Several recent theories postulate why some countries were able to devise institutions conducive to long-run economic growth whereas others were not. Most of these consider various historical factors or geographic characteristics as important predeterminants. But which of these theories comes closest to the truth? This paper simultaneously considers several competing theories and empirically examines which ones provide the strongest explanations for contemporary institutions. I find that settler mortality rates are strongly associated with contemporary institutions even when controlling for other important historical factors, including ones from theories that do not emphasize geographic characteristics. However, Englebert's concept of state legitimacy does best at explaining institutional outcomes within sub-Saharan Africa.
Historical Legacy and Institutions Across Countries
I. IntroductionAccording to Parente and Prescott (2000), average income levels between the highest and lowest income countries differ by a factor of 30. What accounts for these differences? Cannot lagging countries simply emulate more advanced countries and so catch-up over time? Many have cited distinctions in institutions to explain these differences. As argued in North (1981, 1990), economic outcomes are a function of the incentives that institutional arrangements provide to individuals. Institutions that create incentives to produce output and engage in innovative activity will spur economic growth whereas institutions that encourage rent seeking will thwart economic prosperity.Knack and Keefer (1995) report that institutions promoting bureaucratic efficiency, enforcement of contracts, protection of property, and limits to government expropriation are positively associated with the growth of income per capita in a cross-section of countries. Mauro (1995) finds negative correlations between corruption and economic growth and between bureaucratic inefficiency and growth. Parente and Prescott (2000) argue that institutional barriers to technology adoption largely explain income disparities across countries. Bertocchi and Canova (2002) report that former British and French African colonies grew faster than Portuguese, Belgian, and Italian ones. One possible explanation is that French and British colonies were able to establish more effective colonial institutions that could be used as a foundation for economic growth after independence.But these hypotheses and findings immediately beg the question as to why some countries were able to develop effective institutio...