Why are tropical countries so poor?

Countries with historically rich colonial backgrounds, including fair political institutions and profitable economic institutions, seem to have faired off better than colonies in tropical countries that lacked them. This can be rationalized since European countries set up institutions in different locations with varying intentions. (Acemoglu, Johnson and Robinson 1370). By identifying the characteristics and the resulting influences of various colonial institutions, in addition to why different locations were more suitable for these separate institutions, it will become apparent as to why tropical countries turned out poorer than areas with temperate climates today.
One type of colony set up by Europeans was an extractive state. “The main purpose of the extractive state was to transfer as much of the resources of the colony to the colonizer” (1370). These colonies were exploited by Europeans and didn’t offer institutions that protected their native citizens against the ruling government. Their existence was solely to produce profit for the elite, which was done through extracting the lands’ gold, silver, and cash crops (Easterly and Levine 8). The ruling government would generally extract these colonies valuables, then “set up a complex mercantilist system of monopolies and trade regulations to extract further resources from the colonies” (Acemoglu, Johnson and Robinson 1375). Since there was an overwhelming economic motive behind the colonization of these lands, Europeans would focus on controlling the colonies population by establishing an authoritarian state (1375). This was done with the intention of making as much profit as possible. A prime example of this type of colony is Mexico, which was colonized by the Spaniards. Conquistadors would abuse native Mexicans by forcing them into employment with very little repayment. Wages were low and goods were overpriced. All generated income, including the extracted silver and gold, would benefit the Spanish crown and its conquistadors. This would all be done at the expense of the lands’ native people (Acemoglu and Robinson 18). Generally, extractive states were set up in locations unsuitable for European settlement, where mortality rates were high and the opportunity for agricultural development was low. So instead of attempting settlement, the government chose to extract the valuables of these locations solely for financial gain.
The second category of colonies created by Europeans encompassed those that were founded for European settlement. These colonies generally experienced a similar way of life to that of their home country and also modeled their institutions after the ones’ back home. This created a, “strong emphasis on private property and checks against government power” (1370). These “settler colonies” were characterized by their representative institutions, which would voice the complaints and desires of colonists back to their ruling government. The citizens in these colonies experienced a certain degree of freedom that native people forced into an extractive colony didn’t receive. People could own property and goods, which would allow them to capitalize and profit from trade. This gave colonies the opportunity to expand and prosper, rather than just serve as an extractive state, making way for future economic success. Even in situations where the home institution wasn’t providing fair government, European settlers were willing to voice their opinions to eventually receive similar treatment as to what they would experience back home (Acemoglu, Johnson and Robinson 1374). A prime example of this type of colony was the American colony of Virginia. Originally, it was created by The Virginia Company for exploitation purposes, but since natives and settlers of the land wouldn’t work without compensation, the company had to provide them with incentives. Since colonists wouldn’t accept the “rigid hierarchy system” desired by English elites, the system had to bend. Eventually, settlers received private housing and goods, along with a general assembly in 1619 that would be a gateway to democracy (Acemoglu and Robinson 26). All in all, these colonies were mainly encompassed of European settlers hoping to expand their countries territory. The land was typically suitable for economic development, and the death rate of settlers was lower than that of an extractive state.
The most important characteristic of the two separate colony categories is that their distinct institution types persisted post-independence. Therefor, the kinds of institutions established in a colony pre-independence would eventually lead to shape the states’ institutions post-independence (Acemoglu, Johnson and Robinson 1376, Easterly and Levine 8). Since, “institutions also influence behavior and incentives,” citizens outlook on society is often shaped by the freedom and rights they were granted in previous generations (Acemoglu and Robinson 43). Therefor, the organization of society is more often than not rooted back to its’ past institutions, which has a lasting impact on the nation.
