University of Groningen Explorations in Latin American economic history López Arnaut, Javier

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University of Groningen

Explorations in Latin American economic history López Arnaut, Javier

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López Arnaut, J. (2017). Explorations in Latin American economic history. University of Groningen.

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Explorations in Latin American economic history

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Publisher: University of Groningen Groningen, The Netherlands Printed by: Ipskamp Printing

Enschede, The Netherlands ISBN: 978-90-367-9798-6

978-90-367-9797-9 (e-book) © Javier L. Arnaut, 2017

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.

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Explorations in Latin American

economic history

PhD thesis

to obtain the degree of PhD at the University of Groningen

on the authority of the Rector Magniﬁcus, Prof. E. Sterken

and in accordance with

the decision by the College of Deans. This thesis will be defended in public on

Thursday 11 May 2017 at 12:45 hours

by

Javier López Arnaut Born on 1 June 1981 in Baja California Sur, Mexico

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Supervisor

Prof. H. J. de Jong

Assessment committee Prof. L. Prados de la Escosura Prof. J.P. Elhorst

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List of tables

2.1. Data sample of colonial treasuries employed in this study ... 29

2.2. Ten-year average of treasury revenue in Mexico City, 1700-1809. ... 33

2.3. Stationarity tests on revenue and expenditure: New Spain. ... 46

2.4. Stationarity tests on revenue and expenditure: Peru and Rio de la Plata. ... 47

2.5. Cointegration tests: New Spain. ... 50

2.6. Cointegration tests: Peru and Rio de la Plata. ... 51

2.7. Tests for multiple structural changes in long run equations. ... 52

2.8. Results of inter-temporal budget constraints across regimes. ... 54

2.1.A. Conversion Spanish peso-silver grams. ... 58

3.1. Levels of GDP per capita in selected countries, 1870 and 1910. ... 70

3.2. Sectoral shares of real GDP per capita, 1877-1910. ... 71

3.3. Population in Mexico by region, 1895-1910 ... 73

3.4. National wage growth and inflation, 1877-1910. ... 81

3.5. Growth of nominal wages by sector ... 85

3.6. Growth of wages by sector adjusted with prices of Mexico City. ... 86

3.7. Growth of regionally-adjusted wages by sector and region. ... 88

3.8. Growth of real wages in industry by region adjusted with regional deflators. ... 90

3.1.A. Expenditure weights for regional price indices. ... 101

3.2.A. Regional price indices in Mexico, 1885-1908 ... 103

3.2.B. Mexican regional wages adjusted with regional deflators, 1885-1908 ... 104

4.1. Levels of GDP per capita in selected countries, 1930 and 1980. ... 118

4.2. Average rate of effective protection in Argentina, Brazil, and Mexico. ... 120

4.3. Industry census country/year sample. ... 125

4.4. Employment shares by manufacturing branch in Mexico, Argentina, and Brazil ... 131 4.5. Relative productivity levels by manufacturing branch in Mexico, Argentina,

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and Brazil ... 132

4.6. Shift-share decomposition of manufacturing productivity growth in Mexico ... 138

4.7. Shift-share decomposition of manufacturing productivity growth in Argentina ... 141

4.8. Shift-share decomposition of manufacturing productivity growth in Brazil ... 143

4.1.A. Comparative benchmark of levels of gross value added per person employed in Mexico, Argentina, and Brazil in 1935/39. ... 151

4.1.B. Comparative benchmarks of levels of gross value added per person employed in Mexico, Argentina, and Brazil in 1947/49/50. ... 151

4.1.C. Comparative benchmark of levels of gross value added per person employed in Mexico, Argentina, and Brazil in 1974/1975. ... 152

4.2.A. Wholesale price indices, Brazil 1938-1947. ... 153

4.2.B. Wholesale price indices for Mexico by branch, 1939-1975. ... 154

4.2.C. Wholesale price index of Mexico, Argentina, and Brazil (1975=100). ... 155

4.2.D. Census aggregation into ISIC Classification rev. 3. ... 156

4.2.E. Manufacturing industries classified according their global technological intensity. ... 157

