Colonial status and income inequality in developing countries

Abstract

This paper assesses the effect of the colonial status of ex-colonies, settler’s mortality rate, and duration of colonization on income inequality using a dataset comprising 78 developing countries over the period 1990 to 2019. We run Ordinary Least Square regressions on the cross-sectional data and subsequently test for sensitivity of the baseline model to historical, geographical as well as sociocultural factors. For robustness checks, we re-estimate the baseline model on a panel data setting using the Hausman Taylor estimator and a GMM linear dynamic panel data model that factors-in time-invariant historical and cultural variables. Results suggest that: (a) average increase in Gini income inequality for ex-settler’s colonies was higher when compared to ex-peasant colonies; (b) an extra year of the duration of colonization augmented typical overall income inequality and (c) the middling rise in income inequality of ex-British colonies was less than the other ex-colonies whilst ex-Spanish colonies posted an average increase in inequality that was higher than the other former colonies. Results were unaltered when we undertake sensitivity and robustness tests. Furthermore, colonial status mediates the relationships between Gini income inequality and settler’s mortality rate as well as Gini income inequality and duration of colonization. Thus, institutions established since colonization and perpetuated after independence have been more or less prone to incorporating redistribution (inequality) issues.