Rebellions, Technical Change, and the Early Development of Political Institutions in Latin America

This paper examines the early development of institutions in Latin America that led to the consolidation of oligarchic republics in the first decades of the twentieth century. First, it documents an institutional divergence inside the region with long lasting effects on subsequent political and economic development. Second, it develops a theoretical model focusing on two factors to explain institutional development, the risk of native and slave uprisings and technical change, both of which were observed throughout the region at that time. The risk of rebellions leads to institutions that weakly restrict the powers of chief executives, in order to allow them to react forcefully to them. Technical change leads to stricter restrictions as expropriation becomes more costly, but it also intensifies labor coercion and consequently the risk of rebellions. Hence the main prediction is that the effect of technical change depends on the availability of coerced labor, their interaction being a potential explanation for the institutional divergence. Finally the paper conducts an econometric exercise to test this hypothesis. Results from panel-data regressions suggest that the dynamics of the institutional gap in Latin America can be explained to a large extent by the interaction between the risk of rebellions and technical change in transportation.