Introduction

Institutions are seen as a fundamental requirement for economic development, since they form the incentive structure of economic agents and are considered essential for the proper functioning of the economy. The immediate question that follows is what factors explain the quality of institutions. Many scholars have sought the answer to this question in colonialism. Our study is rooted in this renewed interest. Several factors have been highlighted to explain this different legacy of colonialism on subsequent institutional development. A first group of authors emphasizes the identity of the colonizer, with the hypothesis that certain colonial powers (particularly Britain) implemented more benign colonial policies and transferred better institutions to their colonies than others, which led to higher institutional development. A second group focuses on the initial conditions existing in colonized territories, arguing that factors such as the disease environment, indigenous population density or resources abundance determined the colonial strategy of all Western powers in largely similar ways, thereby shaping the incentives to create different types of institutions. In this debate we advocate an intermediate (eclectic) view, since historical examples and systematic analysis of the data show that colonial origin and endowments as well as their interaction should be important factors in the formation and subsequent development of institutions. This analysis is framed within a simple model of two styles of imperialism that integrates the colonial origin and endowment views.