FACTOR ENDOWMENTS, INEQUALITY, AND PATHS OF DEVELOPMENT AMONG NEW WORLD ECONOMIES

1. FACTOR ENDOWMENTS, INEQUALITY, AND PATHS OFDEVELOPMENT AMONG NEW WORLD ECONOMIES Stanley L. Engerman Kenneth L. Sokoloff StoianaFlorentina - MacroeconomicsandInequality- Winter Term 2013-2014 Presentation 30.01.2014

2. CONTENTS • 1. FactorEndowmentsandtheColonial Economy • 2. RoleofInstitutions in thePersistenceofInequality • 3. The ExtentofInequalityand Timing ofIndustrialization • 4. Conclusions

3. 1. Factor Endowments and the Colonial Economy • After the discovery of the Americas, it was difficult to organize at national government and private agents level • Central issue for all colonies was the labor supply • The Spanish focused on the areas with the largest concentration of native population • Very high number of migrants from Europe and Africa • Over time, the fraction of slave migrants rose from 20% (prior 1580) to 75% ( 18th century)

7. Share of migrants going to the Spanish colonies declined from 63.4% (16th century) to 13.3% (18th century) • Spain had great restrictions on who could go to the New World • By the 19th century, the populations of the New World consisted of a small percentage of people of European descent in Spanish America, whereas in the rest of the territories, the population was determined by the groups who immigrated at their respective rates of natural increase • Although there were high economic standard for Europeans, the colonies evolved dissimilar economic structures and institutions. They can be classified into 3 types of New World Colonies

10. 2. Role of Institutions in the Persistence of Inequality • Because of soils, climates, size and density of native population, there were also different degrees of inequality in wealth, human capital, political power, institutional and economic development • Crucial institution: immigration (Spain gained a lot of Native American labor, whereas Britain had to settle for territories with few Native Americans, therefore encouraging slavery and immigration from all across Europe • Land policy: Homestead Act of 1862 (USA), Dominion Lands Act of 1872 (Canada), Argentina and Brazil failed

11. Mexico had scarce good land and abundant labor force • The lands were controlled by Native Americans but without private property rights ( Ley Lerdo 1856, Porfirio Diaz) • Schooling began being promoted in the 1870s in the British Colonies, in Latin America only when the national government provided the funds • Banking and capital formation: loans among farmers and planters were common, they were also in credit and banking-like transactions • Separate chartering led to federal system: the central government defined the monetary standard and the state governments controlled bank formation and banking structure, soon followed by organizations of limited liability joint stock companies • In Latin America, the chartering of banks was controlled by the national government

17. 3. The Extent of Inequality and Timing of Industrialization • USA and Canada were characterized by relative equality in material living standards • For sustained growth, new generation technologies were of great importance • Greater equality stimulates growth among early industrializers • Economic growth is seen as a cumulative impact of incremental advances • The more equal economies were, the better chance they had to realize economic growth • Agriculture and manufacturing increased substantially • The growth of inventive activity and technological discoveries was strongly and positively associated with the extension of markets

18. 4. Conclusions • All societies have had high levels of product per capita • Traditional explanations: national heritage, religion • Explanations from the research: degree of inequality in wealth, human capital, political power, promotion of immigration (except in Spain), implication of institutions • Differences lay in the initial FACTOR ENDOWMENT (suitability of the climate and soils and large concentrations of Native Americans)

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