Institutions in the Americas Colonial Institutions, Trade Shocks, and the Diffusion of Elementary Education in Brazil, 1889-1930 Aldo Musacchio, André Martinez Fritscher and Martina Viarengo

Summary Slide Main Question: How colonial institutions affected the provision of public goods (education) How it’s answered: How variation in export tax revenues in Brazilian states between 1889 and 1930 , and their interaction with colonial institutions, explain which states spent on education and forged ahead, and which states lagged behind Main Result: Progress in the provision of elementary education in Brazil was largely a consequence of decentralization of revenues and expenditures Muted in states with more slaves before abolition states that cultivated cotton during colonial times -> states with highly extractive economic institutions - Commodities undergoing international booms (1889-1930) Larger export tax revenues Spent more on education 2/22/2019 Colonial Institutions, Trade Shocks, and the Diffusion of Elementary Education in Brazil, 1889-1930

General historical background 2/22/2019 Colonial Institutions, Trade Shocks, and the Diffusion of Elementary Education in Brazil, 1889-1930

After independence 1821 Fiscal institutions held back expansion of mass schooling Constitutional monarchy, elected parliament and emperor, right to vote restricted by income requirement Collection of revenues centralized -> spent on capital city and armed forces Money for schools educating children of the elite 1890: lowest literacy rate in the Americas, one or two schools for every 1000 school-age children 2/22/2019 Colonial Institutions, Trade Shocks, and the Diffusion of Elementary Education in Brazil, 1889-1930

General historical background 2/22/2019 Colonial Institutions, Trade Shocks, and the Diffusion of Elementary Education in Brazil, 1889-1930

Context of the paper (1) 1889-1930 Constitution decentralized fiscal responsibilities and providing public goods No mechanism to aid the poor states -> expenditures on education only in states that had enough export revenues -> boosted some states (rubber and coffee), kept stable others (sugar, tobacco) 2/22/2019 Colonial Institutions, Trade Shocks, and the Diffusion of Elementary Education in Brazil, 1889-1930

Context of the paper (2) 1889-1930 Shift from Lancester method to a system that separated students according to grades and schedules one subject at a time -> more teachers, more buildings Direct elections (Republic) = incentives for politicians to spend on education voters demand education literacy requirement to vote School enrollment, teacher-pupil ratio and number of schools per children enrolled improved significantly Largest increase in literacy rates in Latin America 2/22/2019 Colonial Institutions, Trade Shocks, and the Diffusion of Elementary Education in Brazil, 1889-1930

Context of the paper (3) 1889-1930 Uneven across states and races 2/22/2019 Colonial Institutions, Trade Shocks, and the Diffusion of Elementary Education in Brazil, 1889-1930

Why is this context well-suited to test the hypotheses? Brazil had the largest increase in literacy rates in Latin America, but uneven across states By finding the effects that colonial institutions and subsequent changes in fiscal institutions had on educational outcomes in different states, one can find the reason for why some states managed to improve their development trajectories “Something changed, and it was not the colonial past” 2/22/2019 Colonial Institutions, Trade Shocks, and the Diffusion of Elementary Education in Brazil, 1889-1930

How do the authors try to answer the question? Majority of revenues from export taxes -> states with price ramp-ups could spend more on education Only if they chose to! Variation in fiscal revenues across states and over time -> explain the variation in education expenditures at the state level Export prices and export tax revenues positively correlated with education expenditures per capita and with education outcomes How extractive colonial institutions slowed down some of the positive effects (elites, exploitation patterns) Alternative explanations and results 2/22/2019 Colonial Institutions, Trade Shocks, and the Diffusion of Elementary Education in Brazil, 1889-1930

1. Export tax revenues positively correlated with education expenditures (1) States that had exported mining products, sugar or tobacco had less export tax revenues to spend on education than states that exported commodities undergoing international booms, such as rubber and coffee Increase in export prices and not the composition of exports determined the increase in revenues and expenditures Robustness check, how exogenous If they could control the prices, might not be exogenous Brazil was the world’s largest exporter of coffee and rubber -> strongly influenced coffee prices Leave out coffee-exporting and rubber-exporting states -> still significant 2/22/2019 Colonial Institutions, Trade Shocks, and the Diffusion of Elementary Education in Brazil, 1889-1930

