Institutions, Factor Endowments, and Paths of Development in the New WorldKenneth L. Sokoloff and Stanley L. Engerman The North American mainland was originally (in the 1800s) regardedof marginal interest, while the Caribbean and Latin America asextraordinary opportunities In 1700, per capital income in Mexico, US, and Caribbean were virtually on par Not until industrialization began in North America in the 1800sthat the major divergence began Why?a) Some emphasize the importance of presumed exogenous differences inreligion or national heritages Douglass North (1988): British institutions (evidenced in US andCanada) being more conducive to growth than those of Spanishcolonizers Greene (1988) & Kupperman (1993): However this is countered by the fact that much of the New World is colonized by the British andBarbados, Jamaica, Belize, Guyana, etc. are not guaranteed economic growth John Coatsworth (1998): Skeptical of such generalizationsb) Factor endowments (initial conditions) have profound, enduringimpacts on LR institutional and economic developments Factor endowments affected how colonizers established their colonies High MP of labour in all colonies (60% of 6 mill+ migrants to NewWorld in 1500 were African slaves) Portugal, France and Dutch colonies soils and climates made them well-suited for growing lucrative commodities of sugar, coffee and other world-market staple crops. Due to economies of scale, large slave plantations were effective. These colonies (Barbados, Cuba, Jamaica, Brazil) had the highest per capita incomes but distributions of wealth were highly unequal. Such inequality led to evolution of institutions that restricted equal wealth distribution even after the abolition of slavery New England, Middle Atlantic and Canadian settlements of Britain and France were not specialized and also relied least on slaves for labour force. Not endowed with native populations for labour nor appropriate climates or soils. Therefore these colonies grew through European labour, independent proprietorship due to abundance of land and low capital requirements. c) Institutions as a role in persistent inequality = governments tended to reproduce them E.g. land policy. Land ownership was highly concentrated in Spanish America while in the US, land acquisition was very easy E.g. voting. E.g. education. US were quick to set up schools while Latin American colonies were up to 75 years behind the US. Divergence in paths traced back to the achievement of sustained economic growth by the US and Canada during 1800s