University of Groningen. The historical evolution of inequality in Latin America Frankema, E.H.P.

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1 University of Groningen The historical evolution of inequality in Latin America Frankema, E.H.P. IMPORTANT NOTE: You are advised to consult the publisher's version (publisher's PDF) if you wish to cite from it. Please check the document version below. Document Version Publisher's PDF, also known as Version of record Publication date: 2008 Link to publication in University of Groningen/UMCG research database Citation for published version (APA): Frankema, E. H. P. (2008). The historical evolution of inequality in Latin America: a comparative analysis, Enschede: PrintPartners Ipskamp B.V., Enschede, The Netherlands Copyright Other than for strictly personal use, it is not permitted to download or to forward/distribute the text or part of it without the consent of the author(s) and/or copyright holder(s), unless the work is under an open content license (like Creative Commons). Take-down policy If you believe that this document breaches copyright please contact us providing details, and we will remove access to the work immediately and investigate your claim. Downloaded from the University of Groningen/UMCG research database (Pure): For technical reasons the number of authors shown on this cover page is limited to 10 maximum. Download date:

2 The Historical Evolution of Inequality in Latin America A comparative analysis, Ewout Frankema

3 Publisher: Ewout Frankema Printed by: PrintPartners Ipskamp, Nederland. ISBN: Ewout Frankema All rights reserved. No part of this publication may be reproduced, stored in a retrieval system of any nature, or transmitted in any form or by any means, electronic, mechanical, now known or hereafter invented, including photocopying or recording, without prior written permission of the publisher.

4 RIJKSUNIVERSITEIT GRONINGEN The Historical Evolution of Inequality in Latin America A comparative analysis, Proefschrift ter verkrijging van het doctoraat in de Economie en Bedrijfskunde aan de Rijksuniversiteit Groningen op gezag van de Rector Magnificus, dr. F. Zwarts, in het openbaar te verdedigen op donderdag 6 maart 2008 om uur door Ewout Hielke Pieter Frankema geboren op 27 oktober 1974 te Smallingerland

5 Promotor: Copromotor: Beoordelingscommissie: Prof. dr. H.H. van Ark Dr. J.P.H. Smits Prof. dr. S. Brakman Prof. dr. A.M. Taylor Prof. dr. J.L. van Zanden

6 Acknowledgements In the late afternoon of Sunday 11 January 1998 my plane landed in Mexico-city, where I set off for a journey by bike across the astonishingly beautiful landscape of Central and South America. All the way to Buenos Aires I met people who offered me food, shelter and companion. Ever since this journey I cherish the memory of their liveliness and hospitality. I guess it is safe to say that, in my mind, this project has already started a decade ago. During the past four years of work on my PhD-thesis I received the support, help and encouragements of collegues, which is crucial for the success of such an undertaking. First of all, I wish to express my gratitude to my supervisors Jan Pieter Smits and Bart van Ark. Thanks to his unique personality, Jan Pieter fluently combined his role as personal coach, critic, co-author and sparring-partner. His support was unconditional and our conversations were an inexhaustible source of inspiration. Bart was often literally hanging somewhere around in the air. He nevertheless always managed to keep track of my progress and provided me with good advice and clear directions at decisive moments. Perfect complements from an economic point of view. My colleagues from the Economic and Social History department, Rainer Fremdling, Herman de Jong and Ben Gales, were helpful in many ways. I have particularly benefited from their efforts to establish a solid PhD-training program for the N.W.Posthumus Instituut. I would further like to thank Lies Baars, Herma van der Vleuten, Astrid van der Veen, Marcel Timmer, Gaaitzen de Vries, Jaap Sleifer, Robert Inklaar, Bart Los, Carolina Castaldi, Katrin Muehlfeld, Abdul Erumban, Gerard Ypma, Edwin Stuivenwold, Job Woltjer, Dirk Bezemer and my room mates Ward Romp, Lammertjan Dam, Richard Jong-A-Pin and Janneke Pieters for providing a pleasant work environment. I would like to thank Jutta Bolt in particular. Apart from being a great colleague, she is a wonderful friend. For the rewarding cooperation in national and international research projects I thank Hedwig Duteweerd, Wim Pullen, Theo van der Voordt, Vlad Manole, Andrew Tank and Thomas Lindblad. I would like to thank Daan Marks in particular for sharing his ideas, insights and enthusiasm in our joint work on Indonesia. For feedback on different parts of my research I am indebted to Marcel Timmer, Herman de Jong, Peer Vries, Jan Luiten van Zanden, Oscar Gelderblom, Thomas Lindblad, Ann Booth, Thee Kian Wie, Daan Marks, i

