Is inequality harmful for economic growth? Is the underdevelopment of Latin America related to its unequal distribution of wealth? A recently emerging consensus claims not only that economic inequality has detrimental effects on economic growth in general, but also that differences in economic inequality across the American continent during the 19th century are responsible for the radically different economic performances of the north and south of the continent. In this paper we investigate this hypothesis using unique 19th century micro data on land ownership and political office holding in the state of Cundinamarca, Colombia. Our results shed considerable doubt on this consensus. Even though Cundinamarca is indeed more unequal than the Northern United States at the time, within Cundinamarca municipalities that were more unequal in the 19th century (as measured by the land gini) are more developed today. Instead, we argue that political rather than economic inequality might be more important in understanding long-run development paths and document that municipalities with greater political inequality, as measured by political concentration, are less developed today. We also show that during this critical period the politically powerful were able to amass greater wealth, which is consistent with one of the channels through which political inequality might affect economic allocations. Overall our findings shed doubt on the conventional wisdom and suggest that research on long-run comparative development should investigate the implications of political inequality as well as those of economic inequality.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
13208.
Length: Date of creation: Jun 2007 Date of revision: Handle: RePEc:nbr:nberwo:13208
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Find related papers by JEL classification: H27 - Public Economics - - Taxation, Subsidies, and Revenue - - - Other Sources of Revenue N01 - Economic History - - General - - - Development of the Discipline: Historiographical; Sources and Methods N1 - Economic History - - Macroeconomics and Monetary Economics; Growth and Fluctuations N16 - Economic History - - Macroeconomics and Monetary Economics; Growth and Fluctuations - - - Latin America; Caribbean O1 - Economic Development, Technological Change, and Growth - - Economic Development O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment O54 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean
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