Understanding Long-Run Economic Growth: Geography, Institutions, and the Knowledge Economy


The conditions for sustainable growth and development are among the most debated topics in economics, and the consensus is that institutions matter greatly in explaining why some economies are more successful than others over time. Probing the long-term effects of early colonial differences on immigration policy, land distribution, and financial development in a variety of settings, Understanding Long-Run Economic Growth explores the relationship between economic conditions, growth, and inequality, with a focus ...

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The conditions for sustainable growth and development are among the most debated topics in economics, and the consensus is that institutions matter greatly in explaining why some economies are more successful than others over time. Probing the long-term effects of early colonial differences on immigration policy, land distribution, and financial development in a variety of settings, Understanding Long-Run Economic Growth explores the relationship between economic conditions, growth, and inequality, with a focus on how the monopolization of resources by the political elite limits incentives for ordinary people to invest in human capital or technological discovery. Among the topics discussed are the development of credit markets in France, the evolution of transportation companies in the United Kingdom and the United States, and the organization of innovation in the United States.

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Editorial Reviews

Journal of Economic Issues
“This volume should be in all research libraries. The authors are experts in their areas and their chapters either shine new light on important issues or succinctly summarize what is already known. More personally, this book reminded me of why I find economic history so exciting.”
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Meet the Author

Dora L. Costa is professor of economics at the University of California, Los Angeles; associate director of the California Population Research Center; and a research associate and director of the Cohort Studies Working Group at the NBER. Naomi R. Lamoreaux is professor of economics and history at Yale University; professor of economics, history, and law at the University of California, Los Angeles; a fellow of the American Academy of Arts and Sciences; and a research associate of the NBER.

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Understanding Long-Run Economic Growth

Geography, Institutions, and the Knowledge Economy

The University of Chicago Press

Copyright © 2011 National Bureau of Economic Research
All right reserved.

ISBN: 978-0-226-11634-1

Chapter One

Once Upon a Time in the Americas Land and Immigration Policies in the New World

Stanley L. Engerman and Kenneth L. Sokoloff

1.1 European Migrations

Once upon a time, more than five hundred years ago, Europeans began a grand, long-term campaign to extract material and other advantages from underpopulated or underdefended territories by establishing permanent settlements around the world. There had been extensive migration within Europe, both eastward and westward, including settlements of areas within Europe conquered by both Europeans and non-Europeans. In the eighteenth and nineteenth centuries there was also a large movement of contracted labor from east and central Europe to Russia, and to Siberia. The radically novel and diverse environments they encountered offered great economic opportunities, but also posed formidable problems of organization. Such circumstances made adaptation and innovation essential, and enormous variety in the economic structures and institutions that evolved over time is evident across colonies, even among those of the same European nation. Inspired by the goal of improving understanding of the role of institutions in the processes of economic growth and development, many scholars have recently come to appreciate how the history of European colonization provides a rich supply of quasi-natural experimental evidence that can be analyzed to determine whether there were systematic patterns in how institutions or economies evolved with respect to initial conditions, and what causal mechanisms may be involved. Our chapter is very much in this spirit.

The European movements into Africa and Asia, beginning at about the same time as did the colonization of the Americas, were to areas of high population density that provided more than ample native labor forces and left little need for extensive inflows of settlers or migrants from elsewhere. Few Europeans were to make the trek to these colonies, and their numbers, relative to the aboriginal populations, accordingly remained quite small (see table 1.1 for the population composition of colonies late in the nineteenth century). There were also extensive movements by the British after 1788 to Australia and then to New Zealand, both of which had population and settlement patterns somewhat similar to the Americas and, at the end of the nineteenth century, by Britain and other European nations to Africa and to Oceania.

In the Americas, however, the Europeans confronted very different sorts of environments than in Asia and Africa. Although conditions varied across space, overall low population density (labor scarcity) was the rule, and thus the economic problems of the colonizers (or authorities) centered on how to exploit the abundant land and other natural resources without initially having much labor on hand to do the actual productive work. Two fundamental and closely related issues were central to this challenge. First, how would ownership or use rights in land be allocated among the interested parties, such as the state or the corporate entity behind any particular colony, individual settlers, Native Americans, and the church? Land disposal policy not only affected the rate at which this critical resource was opened to investment and the generation of output, but also influenced the supply and location of labor, by measures such as making it easier for individuals to realize the returns to the land they worked (and might invest in) and subsidies via land granted to potential migrants (international as well as intranational). In some cases, land policies involved making unoccupied or unemployed land available; but not infrequently, ownership or use rights were transferred or seized from previous users—such as Natives or squatters—to other parties. Land policy had a major impact on the pace of regional development, but it was influenced by the degree of centralization of authority: whether the national government would have exclusive jurisdiction over land policy, or whether states, provinces, or other subnational districts permitted separate land policies.

