The Long-Term Effects of Extractive Institutions: Evidence from Trade Policies in Colonial French Africa

Abstract

Despite having convincingly linked colonial extractive institutions to African current poverty, the literature remains unclear about which exact institutions are to blame. To address this research question, in this paper I identify trade policies as one of the main components of colonial extraction by showing their long-term effects on African economic growth. By using the gap between prices paid to African producers in the French colonies and competitive prices as a measure of rent extraction via trade monopsonies, I find a negative correlation between such price gaps and current development. This correlation is not driven by differences in geographic characteristics or national institutions. Moreover, it cannot be explained by the selection of initially poorer places into higher colonial extraction. The evidence suggests that trade monopsonies affected subsequent growth by reducing development in rural areas and that these effects persisted for a long time after independence.