The Rents from Trade and Coercive Institutions: Removing the Sugar Coating
68 Pages Posted: 6 Nov 2016
Date Written: June 16, 2016
A sustained export price boom may not benefit workers if the resulting rents lead employers to invest in coercive activities that reduce wages. We formalize this idea in a simple model of an agricultural economy with exogenous export price fluctuations and plantation owners who mobilize the power of the state to coerce peasants. Coercion is any action that reduces the value to peasants of working in the non-plantation economy e.g., working as independent smallholders. Using unique data for 14 British West Indies sugar colonies from 1838 to 1913, a period in which sugar prices collapsed, we examine the impact of waning planter elite power on wages, incarceration rates, and peasant-biased taxes. In those colonies where the plantation system declined most, incarceration rates and peasant-biased taxes fell and, remarkably, wages rose.
Keywords: International Trade, Coercive Institutions, Economic Development
JEL Classification: F1, F16, N26
Suggested Citation: Suggested Citation