5.1. Gross Domestic Product (GDP) per worker and per hour in selected Latin America and East Asian countries relative to the United States, 1950-2010. ... 170

5.2. Productivity growth indicators in Asia and Latin America, 1970-2010. ... 173

5.3. Disaggregated economic institutions. ... 184

5.4. Summary statistics. ... 186

5.5. Property rights (PR), distance to frontier (DTF), and interactions: 1970-2010. ... 189

5.6. Market regulation (MR), distance to frontier (DTF), and interactions: 1970-2010. ... 190

5.7. Sound Money (SM), distance to frontier (DTF), and interactions: 1970-2010. ... 191

5.8. Size of government (SG), distance to frontier (DTF), and interactions: 1970-2010. ... 192

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5.9. Interaction terms across sectors and controls: Restricted sample for Asia

and Latin America, 1970-2010. ... 195

5.1.A. Test of differences in means of institutions by region 1970-2010. ... 201

5.1.B. Normality test on estimated residuals. ... 201

5.2.A. Pairwise correlation matrix. ... 202

5.2.B. Re-estimation using different human capital control (tertiary schooling) and non-linear effects... 203

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List of figures

1.1 Historical periods and topics analyzed in the dissertation………3

2.1. Spanish America circa 1650 ... 23

2.2. Share of fiscal revenue by branch in the cajas reales of New Spain, 1795-1799. ... 24

2.3. Evolution of inflation and gross nominal revenue in Mexico City, 1577-1813 ... 34

2.4. Price indices by colonial city, 1577-1813 ... 36

2.5. Treasury revenue adjusted for inflation in selected treasuries. ... 38

2.6. Primary budget balance adjusted for inflation in Mexico City and Lima. ... 40

2.2.A. Nominal vs real revenue and primary balance: Lima ... 59

2.2.B. Nominal vs real revenue and primary balance: Mexico ... 60

2.3.A. Real revenue and primary balance of the treasury of Veracruz. ... 62

2.3.B. Real revenues in the treasuries of Acapulco, Guadalajara, and Zacatecas. ... 62

3.1. Mexican railway network and main towns in 1910. ... 73

3.2. Evolution of prices, nominal wages, and real wages in Mexico, 1877-1910. ... 82

3.3. Price index by region. ... 83

3.4. Mexican nominal wages, 1877-1911. ... 86

3.5. Wages by region adjusted with prices of Mexico City, 1877-1910. ... 87

3.6. Regional wages adjusted with regional deflators, 1885-1908. ... 88

3.7. Regionally-adjusted wages in the mining sector, 1885-1908. ... 90

3.8. Real wages of the agricultural sector in the Gulf and Pacific South, 1895-1908 ... 92

3.9. σ-convergence/divergence of real regional wages, 1885-1908. ... 93

3.10. β-divergence of real wages across Mexican regions. ... 94

3.11. Agricultural real wage gap to industry and mining. ... 97

3.3.A. Composition of Mexican exports to its main trading partners in 1890 and 1911 (export value as % of total)………106

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4.2. Average tariffs in Argentina, Brazil, Mexico, and United States, 1930-1972. ... 120 4.3. Growth of total manufacturing nominal value added per worker and nominal

compensations per worker in Mexico, Argentina, and Brazil, c.1950-1975. ... 124 4.4. Wholesale price index, Brazil 1938-1947. ... 129 4.5. Growth of industrial employment by period according to classification of

‘technological intensity’. ... 131 4.6. Shift-share decomposition of aggregate labour productivity growth in Mexico’s manufacturing, 1935-1975. ... 140 4.7. Shift-share decomposition of aggregate labour productivity growth in

Argentina’s manufacturing, 1935-1974. ... 141 4.8. Shift-share decomposition of aggregate labour productivity growth in

Brazil’s manufacturing, 1935-1975. ... 143 5.1. Institutions for catching up at the sectoral level. ... 170 5.2. Sectoral value added per worker in Latin America and East Asia relative to

the United States, 1970-2010. ... 172 5.3. Manufacturing labor productivity growth, institutional quality, and change

in institutional quality in Latin America and Asia, 1970-2010. ... 177 5.3.A. Indices of institutional quality in Latin America, 1970-2010………..205 5.3.B. Average marginal effects of interactions with distance to the frontier on labor productivity growth at different levels and types of institutions………206

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Acknowledgements

First and foremost, I want to thank my supervisor Herman de Jong for his support throughout the years. I am very grateful for his advice and patience. Herman gave me the freedom to expand my research into other topics guiding me to remain sharp and motivated. Aside for my admiration to his academic career, I am indebted for his lessons at the personal level. Thanks to his honesty and friendly personality, I’ve learned the importance of friendship inside and outside academia.