7 Christiaan van Bochove, Jelle van Lottum, Danielle van den Heuvel, Jutta Bolt, Dorothee Crayen, Stefan Klasen, Luis Bertola, Jan Oosterhaven, Steven Brakman, Johan Schot, Leandro Prados de la Escosura, Şevket Pamuk, Alan Taylor, Farshid Mojaver Hosseini, Peter Lindert, Alan Olmsted, Avner Greif and Gavin Wright. I will never forget the warm welcome I received from the indefatigable Thee Kian Wie during my research visit to Indonesia, Jakarta (spring 2003). My visit to the Center for the Evolution of the Global Economy at UC Davis (summer and fall 2006) has been crucial for this project in various ways. I am particularly grateful to Alan Taylor, who not only granted me this opportunity, but also turned out to be a formidable host. Celebrating Thanksgiving with Grec Clark is unforgettable. I have very much appreciated his hospitality. I thank Gavin Wright for inviting me to the Economic History and Development Economics seminar at Stanford University. Financial support for my visit to California was granted by the Dutch Science Foundation (NWO). I am grateful to James Simpson for inviting me at the Departamento de Historia Económica e Instituciones of the Universidad Carlos III, Madrid (spring 2007). I hope to return for a next visit soon! Finally, I thank Jan Luiten van Zanden en Maarten Prak for welcoming me at the Economic and Social History department in Utrecht. I am really looking forward to this new phase in academic life. Although the efforts and struggles are incomparable, this book is ultimately as much the product of my parents as it is of my own. Among all those other things, my parents have thought me the value of curiosity and non-conformism, essential ingredients for an explorative mind. Their support has simply been indispensable. For more than ten years now, Arjanne withstands my whims and recurring periods of stress. She picks up whatever I forget or leave behind and at the same time, with unparalleled charm and subtlety, remembers me of the more important things in life. Looking back, it was no coincidence that Julian arrived five weeks ahead of our schedule, one day before I was to receive the signature. He clearly is a son of his mother. This book is dedicated to my loved ones. Groningen, Friday 11 January 2008, Ewout ii

8 Contents iii Chapter 1 Introduction 1.1 Latin America: A history of persistent inequality? An integrative approach to the analysis of long run distributional development Outline 12 Part One Chapter 2 Settler Societies The Initial Conditions of Inequality in Latin American Colonial 2.1 Introduction The core and the periphery Mercantilism and resource extraction The institutionalisation of inequality The disintegration of the colonial empire in the 19 th century Conclusion Chapter 3 The Colonial Roots of Land Inequality: Geography, Factor Endowments or Institutions? 3.1 Introduction Perspectives on the colonial roots of Latin American land inequality Global and regional variation in levels of land inequality A multivariate regression analysis of land inequality Land market institutions in three British colonies: Malaysia, Sierra Leone and Zambia 53 iii

9 3.6 The colonial roots of Latin American land inequality in comparative perspective Conclusion 73 Chapter 4 The Development and Distribution of Mass Education, : Persistent Inequality or Breaking with History? 4.1 Introduction Educational inequality in Latin America: different concepts, different indicators, different views The spread of primary education in Latin America: The distribution of educational attainment, A grade enrolment distribution approach, Conclusion 109 Part Two Chapter 5 Theoretical and Historical Perspectives on the Secular Trend of Income Inequality in Latin America, Introduction The distributive consequences of globalisation and de-globalisation The distributive consequences of factor biased structural and technological change Institutional change and distributional change: a collective action perspective Conclusion 139 Chapter 6 Patterns of Change in The Distribution of Factor Income, Introduction The trend in urban unskilled wages versus land rents and GDP per capita, Urban wage differentials in comparative perspective, iv

