COLONIALISM AND MODERN INCOME: ISLANDS AS NATURAL EXPERIMENTS

Using a new database of islands throughout the Atlantic, Pacific, and Indian Oceans we find a robust positive relationship between the number of years spent as a European colony and current GDP per capita. We argue that the nature of discovery and colonization of islands provides random variation in the length and type of colonial experience. We instrument for length of colonization using variation in prevailing wind patterns. We argue that wind speed and direction had a significant effect on historical colonial rule but do not have a direct effect on GDP today. The data also suggest that years as a colony after 1700 are more beneficial than earlier years. We also find a discernable pecking order among the colonial powers, with years under U. S., British, French, and Dutch rule having more beneficial effects than Spanish or Portuguese rule. Our finding of a strong connection between modern income and years of colonization is conditional on being colonized at all since each of the islands in our data set spent some time under colonial rule.