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

Abstract

In this paper, we present evidence on the relationship between inequality and long-term development using data on different Brazilian regions. New inequality indicators are constructed from scratch for Brazilian municipalities in 1920 (using the Census of 1920, which, surprisingly, had thus far been ignored for such purposes). We find no significant relationship between economic (land) inequality (proxied by the Land Gini) and political concentration (proxied by the percentage of eligible voters) for Brazilian municipalities in the early twentieth century. Econometric analysis indicates a positive robust relationship between economic inequality and long-term development indicators for Southeastern states: Sao Paulo and Minas Gerais; we find no relationship for Pernambuco; and a positive and robust relationship for Rio Grande do Sul. We found no evidence of a robust relationship between the percentage of eligible voters and long-term development, a surprising result in light of the results provided in development literature, but likely consistent with a politically captured system with very low levels of enfranchisement. These results are shown to hold even when controlling for proxies for structural changes that happened in this time span, namely: urbanization, industrialization, and immigration. Moreover, land inequality in 1920 is at most weakly related to contemporaneous income inequality for Minas Gerais and Sao Paulo, but significant for Pernambuco and Rio Grande do Sul. These results highlight the importance of the study of historical and social elements in their respective context, as the results are consistent with the picture of a rural Brazil dominated by agrarian elites within a complex institutional environment. 1 Email: pedrofunari@gmail.com