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Tordesillas, Slavery and the Origins of Brazilian Inequality∗

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Tordesillas, Slavery and the Origins of Brazilian Inequality∗ Tordesillas, Slavery and the Origins of Brazilian Inequality∗ Thomas Fujiwara,y Humberto Laudaresz and Felipe Valencia Caicedox January 2017 Abstract Although the negative impact of slavery has been documented for ex- porting African nations, less is known about the long-term impact of this institution in receiving nations. This article examines the long-term effects of slavery on the receiving end of the spectrum, by focusing on Brazil, one of the largest importers of slaves and the last country to abolish this insti- tution in the Western Hemisphere. To deal with the endogeneity of slavery placing, we use a spatial Regression Discontinuity framework, exploiting the colonial boundaries between the Portuguese and Spanish empires in current day Brazil. We find that the number of slaves in 1872 is discon- tinuously higher in the Portuguese side of the border, consistent with this power's comparative advantage in this trade. We then show how this dif- ferential slave rate has led to higher income inequality of 0.103 points (Gini coefficient), approximately 20% of average income inequality in Brazil. To further investigate the role of slavery on economic development, we use the division of the Portuguese colony into Donatary Captancies. We find that a 1% increase in slavery in 1872 leads to an increase in inequality of 0.112. Aside from the general effect on inequality, we find that more slave intensive areas have higher income and educational racial imbalances and worse public institutions today. JEL codes: O10, N36, O54 Keywords: Slavery, Inequality, Brazil, Regression Discontinuity Design ∗We would like to thank Stanley Engerman, Oded Galor, David Weil, Stelios Michalopoulos, Jean-Louis Arcand, Ugo Panizza, Matias Cattaneo, Gani Aldashev, John Friedman, Glenn Loury, Leonado Weller, Francisco Costa, Francisco Vidal Luna, Jorge Pimentel Cintra, and seminar participants at Brown University, the LSE and at the IV Workshop New Economic Historians of Latin America for helpful comments and suggestions. We thank Marcelo Sacchi for excellent research assistance. All errors are ours. yPrinceton University zThe Graduate Institute for International and Development Studies j Geneva xInstitute for Macroeconomics and Econometrics, Bonn University 1 1 Introduction The trans-Atlantic slave trade constituted a defining demographic, politic and economic event in world history. It is estimated that between the fifteenth and the eighteenth centuries, more than 12 million slaves were taken from Africa. Recent research has quantified the negative economic impact of such trade on origin African countries. Nunn (2008) explains Africa's current underdevelopment by slave trades in the nineteenth century, relying on data from shipping records and slave ethnicities to estimate the number of slaves exported from each African country. The evidence suggests that slave trade had a negative effect on economic development. Nunn and Wantchekon (2008) show negative relationship between an individual's reported trust in others and the number of slaves taken from the individual's ethnic group during the slave trades. The author recognizes that potential shortcoming of this correlation is the non-random nature of the selection of this historic event. Huillery (2008) argues that French West Africa's differences in colonial in- vestments in schooling evidences a persistent impact of education. Similarly, Bolt and Bezemer (2008) also show that there is a positive correlation between colonial education levels and current income across African countries. Nonetheless, the effect of slavery on receiving nations is less known. Soares et al. (2012) document a strong relationship between slavery and modern levels of inequality at the cross-country level. Focusing on the US, Fogel and Engerman's watershed Time on the Cross provided a critical historic and quantitative re- examination of the American slavery experience. This seminal piece led to many other contributions including Smith (1984), Margo (1990), Lagerl¨of (2009), Naidu (2012) and Bertocchi and Dimico (2014). Gouda and Rigterink (2013) conclude that the proportion of slaves in the population prior to the abolition of slavery in the US (1860) is associated with an increase in the rate of violent crimes in all census years for the period 1970-2000. Coatsworth et. al. (1998) argue that slave regions probably tended to be more unequal in the distribution of income than non-slave areas. However, our knowledge of the long-term economic impact of slavery remains relatively precarious going south of the border. Brazil is particularly well suited to study the long-lasting consequences of slavery, as one of the largest recipients of African slaves and the last Western country to abolish this institution, in 1888. By 1790, slaves in Brazil outnumbered US slaves by two to one and it is estimated that overall as many as 4 million slaves were imported to the country. We are interested in evaluating the impact that this colonial institution had on income inequality at the sub-national level. Brazil