Colonization and development: The long-term effect of Russian settlement in the North Caucasus, 1890s–2000s Timur Natkhov ⇑ National Research University Higher School of Economics, Center for Institutional Studies, Russian Federation article info Article history: Received 20 December 2013 Revised 15 September 2014 Available online xxxx JEL classification: N13 N33 O1 O15 Keywords: Colonization Social structure Human capital Long-run development Natural experiment abstract Natkhov, Timur—Colonization and development: The long-term effect of Russian settle- ment in the North Caucasus, 1890s–2000s This paper exploits differences in the proportion of Russian settlers in the North Caucasus in the nineteenth century to estimate the effect of colonization on long-term development. The identification strategy relies on the fact that the primary purpose of Russian coloniza- tion was to protect the country’s access to warm-water ports. Therefore, settlement varied depending on the proximity to the Black Sea coast. Instrumenting the share of settlers by the distance to the coast, I show the positive impact of settlement on literacy among the indigenous population with long-term effects on income, educational attainment and the quality of local governance. To insure the validity of the instrument, I conduct a placebo test that shows that distance to the coast does not predict literacy and income in the South Caucasus, where Russians had no strategic interest in protecting the coastline. The mech- anisms of influence include administrative integration, school building policies and social structure. Journal of Comparative Economics xxx (xx) (2014) xxx–xxx. National Research University Higher School of Economics, Center for Institutional Studies, Russian Federation. Ó 2014 Association for Comparative Economic Studies. Published by Elsevier Inc. All rights reserved. 1. Introduction What are the effects of colonial rule on long-run economic development? This question has generated significant debate in the empirical literature in recent years. Some scholars argue that the effect of colonization depends on the institutions established by the colonizer in the colony (Engerman and Sokoloff, 1997, 2002; Acemoglu et al., 2001, 2014). Others empha- size the importance of settlers’ human capital, missionary activity and school building policies in shaping the subsequent development of a colony (Glaeser et al., 2004; Easterly and Levine, 2012; Woodberry, 2012; Wantchekon et al., 2013). Most of these studies exploit one important event – European colonization of the Americas, Asia and Africa – as a natural exper- iment of history that helps to identify the sources of long-run economic development (Nunn, 2009; Diamond and Robinson, 2010). In this regard, the case of the Russian Empire remains relatively unexplored. However, Russian history offers a perfect laboratory for testing different development theories using detailed data. 1 http://dx.doi.org/10.1016/j.jce.2014.09.003 0147-5967/Ó 2014 Association for Comparative Economic Studies. Published by Elsevier Inc. All rights reserved. ⇑ Address: Shabolovka Street, 26, Office 5308, Moscow, Russian Federation. E-mail address: timur.natkhov@gmail.com 1 The expansion of the Russian state from a small Moscow principality into one of the largest empires in the world is comparable in speed and magnitude with the expansion of the British, Spanish and French Empires. However, unlike the European powers, Russia was a continental Empire (much more like the Habsburg and Ottoman Empires). Contiguous land borders with colonized people created different incentives for the metropolis and, as a result, a different set of institutions and policies in the colonies. Journal of Comparative Economics xxx (2014) xxx–xxx Contents lists available at ScienceDirect Journal of Comparative Economics journal homepage: www.elsevier.com/locate/jce Please cite this article in press as: Natkhov, T. Colonization and development: The long-term effect of Russian settlement in the North Caucasus, 1890s–2000s. Journal of Comparative Economics (2014), http://dx.doi.org/10.1016/j.jce.2014.09.003