Extractive colonies, or colonies where Europeans didn’t settle, continued to exhibit institutions that benefited the elite even after achieving independence. Thus, the state would continue to focus on controlling and exploiting its citizens. For example, in Mexico, monopolistic institutions continued to prevail despite becoming independent from the Spaniards, who were the ones to initially enforce corrupt regulations. Reasoning being is that the post-colonial elite often mimicked and maintained the systems that were already in place. Instead of investing available funds into altering their current institutions, the new rulers would often assume the same power as their predecessors and continue to exploit their extractive institutions for personal gain (Acemoglu, Johnson and Robinson 1376). Since this small elite experienced a large profit margin, and the citizens of extractive states were already accustomed to this way of life, there was no incentive for them to modify the corrupt extractive system. This system resulted in Latin American institutions manipulating the power of the public by limiting their ability to vote, regulating the construction of new financial corporations and political parties, and offering limited schooling opportunities. The elite in post-independent extractive colonies often decided to limit any opportunity for equality to keep the states’ power in their hands (Easterly and Levine 9). This resulted in a small amount of profitable institutions in the long run, a poorly educated public, and consequently low economic prosperity for this type of former colony. If the public had accessibility to fair political institutions and financial institutions, it may have witnessed different economical results.
Settler colonies, on the other hand, continued to experience institutions that promoted property rights and fair legal systems post-independence (Acemoglu, Johnson and Robinson 1376). Instead of serving as puppet colonies for their home institutions’ profits, these colonies inherited proper institutions that valued the rights of citizens and the checks and balances of the ruling government. This factor allowed for a fair distribution of power. For example, the large middle class in North America was able to profit from homegrown commodities. With a more powerful middle-class, settler colonies had an easier time achieving accessible schooling and the growth of a multitude of institutions in the long run. (Easterly and Levine 9). This can be rooted back to the political and legal institutions that protected the proceeds of large plantations during the colonization period. These colonies were “successors to the colonial regime” and would subsequently become richer than extractive states in the future (Acemoglu, Johnson and Robinson 1376).
What determined the institutional fate of a European colony was generally how suitable its’ location was for settlement. If a location had a persisting background of deadly diseases and an unfavorable atmosphere for survival, it would not be an ideal place for new European settlers to colonize (Acemoglu, Johnson and Robinson 1373). Rather, it would better serve as an extractive colony so its resources could be obtained without risking the mortality of European settlers. Therefor, mortality rates of a region have a high correlation with whether Europeans planned to form a settler colony or an extractive state at a specific location. This correlation holds true since the institutional preference of a colony was based upon either the presence or absence of Europeans (1374). As a result, Acemoglu, Johnson, and Robinson hypothesize that, “settler mortality rates were a major determinant of settlements; settlements were a major determinant of early institutions; and there is a strong correlation between early institutions and institutions today (1371). After research, it proved true that there is basically a linear correspondence between areas with poor institutions today and areas where Europeans experienced a high death rate, or in other words, where they would form extractive colonies over settler colonies (Acemoglu, Johnson and Robinson 1383). This can be traced back to the long lasting impact that institutions have on a nation.
The recorded data used to measure this formulated “institution hypothesis” includes the main instrument of the “mortality rates of soldiers, bishops, and sailors stationed in the colonies between the seventeenth and nineteenth centuries” (Acemoglu, Johnson and Robinson 1370). This instrument gives a good indication of the mortality rate of European settlers in various colonial locations. This data was compiled from various governments, including Britain and the United States, from over 72 previous colonies (Easterly and Levine 13). Since Europeans were properly educated on the mortality rates of certain colonial areas at the time, this statistic gives a good outlook on where and why Europeans chose certain locations for settlement over others. Multiple variables were indicated and controlled for, including “identity of the main colonizer, legal origin, climate, religion, geography, and natural resources,” as well as macroeconomic policies of these colonies (Acemoglu, Johnson and Robinson 1372). Analysis of this data indicated a strong correlation between the colonial settler mortality of a location and its present level of economic development (Easterly and Levine 14). More successful areas of economic development were linked to colonies that experienced low levels of mortality and had established institutions with superior institution index measures, which accounted for “the voice and accountability of citizens, political stability, government effectiveness, light regulation burdens, proper rule of law, and freedom from grant” (17). All in all, settler colonies with proper institutions and low rates of death led to the formation of “long-lasting institutions that formed the foundation of economic development” (22). Therefor, tropical colonies were placed at a disadvantage to achieve future economic success since there land wasn’t fit for European settlement, and instead hosted extractive states.