Another critical issue that faced the colonial authorities was how to secure or attract enough labor to realize the potential fruits of the abundant land and natural resources. The colonies in the Americas were hardly unique in their attention to the adequacy of labor supply. Indeed, population had been a longstanding concern of many elites and statesmen, especially those of a mercantilist bent, in many societies around the globe. Some were concerned with underpopulation and introduced restrictions on emigration, although some national policymakers, as in England, believed that there was overpopulation and Malthusian difficulties within parts of Europe and encouraged outmigration. The situation in the New World was quite different, however, because of the extreme scarcity of labor that the European colonizers found in the New World, either on contact, or soon afterward as the diseases they brought with them wrought depopulation of the Native Americans, estimated by some to be a decline of more than 80 percent of the population. Prior to the great decline after 1492, it was possible that the population of the Americas exceeded the total of the twelve major Western European nations. The recognition that labor was essential to extract income from colonies was one major reason (the wealth of the areas settled was another) why the Spanish, the first Europeans to organize colonies in the Americas, chose to focus their efforts on the more densely populated and richer areas we know as Mexico and Peru. There, the Spanish adapted some of the hierarchical institutions utilized by the Aztecs and Incas, and introduced their own systems (such as encomienda) involving grants to Spanish settlers of claims to labor or tribute from Native Americans, to obtain much of the desired labor supplies.

Colonies established later, after a period of about one century, whether British, French, Portuguese, Dutch, Swedish, or Danish, had to manage without much in the way of a native labor force, and therefore had to tap outside sources. Unconstrained by law or morality (no colony or country in the New World, for example, maintained more than a temporary prohibition on slavery or on the slave trade before 1777), those with climates and soils well suited for crops such as sugar or cacao obtained the dominant share of their labor forces from the African market in slaves. Although their heavy reliance on slaves may have been encouraged somewhat by proximity to Africa, by far the factor most responsible seems to have been the development of the gang and other systems of organizing slave labor that gave large slave plantations a substantial efficiency advantage in producing those highly profitable commodities. Colonies with the appropriate natural endowments soon came to specialize in these crops, and their demand for labor kept slave prices above what employers in areas more fit for grain or mixed agriculture could afford. The result was that the relatively few colonies in the Americas that lacked either a large native population or the conditions conducive to growing sugar and other slave-intensive staples had to exert themselves to mobilize labor forces drawn from Europe and of European descent.

The British colonies on the North American mainland (above the Rio Grande) exemplify this pattern. Having been established in locales with only sparse numbers of Native Americans, especially after the Indians suffered from the introduction of diseases from Europe, and receiving only modest inflows of slaves until well into the eighteenth century (especially the states north of the Mason-Dixon Line), the thirteen colonies (or their ruling authorities) realized that they would have to increase their populations if they were to be successful. They quickly set about devising institutions and policies that would attract migrants from Europe. The basic foundation of their campaign was the institution of indentured servitude, which meant an exchange of the cost of transport for several years of labor, permitting those with inadequate funds to migrate. After a protracted process of passing and implementing laws aimed at improving the enforcement of both sides of the indenture contract (and improving terms to secure an edge over competitors), this was enormously effective and it accounted for more than 75 percent of arrivals from Europe to the thirteen colonies. Other inducements, which were offered in some form for extended periods by all of these colonies, included easy and very low-cost access to owning land, and some forms of tax exemption.

The active pursuit of European migrants by the British colonies on the mainland contrasts sharply with the policies of Spanish America. Although the first waves of settlers in Spain's colonies, particularly those from the military or from elite backgrounds, were rewarded with grants of land, claims on Native Americans, relief from taxes, and other incentives, the Crown began early in the sixteenth century to regulate and restrict the flow of European migrants to its colonies in the Americas. The stringency of the limits did vary somewhat over time, due to the population changes and movements, such as the migration of expelled Moriscos in the early seventeenth century. There were occasionally interventions designed to effect specific movements of population from Europe as well as of slaves to specific colonies including Mexico and Peru, judged especially worthy or needy of support, but overall there is no doubt that Spanish policies limited, rather than encouraged, the migration of Europeans to the New World. A salient illustration is the conspicuous failure of the Spanish Crown to approve proposals for indentured labor trading free transportation in return for future labor services. The starkly divergent approaches of the Spanish and British mainland colonies toward migration may appear puzzling, especially as their agricultural sectors were similar in consisting largely of grain and animal products, but we argue that the fundamental explanation for this difference is that the most important Spanish colonies (i.e., Mexico, Peru, and Colombia) were relatively abundant in labor as compared to their British mainland counterparts; the population density in 1700 in the three leading Spanish colonies was several times greater than for the British mainland colonies. Their relatively substantial Native American populations kept returns to unskilled labor low, reducing the incentives for Spaniards who might have contemplated migration to the New World, and also meant that the elites in the colonies did not need to lobby the Crown to change its policies. The other important factor behind the maintenance of the strict limitations on immigration, in our view, was the greater centralization or concentration of political authority. Not only did the imposed controls apply to immigration to all of the Spanish colonies in the Americas, but centering the government structures for Spanish America in Mexico City and Lima meant that outlying areas with different conditions and demands for labor (such as Argentina) were largely deprived of autonomy or even influence in policy.

