Unbundling Institutions

Daron Acemoglu and Simon Johnson

No 9934, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper evaluates the importance of property rights institutions', which protect citizens against expropriation by the government and powerful elites, and contracting institutions', which enable private contracts between citizens. We exploit exogenous variation in both types of institutions driven by colonial history, and document strong first-stage relationships between property rights institutions and the determinants of European colonization (settler mortality and population density before colonization), and between contracting institutions and the identity of the colonizing power. Using this instrumental variables strategy, we find that property rights institutions have a first-order effect on long-run economic growth, investment, and financial development. Contracting institutions appear to matter only for the form of financial intermediation. A possible interpretation for this pattern is that individuals often find ways of altering the terms of their formal and informal contracts to avoid the adverse effects of contracting institutions but are unable to do so against the risk of expropriation.

JEL-codes: E44 G18 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-lam
Date: 2003-09
Note: CF LS
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Journal Article: Unbundling Institutions (2005)
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