TY  - JOUR
AU  - Grossman,Herschel I.
AU  - Iyigun,Murat
TI  - The Profitabality of Colonialism
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 4420
PY  - 1993
Y2  - August 1993
UR  - http://www.nber.org/papers/w4420
L1  - http://www.nber.org/papers/w4420.pdf
N1  - Author contact info:
Herschel Grossman
Department of Economics
Box B
Brown University
Providence, RI  02912
Tel: 401/863-2606
Fax: 401/863-1970

Murat Iyigun
Department of Economics
University of Colorado
Campus Box 256
Boulder, CO  80309
Tel: 303-492-6653
Fax: 303-492-8622
E-Mail: murat.iyigun@colorado.edu
AB  - 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.
ER  -