In the last three decades, the economic history of Paraguay has been subject to an intense reexamination. It has been claimed that the state in Paraguay led a ‘spectacular industrialisation effort’ in the second half of the nineteenth century and that this effort was prematurely truncated by war. One author, for example, has stated thatFrom 1852 on, free circulation on the river Paraná permitted a rapid increase of exports, mostly under state control. The resources thus freed were devoted to the development of the modern manufacture of industrial goods and plant: iron and steel, engineering, shipbuilding, brickmaking, etc. A railway and a telegraph were installed without incurring an external debt. The experiment was nevertheless spoiled by the war with the ‘Triple Alliance’ (1864–1870), which opposed Brazil, Argentina, and Uruguay to Paraguay, and resulted in the demographic and economic collapse of the country.

I argue here that economic activity fell considerably in the first three decades of Paraguay's early national period, below levels it had attained in the late colonial period and would attain again only after the mid-nineteenth century. I attribute this economic depression primarily to regional political fragmentation and the institutional regression it triggered. In the 1810s, the United Provinces of the River Plate sought to keep the former Viceroyalty of the River Plate under a single federal government, but failed to prevent Paraguay's early secession. Their subsequent trade blockades and military threats had profound economic and political effects on Paraguay: revenues from foreign trade taxation fell, scale economies in defence and justice provision vanished, a standing army emerged, government budget deficits worsened, mercantilist regulations heightened, the fiscal burden increased, and transactions costs generally rose. Proponents of federation, more representative governments, and freer trade progressively declined, while supporters of secession, political absolutism, and government regulation became ever more prominent. In the 1820s, blockade relaxations exacerbated economic intervention by the state, which substantially redistributed property rights in land towards itself. In the 1830s, renewed blockading had more than proportional negative effects on economic activity, which remained below late colonial levels at least until international waterways became freely navigable shortly after mid-century. Colonial absolutism and mercantilism may be said to have been restored with a vengeance. Long-run economic performance worsened.

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Según Domar, las causas de la esclavitud o de la servidumbre pueden encontrarse en la escasez relativa de trabajo en relación con la tierra y en la intervención gubernamental que, entre 1550 y 1650, llevaron a la servidumbre al campesinado ruso, anteriormente libre '. Formas similares de trabajo forzado y libre surgieron aproximadamente al mismo tiempo, aunque no en el mismo orden, en una serie de colonias periféricas, españolas y portuguesas, en América, donde la tierra era igualmente abundante en relación con el trabajo. Propongo, por lo tanto, contrastar la hipótesis de Domar verificando si sus predicciones son consistentes con la experiencia de una colonia periférica española bastante representativa, como es Paraguay ^. Resumiré la hipótesis en la sección 1, describiré brevemente las formas de trabajo forzado y libre que surgieron en el caso de prueba de la sección 2, contrastaré las implicaciones de la hipótesis con la evidencia empírica en la sección 3 y reformularé ciertos aspectos de la hipótesis para que sean consistentes con el caso estudiado en la sección 4. Idealmente, la hipótesis reformulada se debería volver a contrastar con una visión más amplia de la historia de Paraguay, así como con la de otras colonias periféricas y de las regiones que Domar examinó. No obstante, y por limitaciones de espacio, solamente apuntaré en

This article explores the effects of changing exposure to world trade and relative factor abundance on the institutional and economic development of a paradigmatic Spanish-American frontier colony, Paraguay. The problem is conceptualized within a neoinstitutionalist staples model in which-during the long sixteenth-century trade expansion-the colonial state delegated the provision of defence onto individuals who financed it by restricting indigenous labour mobility and extracting the resulting monopsony rents. Despite the encomienda's stated intentions, its inefficient incentive system actually contributed to the decline in indigenous population and provincial security shortcomings. As trade contracted and defence needs rose during the seventeenth-century crisis the crown commuted the labour services of Jesuit mission Indians for contributions to defence and payments in kind and money. The mestizo peasantry remained free, but was increasingly burdened with military obligations as well. This article is concerned with economic development in a paradigmatic Spanish American frontier colony during the world trade expansion of the long sixteenth century and the crisis of the seventeenth century. It argues that growth of staple production and the requirements of conquest and defence, together with the relative scarcity of labour as compared to land led the cooperative relations that had originally been established between Spaniards and indigenous people in Paraguay to be displaced by successive forms of coerced indigenous labour. In particular, enslavement of indigenous people by private Spaniards contributed to the decline of the indigenous population and the imposition by the colonial administration of the encomiendas and the congregacioT n among other state-run systems of compulsory labour. The incentive system embodied in the encomienda and the congregacioT n, however, kept them from succeeding in their intended aim of protecting the indigenous population, which continued to fall. As