Measuring extractive institutions: colonial trade and price gaps in French Africa

European Review of Economic History, 24, 1–23 © The Author(s) 2018. Published by Oxford University Press on behalf of the European Historical Economics Society. All rights reserved. For permissions, please e-mail: doi:10.1093/ereh/hey027 Advance Access Publication Date: October 31, 2018 Measuring extractive institutions: colonial trade and price gaps in French Africa FEDERICO TADEI Department of Economic History, Institutions and Policy, World Economy and BEAT— Barcelona Economics Analysis Team, University of Barcelona, Avenida Diagonal , Barcelona , Spain, . Introduction Many leading hypotheses about current African underdevelopment emphasize the role of colonialism. While early literature has explored how colonial rule relegated Africa to the role of exporter of primary commodities (Rodney ), more recent works have instead focused on the long-term consequences of colonial extractive institutions (Englebert ; Herbst ; Acemoglu et al., , ; Nunn ). Yet, to explain how colonial institutions have affected current development, the extent of extraction during the colonial period needs to be further explored. Many of the institutions established by the colonizers were, in fact, maintained in the post-independence period. Moreover, the extent to which they were extractive in the colonial period affects how extractive they are after independence (Bates ; Acemoglu et al., ). However, since colonial extraction is hard to quantify and its exact mechanisms are unclear, we still do not know precisely how successful the colonizers were in extracting wealth from Africans. While historians have collected information about colonial institutions, they have not systematically quantified the level of extraction. In this same vein, economists have often overlooked the temporal variation in colonial extraction, increasing the risk of “compression of history” and making it difficult to understand how extractive institutions vary over time (Austin ). One of the main reasons for this gap in the literature  Extractive institutions can be defined as those arrangements “designed to extract incomes and wealth from one subset of society [masses, African populations] to benefit a different subset [elite, colonizers]” (Acemoglu and Robinson ). Specific examples from colonial times include forced labor and land alienation policies, monopolistic trade arrangements, and high levels of taxation combined with little provision of public goods.  Previous works by economists often exploited spatial variation in some colonial policy or institution, observed at one point in time. Huillery () studied the impact of colonial investments in education in French Africa. Gallego and Woodberry () and Nunn () analyzed the effect of colonial missionary activity on schooling and religious conversion. Michalopoulos and Papaioannou () estimated the effect of arbitrary colonial borders on civil war. Berger () studied the modern impact of colonial policies on public good provision in Colonial extractive institutions are often blamed for current African underdevelopment. Yet, since colonial extraction is hard to quantify, the magnitude of this phenomenon remains unclear. In this paper, I use new archival data to estimate colonial extraction through trade, measured as the gap between prices that the monopsonistic French trading companies paid to African producers and prices that should have been paid in a counterfactual competitive market. The results show that African prices were only a small fraction of competitive prices, implying an annual loss of almost  percent of GDP during colonial rule.  European Review of Economic History  Nigeria. Notable exceptions are Cogneau and Moradi ()’s analysis of colonial policies across the border between French and British Togo, Huillery ()’s study of the costs of colonization for France, Frankema ()’s work on public finance in the British colonies, and Frankema and van Waijenburg ()’s analysis of real wages in colonial Africa. Trade monopsonies as a mechanism of rent extraction were first emphasized by Bates () in his analysis of marketing boards in British Africa. is that extractive institutions were used in all colonies, creating challenges in finding appropriate counterfactuals. In this paper, I tackle this issue by exploiting the peculiar structure of labor and trade policies implemented by the French colonizers. In French Africa, because of the low population density and the high cost of labor relative to land, the colonizers faced powerful incentives to implement extractive institutions such as labor coercion and trade monopsonies. Thanks to these arrangements, colonial trading companies were able to obtain agricultural commodities from African producers at very low prices and resell them in Europe for large profits. This specific feature of French trade allows us to estimate the magnitude of colonial extraction by looking at the difference between the prices that the African producers received and the prices that they should have received had the colonizer not implemented trade monopsonies and coercive labor institutions. In other words, we can use producer prices in a competitive market—calculated as the difference between world market prices and trading costs—as a counterfactual to measure the extent of colonial extraction via trade. To implement this idea, I first constructed a new yearly dataset of prices at the African ports and in France for the main commodities exported from French colonies in SubSaharan Africa between  and . I collected these data from a variety of colonial publications, including statistical reports of the Ministry of the Colonies, customs statistics, and Bulletins Economiques of the different colonies. To estimate prices at the producer level, I relied on the fact that colonial publications reported prices at the African port as the sum of producer prices and trade costs between the producer and the port. Thus, by measuring these inland trade costs, I was able to estimate producer prices. To evaluate what they should have been in a competitive market, I first constructed estimates of trading costs including Atlantic shipping, insurance, inland transportation, port charges, and export taxes, by using a variety of historical sources. To the best of my knowledge, this is the first attempt to provide systematic estimates of trade costs in French Africa. I then computed competitive producer prices by subtracting these costs from the prices at the French port. Finally, by comparing actual and competitive producer prices, I estimated the level of colonial extraction in export trade. The results show that actual producer prices were much lower than what they should have been in a competitive market: extraction rates varied by colony, commodity, and over time and ranged from  percent to over  percent. The procedure described above relies on correctly (...truncated)