IDEAS home Printed from
   My bibliography  Save this paper

The Profitabality of Colonialism


  • Herschel I. Grossman
  • Murat Iyigun


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.

Suggested Citation

  • Herschel I. Grossman & Murat Iyigun, 1993. "The Profitabality of Colonialism," NBER Working Papers 4420, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:4420

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Grossman, Herschel I, 1994. "Production, Appropriation, and Land Reform," American Economic Review, American Economic Association, vol. 84(3), pages 705-712, June.
    2. Grossman, Herschel I, 1991. "A General Equilibrium Model of Insurrections," American Economic Review, American Economic Association, vol. 81(4), pages 912-921, September.
    3. 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.
    4. Svedberg, Peter, 1981. "Colonial Enforcement of Foreign Direct Investment," The Manchester School of Economic & Social Studies, University of Manchester, vol. 49(1), pages 21-38, March.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Iyigun, Murat, 2006. "Ottoman Conquests and European Ecclesiastical Pluralism," IZA Discussion Papers 1973, Institute for the Study of Labor (IZA).
    2. 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.
    3. Iyigun, Murat, 2008. "Lessons from the Ottoman Harem (On Ethnicity, Religion and War)," IZA Discussion Papers 3556, Institute for the Study of Labor (IZA).
    4. 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.
    5. Bertocchi, Graziella, 2004. "Growth, History and Institutions," CEPR Discussion Papers 4738, C.E.P.R. Discussion Papers.

    More about this item

    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:4420. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.