10 6.4 The capital intensity of production before Conclusion 162 Chapter 7 Exploring the Ultimate Causes of the Recent Rise in Income Inequality in Latin America, Introduction Demographic growth, structural change and the rise of the urban informal sector, Long run trends in wage inequality in the urban formal sector, Explaining the recent rise in urban income and productivity differentials Conclusion 194 Chapter 8 Conclusion 8.1 The historical evolution of Latin American inequality Future perspectives 202 Appendices 205 References 237 Samenvatting (summary in Dutch) 259 v

11 List of Tables 1.1 The growth of the Latin American economy, The development of the urban and industrial labour force in Latin America, (percentage shares of total labour force) Social development in Latin America: Literacy, life expectancy and income inequality, The composition of population in Latin America, Descriptive Statistics of land Gini s divided into 13 world regions The concentration of land in the top one percentile of the land holding distribution OLS Regressions of land inequality (Gini-coefficients) of a global sample (a) and a colonial sample (b) Population density in Latin American countries and regions, 1820 and Average annual increase of gross primary enrolment rate, Latin America versus a selection of non Latin American countries, A regional comparison of educational inequality by three different indicators, unweighted averages, Regional averages of the Gini-coefficient, standard deviation and coefficient of variation, Latin America (21 countries) versus East Asia (8 countries), The percentage distribution of grade enrolment in Argentina and Canada in 1960 (12 consecutive grades in primary and secondary schooling) The effects of population growth on the grade distribution, annual growth of age group 5-14, Interregional comparison of grade distribution ratios (1-6), weighted and adjusted means, Inter-industry wage differentials in the manufacturing sectors of Argentina, Chile, Brazil, USA, Canada and Australia, The decile distribution of urban wage income, Buenos Aires Inter-industry wage differentials in the manufacturing sector of Argentina, Brazil, Chile, Colombia, Mexico, Peru, Uruguay, USA, Canada, Australia and New Zealand, vi

12 6.4 Average hourly wage differentials in Buenos Aires, Santiago de Chile, Bogotá, New York, Sydney and Ottawa, October Four measures of relative capital intensity of the industrial sector in Argentina, Brazil, Chile, Mexico, Uruguay, USA, Canada and Australia, Relative levels of capital stock per capita in Argentina, Brazil, Chile, Colombia, Mexico, Venezuela and USA, 1950 (international dollars 1980) Inter-industry labour productivity differentials in the manufacturing sector and the relative shares of energy and labour expenses: Argentina, Brazil, Chile, Mexico, Uruguay, USA, Canada and Australia, Gini-coefficients of income inequality, decadal averages for Latin American countries, Demographic growth in Latin America, Population growth in rural and urban areas, total Latin America, The percentage share of urban self-employed in the total labour force in a selection of economically advanced countries, Decadal averages of the Theil coefficient of manufacturing labour income distribution, Latin America, The manufacturing industries with the minimum and maximum contribution to the Theil-index of inter-industry labour income, Conjectured Theil estimates with fixed relative sector wages, vii

13 List of Figures 1.1 World Map of income inequality within countries Four stylized conjectures on the secular trend of income inequality An integrative approach to long run distributional change A functional income distribution framework The distribution of land area (bars, y-axis 1) and number of holdings (line, y-axis 2) per category of holding size (in hectares), Malaya Peninsula, The total area of rubber cultivation divided into smallholdings (< 40 ha) and estates (> 40 ha), Malaya, The distribution of land area (bars, y-axis 1) and number of holdings (line, y-axis 2) per category of holding size (in hectares), Sierra Leone, The distribution of land area (bars, y-axis 1) and number of holdings (line, y-axis 2) per category of holding size (in hectares), Zambia, Average per capita disposable income (x-axis) versus average disposable income of tertiary educated (y-axis) in 2000 (1995 US $) Scatter plot of primary school enrolment rates (age group 5-14) and GDP per capita (1990 Geary-Khamis US $), Latin America versus Europe, other New World countries and Japan, Secondary school completion shares (y-axis) versus average years of schooling attained, Latin America versus East Asia, Percentage distribution of grade enrolment in Colombia and South Korea, Grade Distribution Ratio (1-6) in the first decade of full primary school enrolment, The grade enrolment distribution in primary and secondary schooling, Latin America versus a selection of non Latin American countries, Total public expenditure per student per level of education in Argentina and Honduras, (1990 Geary-Khamis US $) A conjectured trend of income inequality in an ideal-type Latin American country, viii

