Colonialism in the Theory of Growth

Surprisingly, growth theory has paid little attention to the economic impact of colonial rule on the countries that were subject to it. We study colonialism in a neoclassical growth model which describes the economy of an underdeveloped country before and after colonization. Colonialization means an inflow of foreign investment which is restricted by the monopoly power of the metropolis. Explicit exploitation in the form of plundering and enslavement of the indigenous population is also considered. We show that the imposition of colonial rule can dramatically alter the growth prospects of a country, and that its effects last even after decolonization occurs.