colonial period: contemporary interpretations lecture # 3 week 2
Post on 22-Dec-2015
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TRANSCRIPT
Structure of this class
• Colonial period ends: An historical Interpretation
• Institutional quality in the US relative to Latin America
• Colonial origins affecting underdevelopment today
• Geography, institutions and the reversal of fortune
• Conclusion: Limits of “institutional approach” to our understanding of underdevelopment in Latin America?
End of the colonial period
• Early 19th Century associated with independence movements in the region
• Two positive consequences:
(a) End of external trade monopoly(b) Latin America could finance investments in international capital markets
• Four negative consequences:
(a) Boundary disputes(b) Bourbon and Pombaline reforms became obsolete(c) Fiscal problems exacerbated(d) Years of violence and retreat of landed aristocracy to haciendas
Geography, Institutions and the reversal of fortune
Geography hypothesis:
Geography and climate of a society’s location main determinant of
a) Work effort, incentives, and productivity
b) Technology, especially in agriculture
d) Tropical diseases
Some stylized facts may support the geography view
• Most of the poorest countries are located in tropical areas, in very hot regions (close to the equator), with periodic torrential rains
• Tropical areas do not have enough frost to clean the soil and suffer from soil depletion from heavy rains
• In tropical areas infectious disease abound
And these stylized facts are supported by simple statistical association or correlation between geography and income per capita levels
But these correlations do not prove causation, and there are often omitted factors which are driving such correlations (i.e., malaria)
2) Institutions
Unlike the geography hypothesis that emphasizes the forces of “nature”, the institutions hypothesis focuses on man-made influences:
a) Enforcement of property rights
b) Constraints on the actions of elites
c) Some degree of equal opportunity for broad segments of society
However, as in the case of the geography hypothesis, these three factors may simply be correlations. Take the case of property rights protection:
What distinguishes the geography from the institutions hypothesis then?
Unlike the geography hypothesis, the institutions hypothesis is able to distinguish between the “before” and “after” colonization
In other words: the institutions hypothesis conducts a controlled experiment for establishing causality
In a nutshell:
Countries that were “rich” before colonization became poor because of extractive institutions
Countries that were poor before colonization became rich because of good protection of property rights (particularly after 1800s)
Population density before colonization concentrated in countries that are poor today
Reversal of fortune!
But the geography hypothesis should nevertheless be taken seriously:
Geography and diseases matters for economic outcomes
Geography is important historically
Geography could have an effect via institutions
Geography has a significant effect on social welfare
Next class: Topic 4, National Identities & export led growth