Inequality in Landownership, the Emergence of Human-Capital Promoting Institutions, and the Great Divergence

Abstract

This paper suggests that inequality in the distribution of landownership adversely affected the emergence of human-capital promoting institutions (e.g. public schooling), and thus the pace and the nature of the transition from an agricultural to an industrial economy, contributing to the emergence of the great divergence in income per capita across countries. The prediction of the theory regarding the adverse effect of the concentration of landownership on education expenditure is established empirically based on evidence from the beginning of the 20th century in the U.S.

Institutions, inequality, and long-term development: a perspective from Brazilian regions

“…Ramcharan shows that -somewhat surprisingly -greater inequality is significantly associated with lower levels of redistribution. 42 Ramcharan concludes by asserting that political economy models that emphasize a connection between economic inequality, credit markets constraints, and differences in political influence across economic groups appear to offer the most attractive explanation for the negative correlation between inequality and redistribution found in the data of works such as Benabou (2000), Bourguignon and Verdier (2000), and Galor, Moav, and Vollrath (2009). He goes further, supposing that these results also tentatively suggest that the negative correlation found between inequality and economic growth in cross-country data might stem from too little rather than too much productive distribution.…”

“…Moreover, Bourguinon and Verdier (2000) suggest that, despite the potential externality benefits of investing in education for the society as a whole, elites might restrict investments in education in order to preserve their political power and avoid future taxation. Galor, Moav, and Vollrath (2009) suggest that inequality in the distribution of landownership adversely affected the emergence of human-capital promoting institutions (e.g. public schooling), and thus the pace and nature of the transition from an agricultural-based economy to an industry-based economy, contributing to the emergence of the great divergence in income per capita across countries.…”

“…The last two centuries have been characterized by a great divergence in income per capita across the globe (Galor, Moav, and Vollrath 2009;Milanovic 2011;Acemoglu 2009). If we look at recent global income distribution -PPP adjusted -we will see that the top 1 percent of the world"s richest have seen their real income rise by more than 60 percent over the last two decades.…”

“…This negative effect could be due to a variety of mechanisms, such as political economy mechanisms (Persson and Tabellini 1994;Alesina and Rodrik 1994), imperfect capital markets (Banerjee and Newman 1991;Galor and Zeira 1993) and investment in human capital (Galor and Zeira 1993;Bourguignon and Verdier 2000;Galor, Moav, and Vollrath 2009), and through the composition of aggregate demand (Murphy, Shleifer, and Vishny 1989). 37 Important surveys of this literature include 33 For a regional extension of the Kuznets" curve, see Williamson (1965).…”

“…Later works indicate a possible negative effect of economic inequality on growth, both theoretically and empirically. Several mechanisms were suggested as causes of this, such as political economy mechanisms (Alesina and Rodrik 1994;Persson and Tabellini 1994), imperfect capital markets (Banerjee and Newman 1991; Galor and Zeira 1993) and investment in human capital (Bourguignon and Verdier 2000;Galor, Moav, and Vollrath 2009;Galor and Zeira 1993), and the composition of the aggregate demand (Murphy, Shleifer, and Vishny 1989).…”