Colonial education disparity, contemporary institutions, and long-run economic performance

Abstract

We posit that colonial education disparity (relative to colonizer nations) at independence, reflecting dominant exploitative motives of colonists and initial drawback due to colonial illiteracy policy, to be exogenous determinant of long-run quality of institutions. A novel weighted colonial education disparity (CED) index is constructed capturing early versus late demise of colonialism, and the difference between uneducated population in a formerly colonized country at independence versus that in colonizer nations. Cross-country results suggest that CED impacts economic development via institutional quality channel. Robust OLS and 2SLS findings show that colonial education disparity directly harms long-run institutional quality whereas settler mortality rate works indirectly through the CED channel. The new historic CED index seems to be a plausible instrument for institutional measures. Additional results support the direct role of geography and the disease environment in shaping development outcomes.