Why is Latin America poor? More evidence for coercion and commodities

Why is Latin America poorer than its northern cousins? One story is unfree labor institutions, bequeathed by the Spanish, especially where plantation crops were most easily grown.

Most of the evidence, though, is based on dodgy cross-country regressions. A new paper by Gustavo Bobonis and Peter Morrow provides some convincing micro-level support:

A significant share of labor arrangements during the colonial period in the Americas involved the use of coercion. To what extent did labor coercion affect individuals’ accumulation of human capital? What was the role of primary commodity exports in influencing this relationship? We study these questions in the context of nineteenth century Puerto Rico, where unskilled laborers were forced to work for legally-titled landowners from 1849 until 1874.

…During the coercive period, governments in coffee growing regions allocated more public resources towards coercive labor measures and fewer resources towards primary schooling – with the latter declining 40 percent. Following the abolition of coercive measures in 1874, literacy rates declined 25 percent, consistent with a significant drop in the skilled labor wage differential.

These results strongly suggest that labor market liberalization reduced the extraction of rents from unskilled laborers’ wages by local landowners.

4 thoughts on “Why is Latin America poor? More evidence for coercion and commodities

  1. But how do Latin Americans do in North America? Not so bad as in Latin America, but not so hot either. For example, in a study by UCLA’s Chicano Studies Department, only 6% of fourth generation Mexican-Americans (i.e., their grandparents were born in America) had college degrees.

  2. But “Latin America” covers a range of countries. Chile, with 2009 nominal GDP per capita of $8,853, isn’t particularly poorer than non-Latin Russia ($8,874) or Turkey ($8,427), and clearly richer than Kazakhstan ($6,875) and Bulgaria ($5,916).

    On the other hand, Chile is much, much richer than Latin American Honduras ($1,863).

    Measures on a PPP GDP per capita, Chile is $14,299, much richer than China ($6,546).

    The paper deals with Puerto Rico, which today has GDP per capita PPP of $17,100, yet is still owned by its colonial power (the USA).

    I suspect that any affects do to events that occurred in Latin America over 190 years ago pale in comparison with post-independence governance differences.

  3. Can someone explain this to me? After abolishing forced labour (i.e. the period when resources were directed away from education) literacy rates went down? Is this because of the lag from when the policy was implemented?

    Also is this: “These results strongly suggest that labor market liberalization reduced the extraction of rents from unskilled laborers’ wages by local landowners.” a fancy way of saying that when forced labour was abolished (e.g. no more slavery) local landowners had to pay their workers?

  4. I think that Latin America will come out of the current financial crisis stronger relative to other parts of the world. Could be an advantage to them that we will see develop over time.