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.