Labour Markets and Representative Institutions: Evidence from Colonial British America
European Bank for Reconstruction and Development (EBRD) - Office of the Chief Economist
July 27, 2011
Under what circumstances do democratic versus authoritarian institutions emerge? Answering this question properly is often hampered by the endogeneity and slow-changing nature of political arrangements. This paper uses a new data set on the quality of political institutions covering the 13 British American colonies from their establishment to the American Revolution to develop and test a new theory linking institutional quality to labour scarcity. The relative fluidity of political institutions during this time period, the exogenous nature of the slavery labour shock in the early eighteenth century, and the use of data from a group of similar colonies allow me to better determine causality. I show that in cases of a labour shortage elites use the right to vote to attract workers, leading to the emergence of democratic institutions and only when labour demand eases do those in power have an incentive to contract the suffrage. The empirical results, supplemented by a formal model, show that a 10 percentage point decrease in the scarcity of labour increases the strictness of the suffrage by over 8 percent in the short run, and by close to 20 percent in the long run. Although data on the distribution of income or wealth during this period is not available, an alternative proxy for economic inequality reveals that the structure of labour markets trumps inequality in the final choice of the suffrage regime, contrary to standard inequality-democracy arguments.
Number of Pages in PDF File: 94
Keywords: democratization, institutions, colonialism
JEL Classification: D72, D78, N41working papers series
Date posted: July 27, 2011 ; Last revised: July 16, 2012
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