1. Export tax revenues positively correlated with education expenditures (2) Data OLS regression, variables: Expenditures on education per capita Export tax revenue per capita Vector for state characteristics (population density and debt per capita) Year dummies Regressions with and without state-fixed effects -> How much education spending would increase given a 1 percent increase in export tax revenue 2/22/2019 Colonial Institutions, Trade Shocks, and the Diffusion of Elementary Education in Brazil, 1889-1930

2. How extractive colonial institutions slowed down some of the positive effects (1) States with slavery and states with most exploitative cotton plantations -> increases in export taxes not translated into education expenditures Cotton colony ≠ lower expenditures in the long run -> Slavery generates elitist institutions, but correlation has not begun in colonial times States with relatively high proportion of slaves in 1964: positive trade shocks ≠ more education spending Intensity with which slaves prevailed in a state later leads to lower education spending Two explanations: 1. Pure racism 2. Unequal distribution of economic assets (maintain status quo) 2/22/2019 Colonial Institutions, Trade Shocks, and the Diffusion of Elementary Education in Brazil, 1889-1930

2. How extractive colonial institutions slowed down some of the positive effects (2) Larger number of voters positive trade shocks ≠ more education spending Two explanations: 1. Income requirement to vote (slave states richer) 2. States that started with large number of voters had no incentive to rush to educate more voters Not the specific colonial institution mattered, but how they were preserved or recreated in 19th century Not significantly correlated: High distance from equator, high mortality rates, high concentration of land ownership 2/22/2019 Colonial Institutions, Trade Shocks, and the Diffusion of Elementary Education in Brazil, 1889-1930

2. How extractive colonial institutions slowed down some of the positive effects (2) Data Variables proxying for colonial institutions Variables that measure the main commodity produced in a given province during colonial time State’s slave population Distance to the equator Mortality rates Dummy for high concentration of land ownership (if percentage of large farms is above the mean) Dummies proxying for colonial commodities Good and bad colonial institutions (plantation agriculture, coerced labor) Dummy for sugar, cotton and mining (led to bad political institutions) Agricultural commodities that relied mostly on slaves 2/22/2019 Colonial Institutions, Trade Shocks, and the Diffusion of Elementary Education in Brazil, 1889-1930

3. Alternative explanations Hypotheses that do not work Alternative factors that drive demand for education 1. Industrials/ families demanded better education because skills are important in an industrialized state -> Increase mostly in sectors of first industrial revolution 2. Immigrants demanded better education -> most of them from Italy, Portugal and Spain, governments there didn’t spend much on education either 2/22/2019 Colonial Institutions, Trade Shocks, and the Diffusion of Elementary Education in Brazil, 1889-1930

3. Results State governments collected more tax revenue when the prices of their export commodities went up Higher export tax revenue and fewer slaves -> spent more on education 1889-1930 progress in education, mostly because of decentralization of fiscal responsibilities -> institutional changes actually matter Major increases in tax revenues has a long lasting effect on human capital accumulation and its distribution across states (no significant change in ranking since 1930) 2/22/2019 Colonial Institutions, Trade Shocks, and the Diffusion of Elementary Education in Brazil, 1889-1930

Summary Slide Main Question: How colonial institutions affected the provision of public goods (education) How it’s answered: How variation in export tax revenues in Brazilian states between 1889 and 1930 , and their interaction with colonial institutions, explain which states spent on education and forged ahead, and which states lagged behind Main Result: Progress in the provision of elementary education in Brazil was largely a consequence of decentralization of revenues and expenditures Muted in states with more slaves before abolition states that cultivated cotton during colonial times -> states with highly extractive economic institutions - Commodities undergoing international booms (1889-1930) Larger export tax revenues Spent more on education 2/22/2019 Colonial Institutions, Trade Shocks, and the Diffusion of Elementary Education in Brazil, 1889-1930