support to the argument that institutions have a positive and significant impact
on income.
In a later paper Acemoglu et al.(2002b) find countries that inherited colo-
nial extractive institutions were more likely to subsequently experience poor
economic outcomes after independence. Extractive institutions do not restrain
the power of elites to extract resources from society through excessive taxa-
tion, corruption or unproductive government subsidies. These greater gains
from power also increase political conflict over gaining access to that power.
The problem with these results, however, is that the authors do not carry out a
direct test of the impact of colonial policies and institutions; they only show
that settler colonies ended up with higher per capita incomes and better prop-
erty rights a couple of centuries later. They present no clear evidence that this
was because settler states first established stable property rights and set up
limited government. An alternative story, discussed in Chapter 9, explains the
very different export structures of Uganda (primary products) and Zimbabwe
(manufactures) not in terms of colonial institutions but rather by the skills,
capital and experience brought by European settlers to Zimbabwe from the
1920s onwards (Wood and Jordan,2000).
Case-study evidence
Case studies can sometimes give us something close to a laboratory-style
experiment to focus on the impact of institutions. Until 1945 South and North
Korea had similar histories,resources,culture and geography but they ended
up with very different institutions, the crucial difference being the abolition of
private property rights in North Korea. Estimated per capita incomes in the late
1990s were $12,152 in South Korea and $1,183 in North Korea (Maddison,
2006). Other examples are the division between East and West Germany in
1945 and between China and Taiwan in 1949. The abrupt institutional change
in all cases led to an ‘immediate divergence in the way they behaved’
(Ferguson, 2012:11). Historical case studies have been used to show that the
establishment of property rights accounted for ‘the rise of the West’ (see Box
10.3).
Thinking about institutions as more than just property rights makes it much
harder to conclude that good institutions are a pre-condition for economic
growth. The economist Mushtaq Khan notes that measures of institutional
quality based on bureaucracy, rule of law, expropriation risk and contract repu-
diation by government in successful East Asian countries in the mid-1980s
were only slightly better than in many poor-performing countries. Fast-grow-
ing Indonesia scored the same as Burma or Ghana, and South Korea, Malaysia,
and Thailand the same as Côte d’Ivoire. The corruption index created by
Transparency International showed that the rapidly growing East Asian coun-
tries had corruption scores in the 1980s little different from other developing
countries (Khan, 2002). This implies that improving institutions was an
outcome not a cause,of rapid growth in East Asia. There is much broader
Institutions 217