Electoral Law Enforcement and the Political Economy of Long-Run Development: Evidence from Latin America, 1800-2012
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Electoral Law Enforcement and the Political Economy of Long-Run Development: Evidence from Latin America, 1800-2012 Rok Spruk 1 Department of Economic and Social History, Utrecht University Drift 6 3512 BS Utrecht, The Netherlands Phone: +31(0) 639 464 146 Email: [email protected] Abstract This paper exploits the variation in the timing of electoral law enforcement across nine Latin American countries to consistently examine the contribution of de jure and de facto political institutions to long-run development. The set of novel measures of electoral law enforcement is constructed focusing on de jure vs. de facto suffrage extension, abolition of wealth- and literacy-based voting restrictions, electoral fraud and oppression drawing on the extensive and largely unexploited Latin American historical bibliography. A simple difference-in-differences model of de jure and de facto institutional development is built to account for the effect of electoral law enforcement on institutional development, and used as a source of variation in long-run development paths. The evidence suggests the timing of enforcing electoral laws largely accounts for the contrasting paths of de jure and de facto institutional development in post-independence Latin America. The institutional changes toward suffrage extension, removal of voting restrictions and level-playing field with more inclusive de jure and de facto institutional setup are associated with large-scale improvements in long-run development paths. The effects of de jure and de facto institutions on long-run development do not depend on sample selection, specification bias or unobserved heterogeneity. The counterfactual scenario suggests having de jure and de facto political institutions on a similar level to the United States since independence would yield massive economic gains by narrowing Latin America’s gap behind the U.S by a fifth. The counterfactual based on the institutional parallels of the U.S, Australia or United Kingdom in appears to speak in favor of large-scale gains in long-run development compared to the much smaller gains from the institutional design based on French, Spanish or Portuguese institutional benchmark. JEL Codes : C23, C26, C55, D70, N16, O43 Keywords : political institutions, long-run development, difference-in-differences, instrumental variables, Latin America 1 The author would like to thank Daron Acemoglu, Tilmann Altwicker, Alex T. Atanasov, Florian Baumann, Alexandra Benham, Lee Benham, Bernard Black, Ignacio Cofone, Ryan Faclker, Thiago Fauvrelle, Waldemar Florczak, Peter Földvari, Suren Gomtsyan, Tobias Hlobil, Eisha Jain, Jaroslaw Kantorowicz, Halil Baha Karabudak, Mitja Kovac, Robbert Maseland, Joseph Niobe, Maiva Ropaul, Hans-Bernd Schäfer, Mary M. Shirley, Marcel Timmer, Bas van Leeuwen, Jan Luiten van Zanden, Joost Veenstra, Mila Versteeg, Stefan Voigt, and Alexander Wulf, to the seminar participants at Rijksuniversiteit Groningen, to the participants of 14 th Annual Conference of the German Law and Economics Association at Heinrich Heine University in Düsseldorf, 2 nd International Law and Economics conference at Bilkent Law School in Ankara, to the participants of 1 st Conference on Empirical Legal Studies at Universiteit van Amsterdam, and to the participants of the 20th Annual Conference of the Society for Institutional and Organizational Economics at Sciences Po, Paris and to the participants of the 11 th Annual Conference on Empirical Legal Studies at Duke University, School of Law, for discussion, comments and feedback on the earlier draft versions of the paper. The financial support from Utrecht University’s Department of Economic and Social History and University of Ljubljana – Laibach Faculty of Economics is gratefully acknowledged. 1 1. Introduction The origins of the long-standing development gap between North America and Latin America have revived a significant scholarly interest in the last three decades ( Hirschman 1987, Cardoso and Fishlow 1992 , Taylor 1998 , Sokoloff and Engerman 2000 , Coatsworth and Williamson 2004 , Rodrik 2011 , Allen et. al. 2012 , Arroyo-Abad and Van Zanden 2014 ). In spite of the relative economic advantage on the eve of European colonization in late 15 th and early 16 th century, Latin America had experienced slow growth and less favorable development outcomes compared to the United States in spite of the initial advantage on the eve of European colonization. In 1500, real GDP per capita (adjusted for PPP) of the United States was no different from that of Brazil whereas Mexico’s per capita GDP was 37 percent above the U.S. level ( Coatsworth, 2008 ). In 1800, real GDP per capita of the United States ($G-K 1296) was