14 6.1 Trends in the ratio of real urban unskilled wages over land rents in Argentina, Uruguay, Australia and the USA, (Index figures, lowest observation = 1.00) Trends in the ratio of real urban unskilled wages over GDP per capita in Argentina, Brazil, Colombia, Cuba, Mexico and Uruguay, (Index figures, lowest observation = 1.00) The ratio of the average nominal wage over GDP per capita in Argentina, The distribution of industrial wage earners according to daily wage levels, Buenos Aires The distribution of industrial wage earners according to annual wage levels, USA Hourly wage of unskilled labourers in five industries as a percentage share of the observed average wage in Buenos Aires, Santiago de Chile, Bogota, Sydney and Ottawa, October Female crude participation rates in percentages, regional averages, The percentage share of urban self employed in the labour force in Chile, Costa Rica, Mexico, Panama and Venezuela compared to the USA and Canada, Relative levels of sectoral labour productivity in Mexico, (total economy average = 1.00) Relative levels of labour productivity, trade sector versus other service sectors, Argentina, Bolivia, Brazil, Chile, Costa Rica, Mexico, Venezuela and the USA, Theil coefficient of manufacturing labour income distribution in Argentina, Brazil, Chile versus Australia, Canada and the USA, The white collar premium in manufacturing, Latin America versus the USA, Canada and Australia, Manufacturing inter-industry wage differentials (X-axis) versus productivity differentials (Y-axis), Coefficients of Variation, Manufacturing inter-industry wage differentials in Chile and the USA, (two-years moving average of the Theil coefficient) 193 ix

15 List of Appendix Tables and Figures Table A.3.1: The distribution of land holdings by country, Gini-coefficients, Table A.3.2: Regression variables and data characteristics 210 Table A.3.3: Correlation matrix corresponding to the regression variables listed in table A.3.2 and table 3.3 (pair-wise sample) 211 Table A.3.4: Comparing initial conditions and paths of colonial development in British Malaya, Sierra Leone and Zambia 212 Table A.4.1: Percentages of the average per capita disposable income earned by primary, secondary and tertiary educated, Latin America versus the rest of the world (absolute values in 1995 US $) 213 Table A.4.2: Gross Enrolment Rates in Latin American Primary Schooling, Table A.4.3: Percentage shares of female in primary, secondary and tertiary enrolment, Latin America versus a selection of non Latin American countries, Table A.4.4: Gini coefficients of the attainment distribution of the working age population (25-64), Latin America versus East Asia, Figure A.4.5: Educational gini versus the percentage share of the working age population (age 25-64) with no schooling, Table A.4.6: Standard deviation and Coefficient of Variation of the attainment distribution of the working age population (25-64), Latin America versus East Asia, Table A.4.7: Unadjusted Grade Distribution Ratio s (1-6) in the developing world, Table A.5.1: Export specialisation patterns and openness to trade in Latin America, Figure A.5.2: The composition of employment in Argentina, Brazil, Mexico and the USA, Table A.7.1: The percentage share of urban own account workers in the total labour force in the USA, Canada, Chile, Costa Rica, Mexico, Panama and Venezuela, Table A.7.2: The distribution of employment in the trade sector according to status in employment, Latin America versus other New World Countries, (employment in thousands) 228 Table A.7.3: An overview of sources used to compute the Theil coefficient of manufacturing inter-industry wage distribution, the labour income share and the white-collar premium, Latin America and the USA, Canada and Australia, Table A.7.4: An example of a three-sector Theil-index 235 x