Labor scarcity, land tenure, and historical legacy: Evidence from Mexico

How does labor scarcity shape institutional development? We examine the long-term impact of Mexico's 16th-century demographic collapse on landholding patterns through the present day. We show that the collapse, which reduced the indigenous population by between 70 and 90 percent and differed in severity across space, facilitated land concentration and the rise of a landowner class that dominated Mexican political economy for centuries. To identify the impact of the population collapse on land arrangements we use an instrumental-variables identification strategy exploiting climatic shocks associated with an epidemic in the 1570s that roughly halved the indigenous population. Though landholding patterns were transformed following the Revolution of 1910, we also show that disease-impacted areas now have more land in common-property institutions with limited property rights. The population collapse thus had a persistent impact on Mexican political economy, but the nature of this impact has changed radically over time.