markedly higher than that of Argentina ($G-K 931), Mexico ($G-K 836) and the rest of Latin America ($G-K 738). By 1900, United States enjoyed more than three-fold GDP per capita in comparison with Latin America ( Bolt and Van Zanden, 2014 ). In 2010, the per capita income difference between United States and Latin America rose to almost four fold. How could initially most developed societies in the New World reverse the fortune and end up with inferior economic and development outcomes compared to the United States – initially the least developed society in the Americas? Different theories have been proposed to explain cross-country growth and development gaps. The importance of physical geographic for long-run economic outcomes has been suggested by Diamond (1997) and Pomeranz (2000) while Bloom and Sachs (1998) , Gallup et. al. (1999) , and Presbitero (2005) found the empirical support for the geography thesis. The relevance of international trade for long-term economic change has been stressed by Ben-David (1996) , Frankel and Romer (1999) , Dollar and Kraay (2003) and Földvari (2006) . The contribution of social, cultural, and religious factors in explaining contemporary economic growth and development has been initially suggested by Weber (1934) and Landes (1998), whereas Guiso et. al. (2008) , Becker and Wössmann (2009) , Tabellini (2010) , and Gorodnichenko and Roland (2011) found empirical support for the culture hypothesis. The importance of human capital formation for contemporary economic and development outcomes has been stressed by Becker et. al. (1989, 1999) and Galor and Weil (1996) , whilst Glaeser et. al. (2004) , Van Leeuwen (2007) , Van Leeuwen and Földvari (2008) , Hanushek and Wössmann (2012) and Földvari and Van Leeuwen (2014) confirmed its contribution to long-term economic change. A large strand of literature emphasizes the fundamental importance of institutions in influencing long-run economic and development outcomes. North (1991) originally defined institutions as “humanly devised constraints that structure economic, social and political interaction (p.3).” Institutions consist of formal rules, recognized by laws, property rights, and constitutions, and informal rules which consist of traditions, customs and codes of conduct. Greif (1998) suggests institutions are a complex web of interactions where formal explicit rules are coexist with implicit informal rules, creating a coherent whole. Institutions and institutional change are both a process and reflection of past and present economic, political, social and cultural features with a long-lasting economic implications. Hence, institutions determine the set of economic choices and affect the costs of engaging in economic activity (transaction costs) and the costs of production. As such, institutions facilitate the incentives to engage in either productive or unproductive activities. Constitutions, laws and electoral systems allocate de jure political power whereas de facto political power is based on the ability of the population to engage in various forms of collective action ( Acemoglu and Robinson, 2006a ). Since different groups benefit differently from 1 alternative economic institutions, the conflict between institutions as a set of social choices is usually determined in favor of groups with greater economic power (Acemoglu et. al. 2005 ). Therefore, groups with greater contemporary de facto political power strive to achieve greater de jure political power in the future. Institutions establish the incentive structure and shape the subsequent direction of economic change. Historically, the precedence of institutions has been recognized by North and Weingast (1989) , Mokyr (1990) , and Djankov et. al. (2003) whereas Hall and Jones (1999) , Knack and Keefer (1995) , Henisz (2000) , Acemoglu et. al. (2001, 2002, 2005, 2011) , Acemoglu and Johnson (2005) , Rodrik et. al. (2004) , Nunn (2008, 2009) , Dell (2010) , Van Zanden et.al. (2012) , and Schäfer and Wulf (2014) . This paper presents a unified attempt to consistently estimate the effect of de jure and de facto political institutions on long-run economic growth and development of Latin America for the period 1800-2012. In particular, two distinctive measures of de jure and de facto political institutions are established for nine Latin American countries (Argentina, Bolivia, Brazil, Chile, Colombia, Mexico, Peru, Uruguay and Venezuela) using Polyarchy Dataset 1.2. ( Vanhanen 2000, 2003 ) and Polity IV Dataset ( Marshall et. al. 2013 ). The former dataset captures the distribution of de facto political power whereas the latter one is based on the characteristics of de jure political institutions. Using the variation in the timing of electoral laws across Latin America to consistently estimate the effect of political institutions on long-term paths of economic growth