These contrasts in land and labor policies that had emerged early in the colonial period essentially endured into the nineteenth century, by which time most of the societies in the Americas were independent nations and nominal democracies, and at times, had moved beyond this politically. Despite periodic spells of political tension (if not conflict) about immigration, generally coinciding with macroeconomic contractions (or focused on specific ethnic groups), the United States (and Canada) continued to pursue policies that were generally extremely favorable to immigration. Although state (provincial) and local governments on or inside the western frontier of the time may have been the most aggressive in courting migrants, the importance of the consistently liberal stances of the U.S. and Canadian governments in making public land available in small plots at low cost to all who sought to settle should not be underestimated. The usefulness of offering easy access to land in attracting migrants was universally understood, and indeed helps to explain that in an era of labor scarcity, cities and long-settled areas in the East concerned about their labor supplies accounted for the major opposition to the federal government disposing of land out West on generous terms.

Despite most societies having achieved independence, and other radical changes in their political environment, there was much continuity in Latin America. Most notably perhaps, the region remained largely dependent on the population born there—whether of European or Native American descent. Immigration from abroad was not much more than a trickle, except for the experiences of Argentina, Uruguay, Brazil, Chile, and several of the smaller nations beginning late in the nineteenth century. Responsibility for this failure to attract immigrants cannot be laid solely on the policies of the nations of Latin America. With the improving levels of material welfare and economic opportunity that the United States could offer as it industrialized, it was now an increasingly tough competitor for immigrants from Europe, and the United States was the major recipient of migrants from Europe. That being said, however, it is striking that although there were many appeals for programs to entice more immigrants, inspired in part by the evident success of the United States, most of the programs purporting to achieve that goal were either framed very narrowly or flawed in design. Even when public lands were to be made available for purchase, the terms or other details of the laws tended to keep prices high or greatly advantage the wealthy and privileged in access. This evident lack of concern by the authorities with offering incentives to migrants was likely not unrelated to the generally poor record throughout Latin America (though better in Argentina, Uruguay, and Chile, which were relatively labor scarce for the region) in providing for public schooling, as well as to the policies that a number of countries, such as Mexico and Colombia, implemented late in the nineteenth century (when land values had risen) that transferred to large landowners the rights to land traditionally held and worked by Native Americans as community property.

In this chapter, we lay out the basis for our view that the record of the evolution of land and immigration institutions in the Americas, since colonization, provides broad support to the idea that the initial factor endowments are of fundamental importance. We highlight, in particular, the significance of labor scarcity or abundance rather than placing exclusive weight on political factors, as in Lindert (2011). Where labor was scarce, even political and economic elites who may have had disproportionate power in shaping institutions were willing to extend privileges, including low-cost access to land, to ordinary people as a means of attracting or mobilizing them. Not only was the influence of labor scarcity direct and immediate, but it may also have had long-lasting effects in fostering greater economic and political equality and the different outcomes that might flow from such conditions. Where labor was relatively abundant, however, elites had less reason to share privileges as a means of attracting more labor, and likely were less constrained in their ability to shape institutions to advantage them. In section 1.2, we develop our argument with a brief sketch of the history of land and immigration institutions during the colonial period. In section 1.3, we discuss how these institutions evolved during the nineteenth century and devote some attention to detailing how variation across countries within Latin America and across the states of the United States is generally consistent with our hypothesis. Section 1.4 deals with several other British colonies, and section 1.5 concludes.


Excerpted from Understanding Long-Run Economic Growth Copyright © 2011 by National Bureau of Economic Research. Excerpted by permission of The University of Chicago Press. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

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Table of Contents

Acknowledgments ix

Introduction Dora L. Costa Naomi R. Lamoreaux 1

1 Once Upon a Time in the Americas: Land and Immigration Policies in the New World Stanley L. Engerman Kenneth L. Sokoloff 3

2 The Myth of the Frontier Camilo Garcia-Jimeno James A. Robinson 49

3 Differential Paths of Financial Development: Evidence from New World Economies Stephen Haber 89

4 Political Centralization and Urban Primacy: Evidence from National and Provincial Capitals in the Americas Sebastian Galiani Sukkoo Kim 121

5 History, Geography, and the Markets for Mortgage Loans in Nineteenth-Century France Philip T. Hoffman Gilles Postel-Vinay Jean-Laurent Rosenthal 155

6 Two Roads to the Transportation Revolution: Early Corporations in the United Kingdom and the United States Dan Bogart John Majewski 177

7 Premium Inventions: Patents and Prizes as Incentive Mechanisms in Britain and the United States, 1750-1930 B. Zorina Khan 205

8 The Reorganization of Inventive Activity in the United States during the Early Twentieth Century Naomi R. Lamoreaux Kenneth L. Sokoloff Dhanoos Sutthiphisal 235

9 Mass Secondary Schooling and the State:The Role of State Compulsion in the High School Movement Claudia Goldin Lawrence F. Katz 275

10 The Impact of the Asian Miracle on the Theory of Economic Growth Robert W. Fogel 311

11 Ken Sokoloff and the Economic History of Technology: An Appreciation Joel Mokyr 355

12 KennethSokoloffonlnequalityintheAmericas Peter H. Lindert 363

13 Remembering Ken, Our Beloved Friend Manuel Trajtenberg 373

Contributors 375

Author Index 377

Subject Index 385

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