Historical Roots of Inequality in Latin America

Following Engerman and Sokoloff (1997, 2000, 2002) and Acemoglu, Johnson, and Robinson (2001, 2002), the authors of this chapter argue that the contemporary situation cannot be understood without recognizing that extreme inequality emerged soon after the Europeans began to colonize the Americas half a millennium ago, and has been reflected in the institutions they put in place. Both this initial inequality and institutions were shaped largely by the factor endowments that the Europeans found in Central and South America, rather than the nature of the colonial powers themselves. Although these colonies ultimately gained independence and the development of technology and the world economy brought about important changes, extreme inequality persisted into the 19 and 20 centuries because the evolution of political and economic institutions tended to reproduce and reinforce highly unequal distributions of wealth, human capital, and political influence.