Colonial nations are essential due to the limited opportunity we have to improve provinces - with large empires you would only ever improve colonial nations for roleplaying reasons - if you know they'll leave you eventually you'd never put the money into them. Colonial nations afford the new nations an opportunity to develop an independent infrastructure, more akin to real life, than rely on the player sacrificing precious points in building for a part of the world likely to be let go. I'd do it on the old and new one - build up some provinces I care the most about (Trinidad, woot) and sod the rest.
Now it's the preserve of the colonial nation, who in my game conquered teh crap out of New Portugal (random new world) and formed a huge impressive "New Arabia". I liked the unpredictability of my underling, but it's too hard to get them to leave me! You end up sinking tons of admin points in raising tariffs to force them out, then some douchebag event pops that lowers independent feeling by 20%...