For about five years I presented my research in several international conferences and seminars which it wouldn’t have been possible without the financial support of the SOM Research School of the University of Groningen, the Erasmus Mundus External Cooperation Window, and the Mexican Ministry of Science and Technology. In those research trips to the UK, Austria, Belgium, Spain, The Netherlands, South America, and Scandinavia, I met brilliant academics that influenced me enormously. Among those I would like to thank them for their comments to my research without implicating them in any way, Deirdre McCloskey, Jeffrey Williamson, Forrest Capie, Colin Lewis, Alejandra Irigoin, Luis Bértola, Rui Esteves, Christer Gunnarsson, Branko Milanovic, and Jan Luiten van Zanden.

Working within the economic history group of the University of Groningen influenced naturally the quantitative orientation of this work. I want to thank my colleagues Ben Gales, Martin Uebele, Jutta Bolt, Joost Veenstra, Pieter Woltjer, Ye Ma, Rick Holsgens, Oisín Gilmore, Nikita Bos, and students in the N.W. Posthumus Instituut. Special thanks go to Marcel Timmer. His research and his graduate course on economic growth in particular, changed the way I think about development. A similar appreciation goes to Gaaitzen de Vries, Robert Inklaar, Bart Los, Gerard Kuper, Jan Jacobs, and Petros Milionis. I thank in particular my former officemate Tamás Vonyó. Apart from being a great academic and idea pitcher, he is a good friend. I also owe gratitude to Aurora Gómez-Galvarriato for encouraging me to pursue the path of economic history during my phase as a master student in Mexico.

I have also benefited from the interaction with the ‘emerging’ Latin American and Spanish generation of economic historians like Cristián Ducoing aka ‘Tambo’, Daniel Gallardo, Cecilia Lara, and various doctoral students attending the first economic history summer school in Montevideo, Uruguay. I appreciate the friendship of my Mexican-Dutch

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colleague Tjeerd Boonman. His research on Latin American finance motivated me in upgrading the standards of analysis. I am indebted to Nayelli Salazar-Piñón. She helped me to obtain data of the Spanish American treasuries which was used in chapter 2. Without her help it would have been much more difficult to write that chapter. I am thankful to Maarten Visker, Michael Clemens, Svante Prado, and Lavih Abraham, for sharing some of their data and various secondary sources which were important to complete chapter 4.

I express my gratitude to Anna Samarina. Her friendship created a great work environment during my time at the Faculty of Economics and Business, and together with her husband Martin made that period unforgettable. I was also lucky to be surrounded by amazing colleagues like Addisu Abebe, Kostantinos Sklavos, and Yeliz Cantimur. A special thanks goes to Arthur de Boer for his efficiency in dealing with my administration formalities and assisting me in printing this thesis.

The last year and a half of this project was finished in Warsaw, Poland. I am indebted to my good friends Dorota Szelewa and Michał Polakowski for their help during my stay in the Polish capital. Their support through the International Centre for Research and Analysis (Fundacja ICRA) has opened me new roads.

I am fully responsible for the content of this thesis. However, it was also the product of the love of my girlfriend Iwonka, and the affection of my soul brother Mauricio Zúñiga. I dedicate this work to them. Mauricio’s life and early departure in December 2015 has taught me the importance of living a life with gratitude. Sadly, he went ahead of me on the journey and I couldn’t hand him this final version. I am ‘almost’ sure that he would have been proud of this. The support of Iwonka turned the periods of stress and sadness into periods of joy and happiness. She has been my solid rock all along and her unconditional love was fundamental in finishing this project.

Warsaw, Poland November 2016 Javier L. Arnaut

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