Why Decolonization?

Abstract

This paper investigates the economic factors underlying decolonization, an institutional development of paramount importance in the history of most developing countries. I build a simple trade model of colonialism linking decolonization to the evolution of world factor endowments. In the model, a labour (or land) intensive colony and its capital intensive colonizer trade, creating gains from trade. These are then shared according to the balance of power existing between the two countries: while the colonizer control formal political power, the colony can stage a successful revolution at some stochastic cost. The allocation of gains from trade is also determined by the fact that the rest of the world is interested in trading with the two countries. The more similar is the rest of the world to the colonizer in terms of factor endowments, the higher the incentives for the colony to stage a revolution, the larger the probability that the colonizer must surrender gains from trade and, possibly, grant independence.