Hostname: page-component-7c8c6479df-r7xzm Total loading time: 0 Render date: 2024-03-28T16:59:56.677Z Has data issue: false hasContentIssue false

Factor endowments, the rule of law and structural inequality

Published online by Cambridge University Press:  20 May 2016

DANIEL L. BENNETT*
Affiliation:
Economics and Business Analytics, Patrick Henry College, Purcellville, Virginia, USA Department of Economics, Florida State University, Tallahassee, FL, USA
BORIS NIKOLAEV*
Affiliation:
Department of Economics, Oxford College of Emory University, Oxford, Georgia, USA

Abstract

This paper provides an empirical test of the Engerman–Sokoloff hypothesis that factor endowments influenced the development of the rule of law, which in turn has perpetuated income inequality. Using a measure of the suitability of land for growing wheat relative to sugarcane as an instrument for the rule of law, as measured by area 2 of the Economic Freedom of the World index, we estimate the potential causal impact of the rule of law on the long-run net income inequality. Conditioning on geography, ethnolinguistic fractionalization and legal tradition, the rule of law exerts a negative impact on inequality that is both economically and statistically significant. The results are robust to additional control variables, two alternative measures of the rule of law, an alternative instrumental variable and the exclusion of strategic country samples and outliers.

Type
Research Article
Copyright
Copyright © Millennium Economics Ltd 2016 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Acemoglu, D., Johnson, S., and Robinson, J. A. (2001), ‘The Colonial Origins of Comparative development: An Empirical Investigation’, American Economic Review, 91 (5): 13691401.CrossRefGoogle Scholar
Barro, R. J. and Lee, J. W. (2013), ‘A New Data Set of Educational Attainment in the World, 1950–2010’, Journal of Development Economics, 104: 184198.CrossRefGoogle Scholar
Bennett, D. L. and Cebula, R. J. (2015), ‘Misperceptions About Capitalism, Government and Inequality’, in Cebula, R. J., Hall, J. C., Mixon, F. G. and Payne, J. E. (eds.), Economic Behavior, Entrepreneurship and Economic Freedom, Northampton, MA: Edward Elgar, pp. 120.Google Scholar
Bennett, D. L., Faria, H. J., Gwartney, J. D., and Morales, D. R. (forthcoming), ‘Evaluating Alternative Measures of Institutional Protection of Private Property and Their Relative Ability to Predict Economic Development’, Journal of Private Enterprise.Google Scholar
Bennett, D. L. and Nikolaev, B. (2015), ‘On the Ambiguous Economic Freedom-Inequality Relationship’, SSRN Working Paper. DOI: 10.2139/ssrn.2467222.CrossRefGoogle Scholar
Bennett, D. L. and Vedder, R. K. (2013), ‘A Dynamic Analysis of Economic Freedom and Income Inequality in the 50 U.S. States: Empirical Evidence of a Parabolic Relationship’, Journal of Regional Analysis & Policy, 43 (1): 4255.Google Scholar
Carter, J. (2006), ‘An Empirical Note on Economic Freedom and Income Inequality’, Public Choice, 130 (1): 163177.CrossRefGoogle Scholar
Desbordes, R. and Verardi, V. (2012), ‘A Robust Instrumental-Variables Estimator’, The Stata Journal, 12 (2): 169181.CrossRefGoogle Scholar
Easterly, W. (2007), ‘Inequality Does Cause Underdevelopment: Insights from a New Instrument’, Journal of Development Economics, 84 (2): 755776.CrossRefGoogle Scholar
Engerman, S. L. and Sokoloff, K. L. (1997), ‘Factor Endowments, Institutions, and Differential Paths of Growth Among New World Economies’, in Haber, S. (ed.), How Latin America Fell Behind, Redwood, CA: Stanford University Press, pp. 260304.CrossRefGoogle Scholar
Engerman, S. L. and Sokoloff, K. L. (2002), ‘Factor Endowments, Inequality, and Paths of Development Among New World Economies’, Economia, 3 (1): 41102.Google Scholar
Engerman, S. L. and Sokoloff, K. L. (2006), ‘Colonialism, Inequality, and the Long-Run Paths of Development’, in Banerjee, A. V., Bénabou, R. and Mookherjee, D. (eds.), Understanding Poverty, New York: Oxford University Press, pp. 3762.CrossRefGoogle Scholar
Forbes, K. J. (2000), ‘A Reassessment of the Relationship Between Inequality and Growth’, American Economic Review, 90 (4): 869887.CrossRefGoogle Scholar
