Are factor endowments fate?

Abstract

In recent theories of comparative development, the role of institutional differences has been crucial. Yet, what explains comparative institutional evolution? We investigate this issue by studying the coffee exporting economies of Latin America. Although homogeneous in many ways, they experienced radically different paths of economic (and political) development, which is conventionally traced to the differential organization of the coffee industry. We show that the different forms that the coffee economy took in the 19th century was critically determined by the legal environment determining access to land, and that different laws resulted from differences in the nature of political competition and the backgrounds of political elites. Our analysis suggests that explanations of institutional differences that stress economic fundamentals can only be part of the story. At least in the economies that we study, while geography, factor endowments and technology are clearly important, their implications for the institutional structure and thus development are conditional on the form that political competition takes in society. For interesting variations in economic outcomes, endowments are not fate. Copyright © Instituto Figuerola de Historia y Ciencias Sociales, Universidad Carlos III de Madrid 2010.