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The Profitabality of Colonialism

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Author Info
Herschel I. Grossman
Murat Iyigun

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Abstract

This paper develops an analytical framework for studying colonial investment from the perspective of neoclassical political economy. The distinguishing feature of colonial investment in this model is that 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 extralegal appropriative activities by the indigenous population in the colony. The analysis of this model identifies the conditions, where these conditions include both the technology of production and the technology of extralegal appropriation, that determine the profitability of colonialism. 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. the allocation of resources between productive and appropriative activities, and the distribution of income in colonies.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4420.

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Date of creation: Aug 1993
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Handle: RePEc:nbr:nberwo:4420

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Find related papers by JEL classification:
F02 - International Economics - - General - - - International Economic Order; Noneconomic International Organizations;; Economic Integration and Globalization: General
F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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  1. Svedberg, Peter, 1982. "The profitability of U.K. foreign direct investment under colonialism," Journal of Development Economics, Elsevier, vol. 11(3), pages 273-286, December. [Downloadable!] (restricted)
  2. Svedberg, Peter, 1981. "Colonial Enforcement of Foreign Direct Investment," The Manchester School of Economic & Social Studies, Blackwell Publishing, vol. 49(1), pages 21-38, March.
  3. Grossman, Herschel I, 1994. "Production, Appropriation, and Land Reform," American Economic Review, American Economic Association, vol. 84(3), pages 705-12, June. [Downloadable!] (restricted)
  4. Grossman, Herschel I, 1991. "A General Equilibrium Model of Insurrections," American Economic Review, American Economic Association, vol. 81(4), pages 912-21, September. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Herschel I. Grossman & Murat Iyigun, 1993. "Population Increase, Extralegal Appropriation, and the End of Colonialism," NBER Working Papers 4488, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Murat Iyigun, 2006. "Ottoman Conquests and European Ecclesiastical Pluralism," IZA Discussion Papers 1973, Institute for the Study of Labor (IZA). [Downloadable!]
  3. Nathan Nunn, 2005. "Historical Legacies: A Model Linking Africa's Past to its Current Underdevelopment," Development and Comp Systems 0508008, EconWPA. [Downloadable!]
    Other versions:
  4. Iyigun, Murat, 2008. "Lessons from the Ottoman Harem (On Ethnicity, Religion and War)," IZA Discussion Papers 3556, Institute for the Study of Labor (IZA). [Downloadable!]
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