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Poor Countries Remain Poor

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When discussing poverty, it is difficult to pinpoint one simple reason that explains why poor countries remain poor. However, patterns may be drawn when looking at states’ history during European colonization. The notion that the existence or absence of European settlers largely shaped political institutions within states is supported by the two different institution types: representative institutions and extractive institutions. European settlers promoted their own wants through strong, representative institutions in colonized states. These states, such as the United States or Australia, are considered wealthy countries today, whereas today’s poor countries, including the Democratic Republic of Congo and Somalia, were colonized by European settlers as extractive institutions. In this paper, I will argue that, poor countries remain poor because the weak political institutions inherited by extractive states under colonial regimes persist, making it difficult to develop an appropriate relationship between the state and the market and degree of state intervention in the economy.
Even though colonial regimes eventually ended, the extractive state’s weak political institutions persisted for three main possibilities, according to Daron Acemoglu. The first possibility he and coauthors (2001) point to is the fact that “setting up institutions that place restrictions on government power and enforce property rights is costly” (1376). When new elites inherit extractive institutions,
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