Easterly and Levine discuss the problematic literature that arises with this correlation, which is that geography is directly responsible for a states’ future economic position, instead of its impact through institutions. This “geography theory” notes that environments with a suitable atmosphere for economic development will eventually prosper due to high quality land and crops, easy access to markets, and appropriate conditions for implementing labor and technology (Easterly and Levine 3). This is a plausible argument for why tropical climates may be poorer than locations with temperate climates, since tropical climates exhibit less yields on crops, higher rates of disease, and further factors that diminish an areas ability to produce profitable grains (3). An example undermining this could be the correlation between early European settlements and the tropical diseases they experienced in Africa. Many tropical locations hosted diseases Europeans were especially vulnerable to at an epidemic level, and thus proved too hostile an environment for European settlement. Two major diseases responsible for the death of early European settlers included yellow fever and malaria. In fact, these diseases were approximated to account for 80 percent of European deaths in the nineteenth century (Acemoglu, Johnson and Robinson 1380). Since Europeans were very susceptible to malaria, those that migrated to areas where the infectious mosquito was present would experience a high rate of death. An example of this type of environment would be that of West Africa, where the natives that live there were able to survive just because they had developed a genetic immunity to the disease from past generations. Therefor, this land would be more suitable for an extractive colony for Europeans, since the mortality rate of settlers would be too high. An example of how they would profit from this area can be through the slave trade. This, in turn, would lead to a notably smaller economic development of the area.
However, contrary to the “geography hypothesis”, it is notable that the location alone wouldn’t serve as a reason why the country would be poor today, as people there were capable of survival and creating institutions. It would make more sense to note that the proper forms of European institutions weren’t established here for the country to develop economic wealth today (Acemoglu, Johnson and Robinson 1371). The potential for direct geographical factors, such as latitude, distance from markets, local diseases, and climate, to be the direct source of nations current economic state was proved inadequate. There was little evidence that geographical factors alone could directly determine present day economical results besides the impact they had on institutions (Easterly and Levine 30). So, to summarize, “measures of tropics, germs, and crops explain cross-country differences in economic development through their impact on institutions” (Easterly and Levine 32). If geography were the key factor in determining a nations economic success, than there wouldn’t be such widespread distribution of poverty and prosperity between nations in similar locations. For instance, Acemoglu and Robinson note that the cities of Nogales, Arizona and Nogales, Sonora are literally separated by a fence, yet their citizens experience a completely different way of life. There is “no difference in geography, climate, or diseases” and the people share a similar historical culture. Yet, the population in Nogales, Arizona experiences a much higher average income per household, a healthier population, access to educational institutions, and an abundance of government services compared to that of Nogales, Sonora. Reason being is Nogales, Arizona is located in the United States, and therefor its population has access to the superior economic and political institutions that the United States offers. The difference in institutions can be rooted back to colonial times, where the implications of extractive and settler colonies had lasting implications on these nations current day institutions (Acemoglu and Robinson 7).

Sources

Acemoglu, D., S. Johnson and J. Robinson (2001), ‘The Colonial Origins of
Comparative Development: An Empirical investigation.’, American Economic
Review, 91, December.’

Acemoglu, Daron, and James A. Robinson. Why Nations Fail: The Orgins of Power,
Prosperity, and Poverty. Great Britain: Profile, 2012. Print.

Easterly, W and R. Levine (2002), ‘Tropics, Germs and Crops: how endowments influence economic development’, NBER working paper no. 9106.