Gallup, J. L., Sachs, J. D. and Mellinger, A. D. (1999), ‘Geography and Economic Development’, International Regional Science Review, 22 (2): 179232.CrossRefGoogle Scholar
Gwartney, J., Lawson, R. and Hall, J. (2013), Economic Freedom of the World 2013 Annual Report, Vancouver: Frasier Institute.Google Scholar
Heston, A., Summers, R. and Atten, B. (2012), Penn World Table Version 7.1, Center for International Comparisons of Production, Philadelphia, PA: Income and Prices at the University of Pennsylvania.Google Scholar
Holcombe, R. G. (2015), ‘Political Capitalism’, Cato Journal, 35 (1): 4166.Google Scholar
Kauffman, D., Kraay, A. and Mastruzzi, M. (2010). The Worldwide Governance Indicators: Methodology and Analytical Issues, Washington, DC: World Bank, WPS 5430.Google Scholar
Kleibergen, F. and Papp, R. (2006), ‘Generalized Reduced Rank Tests using the Singular Value Decomposition’, Journal of Econometrics, 133 (1): 97126.CrossRefGoogle Scholar
Klerman, D. M., Mahoney, P. G., Spamann, H. and Weinstein, M. I. (2011), ‘Legal Origin or Colonial History?’, Journal of Legal Analysis, 3 (2): 379409.CrossRefGoogle Scholar
Kuznets, S. (1955), ‘Economic Growth and Income Inequality’, American Economic Review, 45 (1): 128.Google Scholar
La Porta, R., Lopez-de-Silanes, F., Shleifer, A. and Andrei, R. W. (1999), ‘The Quality of Government’, Journal of Law, Economics and Organization, 15 (1): 222279.CrossRefGoogle Scholar
La Porta, R., Lopez-de-Silanes, F. and Shleifer, A. (2008), ‘The Economic Consequences of Legal Origins’, Journal of Economic Literature, 46 (2): 285332.CrossRefGoogle Scholar
Levine, R. (2005), ‘Law, Endowments and Property Rights’, Journal of Economic Perspectives, 19 (3): 6188.CrossRefGoogle Scholar
Lindert, P. (2000), ‘Three Centuries of Inequality in Britain and America’, in Atkinson, A. and Bourguignon, F. (eds.), Handbook of Income Distribution, vol. 1, Amsterdam: Elsevier, pp. 167216.CrossRefGoogle Scholar
Lindert, P. and Williamson, J. (2003), ‘Does Globalization Make the World more Unequal?’ in Bordo, M. D., Taylor, A. M. and Williamson, J. G. (eds.), Globalization in Historical Perspective, Chicago: University of Chicago Press for the NBER, pp. 227270.CrossRefGoogle Scholar
Mahoney, P. G. (2001). ‘The Common Law and Economic Growth: Hayek Might be Right’, Journal of Legal Studies, 30 (2): 503525.CrossRefGoogle Scholar
Mariscal, E. V. and Sokoloff, K. (2000), ‘Schooling, Suffrage, and the Persistence of Inequality in the Americas, 1800–1945’, in Haber, S. (ed.), Political Institutions and Economic Growth in Latin America: Essays in Policy, History, and Political Economy, Redwood, CA: Hoover Institution Press, pp. 159218.Google Scholar
Miller, T., Kim, A. B. and Holmes, K. R. (2013), 2014 Index of Economic Freedom. Washington, DC: Heritage Foundation.Google Scholar
North, D. C. (1991), ‘Institutions’, Journal of Economic Perspectives, 5 (1): 97112.CrossRefGoogle Scholar
OECD (2011), Divided We Stand: Why Inequality Keeps Rising, Paris: Organization for Economic Cooperation and Development.Google Scholar
Piketty, T. (2014), Capital in the Twenty-First Century, Cambridge: Harvard University Press.CrossRefGoogle ScholarPubMed
Przeworski, A. (2005), ‘Institutions matter?’, Government and Opposition, 39 (4): 527540.CrossRefGoogle Scholar
Scully, G. W. (2002), ‘Economic Freedom, Government Policy and the Trade-off between Equity and Economic Growth’, Public Choice, 113 (1/2): 7796.CrossRefGoogle Scholar
Sokoloff, K. L. and Engerman, S. L. (2000), ‘History lessons: Institutions, Factor Endowments, and Paths of Development in the New World’, Journal of Economic Perspectives, 14 (3): 217232.CrossRefGoogle Scholar
Solt, F. (2009), ‘Standardizing the World Income Inequality Database’, Social Science Quarterly, 90 (2): 231242.CrossRefGoogle Scholar
Stock, J. H. and Yogo, M. (2002), ‘Testing for Weak Instruments in Linear IV Regression’, Cambridge, MA: National Bureau of Economic Research, Technical Working Paper 284.CrossRefGoogle Scholar
Sturm, J. E. and De Haan, J. (2015), ‘Income Inequality, Capitalism, and Ethno-Linguistic Fractionalization’, American Economic Review: Papers & Proceedings, 105 (5): 593597.CrossRefGoogle Scholar