was the destination for almost half of the African slaves who were shipped across the Atlantic. Such an exercise would amount to a quantitative re-examination of the fa- mous Engerman and Sokoloff hypothesis (1997), according to which development trajectories in the Americas can be explained by initial factor endowments and subsequent colonial productive structures. Even though this hypothesis has been examined at the cross-country level (Nunn, 2007), a careful sub-national analysis 2 would help to isolate the confounding effect of other national-level institutional and historical legacies1. Aside from its pernicious contemporary effects, did slav- ery result in higher levels of inequality in the long run? If so, what channels led to a persistence in inequality originated in the slavery period? The problem when estimating the after-effect of slavery is that one may not be calculating its impact per se, but rather the effect of other related factors. For instance, it is well known that slaves were sent to mines (Acemoglu et al. 2012) and employed in highly productive activities such as cotton harvesting in the Southern United States (Fogel and Engerman, 1974) and sugar production in Brazil (Naritomi et al. 2012). Therefore, without isolating the independent roles of these activities, one can naively conclude that slavery resulted in higher economic activity. In order to deal with this \endogeneity" problem, we propose employing a novel identification strategy. In our estimations, we exploit the discontinuities of the Tordesillas line pre- dating the discovery of Brazil to test whether slavery causes inequality. The assignment variable is the municipalities' distance to the Tordesillas line. Using a regression discontinuity design, we demonstrate that the number of black slaves over the total population in 1872 was larger in the Portuguese side of the Torde- sillas line than the Spanish side. We find that the treatment effect on income inequality is 0.103, which corresponds to 20.7% of the average income inequal- ity measure of our sample. Using a local randomization inference approach, the treatment effect is 0.0384, representing 7.6% of the sample average. We also explore regional differences within Brazil dated from the colonial period. To populate Brazil, the Crown decided to implement the Donatary Cap- taincies (DCs) as the political and administrative organization of the colony. The institution of DCs is connected to the first imports of African slaves to Brazil. The donataries enjoyed full authority under their territories and operated inde- pendently from each other, as if they were foreigners to each other. This arrange- ment prevented collective action among the DCs, thus generating problems and regional imbalances in the colonial Brazil. Mattos et al. (2013) argue that DCs are associated with higher land inequality, lower public expenditures by the local governments and lower political persistence. We employ the DCs as instrumental variables for slavery, whereby the results confirmed the regression discontinuity design findings. The main channels of persistence identified are the income racial imbalance, education racial imbalance and public institutions. We show that on average black households have a lower income than white households as a result of slavery. Access to school seems to favor more white children than black children around the cut-off, while the treatment effect on institutional capacity is negative. We run several robustness checks, where these main findings hold. In the next section, we present the historic background, before the follow- ing sections describe the data used in the empirical analysis and identification 1Different from Lagerl¨of(2005) we do not focus here on evaluating the impact of geography on slavery, since geography is continuous variable, but on the impact of slavery on inequality and income 3 strategy. Subsequently, We will present the results of the impact of slavery on inequality and other outcome variables, before concluding in the final section. 2 Tordesillas, Donatary Captaincies and Slav- ery 2.1 Spain, Portugal and South America King Ferdinand II of Aragon, Queen Isabella I of Castile and King John II of Portugal secured two papal bulls - called Inter Caetera - after Columbus arrival from the Americas in 1493. The bulls entrusted the monarchs with the duty to convert native people in return for rights in territories discovered west of the meridian passing one hundred leagues off the Cabo Verde and Azores Islands. In 14942, the Spanish and Portuguese monarchs signed the Treaty of Tordesillas, which separated the globe by a meridian located 370 leagues to the west of the Cape Verde Islands. Lands to the east of the meridian would be Portuguese, while those to the west would be Spanish. Pre-dating the European discovery of Brazil, the Tordesillas line defined the initial geographical shape of the country. However, the implementation of the Tordesillas Treaty was controversial. The understanding of the \Cabo Verde Island" was unclear: while Spain preferred to measure the meridian from the center of the Islands, Portugal intended to measure it from the most westward point, resulting in the difference of 2o420.
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