The spread of empire: Clio and the measurement of colonial borrowing costs1

Abstract

Modern cliometric studies use dummy variables to measure the effects of institutions. The dummy variable approach can be misleading, as illustrated by recent research on the impact of colonial rule on borrowing terms. We show how trying to measure a 'colonial effect' without an analysis of the financial consequences of political subjection can be misleading. The main effect of the British Empire was to remove the default risk. Establishing how this was done, and with what effects, should take us closer to a proper understanding of the effect of empire.e hr_536 385..407 I don't care to be part of a club that accepts people such as myself.Groucho Marx T he goal of this article is to provide an assessment of methodological pitfalls in works aimed at measuring the economic benefits of the British Empire. Due to the increasing interest that economists have taken in institutions, the study of colonial legacy has attracted renewed attention in recent years. Thanks to contributions by Acemoglu et al., research has recently revived, in the language of formal models and with the tools of modern econometrics, issues that have occupied historians' minds for a long time, such as the influence of imperial institutions on countries' long-run economic performance. 2 These questions had been discussed in the past, in a different but related guise, not least in Davis and Huttenback's seminal book on the political economy of the British Empire. 3 Among the varied issues raised in their work was the influence of empire subjection on borrowing costs. Computing average borrowing rates in British colonies and in sovereign countries, Davis and Huttenback found that colonies tended to have much lower interest rates than sovereign nations and suggested that this was a benefit of colonization. Combining this number with the amount of capital transferred to colonies provided a measurement of the social surplus that colonies secured. Social surpluses have traditionally been used to compute the effect of switching to a 'superior' technology (such as railways) and abandoning an 'inferior' technology 1 Frédéric Zumer was closely involved in related and earlier work and is gratefully thanked for the time and insight he contributed to this spin-off from our earlier collaborative research. We are grateful to Knick Harley, Larry Neal, and conference participants in Oxford, Paris, and Edinburgh for their comments and suggestions.We also thank Jane Humphries and four referees for their advice in preparing the final draft. All misinterpretations remain ours.2 Acemoglu, Johnson, and Robinson, 'Colonial origins'.

Was the emergence of the international gold standard expected? Evidence from Indian Government securities

“…Obstfeld and Taylor (2003), Ferguson and Schularick (2006) estimate a model of borrowing spreads which they apply to both sovereign and colonial countries and report conflicting results. Accominotti et al (2011) show this model to be mis-specified. If colonies and sovereigns are priced according to different formulas attempts to identify an Empire effect by introducing a dummy variable in panel regressions yields inconsistent estimates.…”

“…3 See Accominotti et al (2011) for a discussion of default risk in British colonies. 4 Bordo et al (2006) look at paper spreads after the end of bimetallism in an attempt to measure the default risk induced by currency depreciation in countries with a large gold debt.…”

Determinants of the Public Budget Balance: The Role of Official Capital Flows

“…This might be even more true for historical data. We therefore repeat our analysis using alternative data sources for historical values of our dependent variable: these are Accominotti et al (2011) and Abbas et al (2011). The latter, however, has the disadvantage that they report data on public debt levels only such that we have to proxy the budget balance by the change in the debt level.…”

Was the Emergence of the International Gold Standard Expected? Melodramatic Evidence from Indian Government Securities

“…Westland, quoted by The Economist, (Dec 13, 1884), Haupt (1890); See Flandreau and Jobst (2009) for a systematic discussion of this phenomenon. For a discussion of liquidity premia on colonial securities, see Accominotti et al (2011). 18 .…”