The Profitabality of Colonialism
AbstractThis 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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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4420.
Date of creation: Aug 1993
Date of revision:
Publication status: published as "The Profitability of Colonial Investment" Economics & Politics, vol. 7, November 1995, pp. 229-241.
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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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Development and Comp Systems
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- 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.
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