Stoiana Florentina

FACTOR ENDOWMENTS, INEQUALITY, AND PATHS OF

DEVELOPMENT AMONG NEW WORLD ECONOMIES

- Macroeconomics and Inequality-

Winter Term 2013-2014Presentation 30.01.2014

Stanley L. EngermanKenneth L. Sokoloff

1. Factor Endowments and the Colonial Economy2. Role of Institutions in the Persistence of Inequality3. The Extent of Inequality and Timing of

Industrialization4. Conclusions

CONTENTS

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 supplyThe Spanish focused on the areas with the largest

concentration of native populationVery high number of migrants from Europe and

AfricaOver time, the fraction of slave migrants rose from

20% (prior 1580) to 75% ( 18th century)

1. Factor Endowments and the Colonial Economy

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

1. Colonies with climates and soils that were well suited for the production of sugar

2. Spanish Colonies (silver and gold)

3. Northern part of the USA and Canada (independent proprietors, farmers)

extensive scale economies lacking economies of scale major economies of scale

overwhelming population and use of slaves

contact between natives and Europeans

laborers of European descent with similar, high level of human capital

extremely unequal distribution of wealth and human capital

unequal distribution of wealth

3*. The South and Argentina ( large landholdings, grain producers)

protection of the elite and restriction of the opportunities for the broad mass of population

elitist families kept their status over generations and wield political authority

 many British migrants, lack of political institutions

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

Mexico had scarce good land and abundant labor forceThe 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

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

All societies have had high levels of product per capitaTraditional explanations: national heritage, religionExplanations 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)

4. Conclusions

Thank you for your attention!