Institutions, Factor Endowments, and Paths of Development in the New World

Kenneth L. Sokoloff and Stanley L. Engerman

The North American mainland was originally (in the 1800s) regarded
of marginal interest, while the Caribbean and Latin America as
extraordinary opportunities
In 1700, per capital income in Mexico, US, and Caribbean were virtually on par
Not until industrialization began in North America in the 1800s
that the major divergence began
Why?
a) Some emphasize the importance of presumed exogenous differences in
religion or national heritages
Douglass North (1988): British institutions (evidenced in US and
Canada) being more conducive to growth than those of Spanish
colonizers
Greene (1988) & Kupperman (1993): However this is countered by
the fact that much of the New World is colonized by the British and
Barbados, Jamaica, Belize, Guyana, etc. are not guaranteed
economic growth
John Coatsworth (1998): Skeptical of such generalizations
b) Factor endowments (initial conditions) have profound, enduring
impacts on LR institutional and economic developments
Factor endowments affected how colonizers established their
colonies
High MP of labour in all colonies (60% of 6 mill+ migrants to New
World in 1500 were African slaves)
Portugal, France and Dutch colonies soils and climates made them
well-suited for growing lucrative commodities of sugar, coffee and
other world-market staple crops. Due to economies of scale, large
slave plantations were effective. These colonies (Barbados, Cuba,
Jamaica, Brazil) had the highest per capita incomes but
distributions of wealth were highly unequal. Such inequality led to
evolution of institutions that restricted equal wealth distribution
even after the abolition of slavery
New England, Middle Atlantic and Canadian settlements of Britain
and France were not specialized and also relied least on slaves for
labour force. Not endowed with native populations for labour nor
appropriate climates or soils. Therefore these colonies grew
through European labour, independent proprietorship due to
abundance of land and low capital requirements.
c) Institutions as a role in persistent inequality = governments tended to
reproduce them
E.g. land policy. Land ownership was highly concentrated in
Spanish America while in the US, land acquisition was very easy
E.g. voting.
E.g. education. US were quick to set up schools while Latin
American colonies were up to 75 years behind the US.
Divergence in paths traced back to the achievement of sustained economic
growth by the US and Canada during 1800s