Colonisation

An interesting section from my CFA notes given discussion about the impact of Rich Countries on the third world.

Remark (determinants of institutions). La Porta et al.'s correlation between legal system and investor protection is revisited in Acemoglu et al. (2001) who look at European Colonisation and argue that mode of settlement, more than the legal system, had a bigger impact on contracting institutions. They divide colonies into two broad categories: those (Africa, Central America, Carribean, South Asia) where the Europeans had little interest in settling - perhaps due to high mortality rates - and developed "extractive institutions" which allowed little protection for private property and few checks and balances against government expropriation; and those in which Europeans settled in larger numbers (United States, Canada, Australia, New Zealand) and therefore developed institutions that were far more protective of private property. There is, of course, a correlation between the British Empire and the latter category.