Factor Endowments, Inequality, and Paths of Development among New World Economies

Abstract

Geographic patterns in economic performance across societies have long been recognized, but there has been a recent revival of interest in them among economists. Confronted by systematic evidence of powerful empirical regularities, such as the per capita income of countries near the equator lagging far behind that of their neighbors at more moderate latitudes, researchers hope to gain insight into the processes of economic growth by exploring the sources of these disparities. One group focuses on the direct effects of conditions closely associated with geography, such as climate, disease environment, soil quality, or access to markets, and on the availability and productivity of labor and other factors of production. Other scholars, however, highlight how such differentials in performance could be rooted in the indirect effects that geography and factor endowments have on paths of development through their influences on [End Page 41] the ways institutions evolve. 1 Both perspectives have distinguished intellectual traditions, but the question of whether there might be systematic reasons why some societies are more likely than others to evolve institutions that are conducive to growth seems to have generated particular excitement. This should not be surprising. Despite an emerging consensus that institutions are important for growth, knowledge of where institutions come from and how institutions that are bad for growth persist over time remains very limited.