Publication Type:

Conference Paper

Source:

61st Annual North American Regional Science Conference (NARSC), Washington DC, USA (2014)

Abstract:

The original contribution of this paper is that it empirically examines the role of pre-colonial and post-colonial institutions in reducing fragility by overcoming the negative effects of colonial governance. In a first stage, dynamic analysis of state fragility establishes the existence of a low equilibrium fragility trap, which can largely be attributed to persisting effects of colonial rule, measured by a computed index of colonial incidence. This situation is compounded as increases in current output and quality of secondary schooling seem insufficient to push countries out of extreme fragility -- a case of unmatched expectations during post-colonial period. It is worth noting that pre-colonial state governance and population abundance at time of independence (used as proxy for absence of massive slave trade) engender fragility-reducing impacts. These historical endowments however are not strong enough to overcome colonial drag. In a second stage, the paper extends the existing development literature on colonial and contemporary institutions by examining the efficacy of alternative institutions that matter more for weakening the force of colonial incidence (not attempted in the literature), apart from having significant fragility-reducing effects. In the economic development literature, colonial governance and weak post-colonial institutions are shown to be two major sources of under-development and state fragility. These studies however do not envisage the mechanism by which strong contemporary institutions succeed in overcoming the negative effects of colonial institutions that would have carried over and produced a drag on growth and state capacity during post-colonial period. The paper extends this strand of the literature by investigating the effectiveness of alternative contemporary institutions in weakening the force of colonial incidence (effect 2) apart from having significant fragility-reducing effects (effect 1). 3SLS results reveal that economic institutions captured by rule of law, government effectiveness, protection of property rights and transparency reduce state fragility and colonial incidence. Conversely, political institutions measured by democracy, civil liberties and political stability exhibit fragility-dampening effect but the force of colonial incidence is found to carry over in the presence of these institutions. Control on executives does not appear to generate either impact. Thus, economic institutions are found to be more effective in achieving the goal of fragility-reduction via colonial incidence mitigation, which may be a pre-condition for escaping the fragility trap. Interestingly, macro-policy exhibits limited success in mitigating state fragility while micro-policy and luck factors seem insignificant. Weak fragility-reducing effects of tropics, ethnic diversity and landlocked location require further research.

Cite this Research Publication

Yeti N. Madhoo, “Fragile Economies: Contemporary Institutions vs. Colonial Incidence”, in 61st Annual North American Regional Science Conference (NARSC), Washington DC, USA, 2014.