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Unbundling Institutions

  • Daron Acemoglu
  • Simon Johnson

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.

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Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 113 (2005)
Issue (Month): 5 (October)
Pages: 949-995

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Handle: RePEc:ucp:jpolec:v:113:y:2005:i:5:p:949-995
Contact details of provider: Web page: http://www.journals.uchicago.edu/JPE/

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  1. Raghuram G. Rajan & Luigi Zingales, 2001. "The Great Reversals: The Politics of Financial Development in the 20th Century," CRSP working papers 526, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
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  12. De Long, J. Bradford & Shleifer, Andrei, 1993. "Princes and Merchants: European City Growth before the Industrial Revolution," Scholarly Articles 3451302, Harvard University Department of Economics.
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  16. repec:rus:hseeco:72153 is not listed on IDEAS
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