Pre-Colonial Institutions and Socioeconomic Development: the Case of Latin America

Angeles, L. and Elizalde, A. (2017) Pre-colonial institutions and socioeconomic development: The case of Latin America. Journal of Development Economics, 124, pp. 22-40. (doi:10.1016/j.jdeveco.2016.08.006) This is the author’s final accepted version. There may be differences between this version and the published version. You are advised to consult the publisher’s version if you wish to cite from it. http://eprints.gla.ac.uk/128869/ Deposited on: 22 September 2016 Enlighten – Research publications by members of the University of Glasgow http://eprints.gla.ac.uk Pre-Colonial Institutions and Socioeconomic Development: The Case of Latin America. Luis Angelesand Aldo Elizaldey August 23, 2016 Abstract We study the effects of pre-colonial institutions on present-day socioeconomic outcomes for Latin America. Our thesis is that more advanced pre-colonial institutions relate to better socioeconomic outcomes today. We advance that pre-colonial institutions survived to our days thanks to the existence of largely self-governed Amerindian communities in rural Latin America. Amerindians groups with more advanced institutional capacity would have been able to organize and defend their interests in front of national governments; leading to better development outcomes for themselves and for the population at large. We test our thesis with a dataset of 324 sub-national administrative units covering all mainland Latin American countries. Our extensive range of controls covers factors such as climate, location, natural resources, colonial activities and pre-colonial characteristics - plus country fixed effects. Results strongly support our thesis. Keywords: Latin America; Institutions; Pre-colonial factors; Amerindi- ans; Long-run development. JEL classification: O11, O43. Economics, Adam Smith Business School, University of Glasgow. Glasgow G12 8QQ, UK. Email: [email protected]. yEconomics, Adam Smith Business School, University of Glasgow. Glasgow G12 8QQ, UK. Email: [email protected] 1 1 Introduction While much research effort has been directed over the last two decades to the role of institutions in long-run economic development, most of the literature has followed the lead of Acemoglu et al. (2001) in focusing on the institutional structures implanted throughout the world by European nations during the colonial period. While this approach has certainly advanced our understanding of the process of long-run development, recent research has also uncovered a substantial role for pre-colonial institutional factors - in particular for the African case (Gennaioli and Rainer 2007, Michalopoulos and Papaioannu 2013, 2014). This paper aims to take the literature forward by analyzing the role of pre-colonial institutions on present-day socioeconomic outcomes for Latin America. To the best of our knowledge, this is the first attempt of this kind for the Latin American case. Our study employs as its unit of analysis the largest administrative divisions of each Latin American country below the national level, which we refer to as sub-national states.1 We collect socioeconomic and geographic data for 324 sub-national states from all 17 countries in mainland Latin America - including data on the ethnic composition of the population within each state. This ethnic structure of the population is used to construct, for each state, an index of pre-colonial institutional advancement - by linking each ethnic group to its level of political complexity as reported in George Peter Murdock’s Ethnographic Atlas (1967). The resulting measure of pre- colonial institutions is then used as a predictor of present-day measures of socioeconomic development such as education, health, or income per per- son. Through a large battery of robustness tests, we show that our prior of a positive relationship between pre-colonial institutions and present-day socioeconomic development holds while controlling for a number of alternative determinants of economic success. Our paper relates to several strands of the literature on economic de- 1 The actual name given to these administrative divisions changes from country to country: provincias in Argentina, departamentos in Bolivia, regiones in Chile, estados in Mexico, and so on. 2 velopment over the very long-run. A number of papers have uncovered how historical phenomena have persistent effects on economic development, in particular for Africa. Nunn (2008) and Nunn and Wantchekon (2011) relate the intensity of the African slave trade, most of which takes place over the pre-colonial period, to current levels of income per capita and in- terpersonal trust. Huillery (2011) argues that the attitudes of pre-colonial African states towards Europeans have an influence on current development outcomes as colonizers invested more in the areas where Africans were less hostile. Closest to our paper are the works of Gennaioli and Rainer (2007) and Michalopoulos and Papaioannu (2013, 2014), who also measure pre-colonial institutions using the degree of political complexity of different ethnic groups from Murdock (1967). We differ from these last three works by using sub-national states as the unit of analysis, an approach which has been increasingly employed in the wider literature on growth and development (Acemoglu and Dell 2010, Gennaioli et al. 2014).2 Our paper also relates to a number of recent works focusing on the determinants of long-run development in Latin America. Bruhn and Gal- lego (2012) study the effects of different colonial activities, such as mining or plantation agriculture, using sub-national states as the unit of analysis. This offers a relevant set of controls for our own study, as we seek to fac- tor out colonial influences from pre-colonial ones. Controlling for colonial activities appears particularly relevant in the light of another recent study, by Arias and Girod (2014), presenting evidence that colonial policies were to a large extent determined by pre-colonial factors - in particular the existence or absence of forced labour. Also of relevance, Maloney and Valencia (forthcoming) study the persistence of economic success from pre-colonial times to the present across the Americas - a theme that was first investi- gated by Acemoglu et al. (2002) in their "reversal of fortune" thesis. We 2 Gennaioli and Rainer (2007) use nations as their unit of analysis, which would result in too few observations in Latin America and does not allow for the inclusion of country fixed effects. Michalopoulos and Papaioannu (2013) use ethnic groups as their unit of analysis, which is feasible for Latin America but comes with its own special set of challenges (see Elizalde 2016 for an analysis using this alternative approach). 3 add evidence to this side of the literature by controlling for the initial level of development in some of our regressions. Finally, it is important to men- tion that a number of papers have studied the long-run effects of specific historical episodes in Latin America, such as the mita labour system of Peru and Bolivia (Dell 2010), the exploitation of sugarcane and gold in different areas of Brazil (Naritomi et al. 2012), or the early establishment of political inequality in 19th century Colombia (Acemoglu et al. 2008).3 The rest of the paper is organized as follows. Section 2 offers an historical overview, formulates our main hypothesis and presents historical evidence in its favour. Section 3 discusses the data and presents our empirical methodology. Sections 4 and 5 present our empirical analysis, extensions and robustness checks. Section 6, finally, offers some concluding remarks. 2 Historical overview and main hypothesis The paucity of research on the role of pre-colonial institutions in socioeconomic development for the Latin American case may be explained by the overpowering importance of the colonial experience in this region. Indeed, colonialism was not only much longer lasting than in other regions of the world, about three centuries for most Latin American nations, but it was also accompanied by a massive transformation of the ethnic structure of the population. Suffering the consequences of a new disease environment, the abo- riginal population of the Americas (henceforth Amerindians) was decimated over the hundred years following first contact with Europeans. In its place, a society of "whites" (European descendants), mestizos (people with mixed Amerindian and European ancestry), Amerindians and Africans, these last ones brought to the continent as slave labour, took over. Amerindians have always occupied the lower ranks of the new social hierarchy established with the colonial conquest, while European descendants, and later on mestizos, have dominated political and economic affairs ever since. 3 For a more comprehensive review of the literature on how historical factors determine long-run development see Nunn (2014). 4 While correct, these central features of Latin American history should not lead us to conclude that pre-colonial culture was simply wiped out following the European arrival and had no chance of influencing the present. Western culture may well be the dominant element in present-day Latin America, as best exemplified by the almost universal adoption of the Chris- tian religion and the languages from Portugal and Spain, but in numerous cases this dominance contains important elements of Amerindian culture. Pre-colonial rites, such as offerings to the Mother-Earth, are still common among large sections of the Latin American population - and do not stop

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