number of years spent as a European colony and current GDP per
capita. We argue that the nature of discovery and colonization of islands
provides random variation in the length and type of colonial experience.
We instrument for length of colonization using variation in prevailing
wind patterns. We argue that wind speed and direction had a significant
effect on historical colonial rule but do not have a direct effect on GDP
today. The data also suggest that years as a colony after 1700 are more
beneficial than earlier years. We also find a discernable pecking order
among the colonial powers, with years under U.S., British, French, and
Dutch rule having more beneficial effects than Spanish or Portuguese rule.
Our finding of a strong connection between modern income and years of
colonization is conditional on being colonized at all since each of the
islands in our data set spent some time under colonial rule.