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The Profitability Of Colonial Investment

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  • Herschel I. Grossman
  • Murat F. Iyigun

Abstract

This paper develops a model for studying colonial investment in which the metropolitan government restricts the amount of investment in the colony in order to maximize the net profits earned in the colony. The model explicitly includes the threat of subversive activity by the indigenous colonial population. The analysis suggests why historically some countries but not others became colonies and why many colonies that were initially profitable subsequently become unprofitable and were abandoned. The model also has implications for the amount of investment in colonies, the allocation of indigenous colonial labor between production and subversive activity, and the distribution of income between colonial firms and the indigenous population. Copyright 1995 Blackwell Publishers Ltd..

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Economics & Politics.

Volume (Year): 7 (1995)
Issue (Month): 3 (November)
Pages: 229-241

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Handle: RePEc:bla:ecopol:v:7:y:1995:i:3:p:229-241

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0954-1985

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Cited by:
  1. Roberto Bonfatti, 2009. "Decolonization: the Role of Changing World Factor Endowments," 2009 Meeting Papers 895, Society for Economic Dynamics.
  2. Bertocchi, Graziella, 2011. "Growth, Colonization, and Institutional Development: In and Out of Africa," CEPR Discussion Papers 8486, C.E.P.R. Discussion Papers.
  3. Roberto Bonfatti, 2012. "The Sustainability of Empire in Global Perspective: The Role of International Trade Patterns," CESifo Working Paper Series 3857, CESifo Group Munich.
  4. B.P. Zaaruka & J.W. Fedderke, 2011. "Indicators of Political and Economic Institutions in Tanzania: 1884 - 2008," Working Papers 231, Economic Research Southern Africa.
  5. Greif, Avner & Iyigun, Murat & Sasson, Diego, 2011. "Risk, Institutions and Growth: Why England and Not China?," IZA Discussion Papers 5598, Institute for the Study of Labor (IZA).
  6. Graziella Bertocchi & Fabio Canova, 1996. "Did colonization matter for growth? An empirical exploration into the historical causes of Africa's underdevelopment," Economics Working Papers 202, Department of Economics and Business, Universitat Pompeu Fabra.
  7. Nunn, Nathan, 2007. "Historical legacies: A model linking Africa's past to its current underdevelopment," Journal of Development Economics, Elsevier, vol. 83(1), pages 157-175, May.

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