Jorge Álvarez - Gabriel Porcile
“Institutions, the land market and income distribution in New Zealand and Uruguay (1870-1940)”

Abstract:New Zealand and Uruguay are two countries of new settlement that achieved a relatively high income per capita during the First Globalization era at the end of the Nineteenth Century, based on the high productivity of their agricultural sectors. However, in spite of many similarities (geography, climate, demography, and the insertion in the international economy as suppliers of agricultural goods, mainly to the British market), Uruguay lagged behind New Zealand in terms of income per capita and agrarian productivity since the first decades of the Twentieth Century. This paper discusses why Uruguay and New Zealand (NZ) diverged. It is argued that an institutionalist approach to the determinants of economic growth, focusing on property rights for land and land distribution, may contribute to shed light on this question. These were countries characterized by the abundance of natural resources and by scarce population (formed mostly by descendents of European immigrants), which successfully participated in the expanding international economy as exporters of food and raw materials. By the last quarter of the XIXth century NZ and Uruguay had achieved levels of income per capita higher than many leading European countries. However, their subsequent trajectories were rather different. To address this problem, the paper analyzes how factors of production and investment decisions were rewarded in both countries. More specifically, the hypothesis is that institutions were very different in NZ and Uruguay, shaping incentives to investment in such a way that while in Uruguay they favored a renter approach, in NZ stimulated productivity growth. The paper focuses on a specific dimension of institutions, namely property rights and income distribution in the agrarian economy.

JEL: N17 N17O57 P52.
Keywords: Institution, economic growth, income distribution.



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