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

2. 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 ( )
Larger export tax revenues
Spent more on education
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Colonial Institutions, Trade Shocks, and the Diffusion of Elementary Education in Brazil,

3. General historical background
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Colonial Institutions, Trade Shocks, and the Diffusion of Elementary Education in Brazil,

4. 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
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Colonial Institutions, Trade Shocks, and the Diffusion of Elementary Education in Brazil,

5. General historical background
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Colonial Institutions, Trade Shocks, and the Diffusion of Elementary Education in Brazil,

6. 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)
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Colonial Institutions, Trade Shocks, and the Diffusion of Elementary Education in Brazil,

7. 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
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Colonial Institutions, Trade Shocks, and the Diffusion of Elementary Education in Brazil,

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

9. 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”
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Colonial Institutions, Trade Shocks, and the Diffusion of Elementary Education in Brazil,

10. 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
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Colonial Institutions, Trade Shocks, and the Diffusion of Elementary Education in Brazil,

11. 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
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Colonial Institutions, Trade Shocks, and the Diffusion of Elementary Education in Brazil,

12. 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
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Colonial Institutions, Trade Shocks, and the Diffusion of Elementary Education in Brazil,

13. 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)
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Colonial Institutions, Trade Shocks, and the Diffusion of Elementary Education in Brazil,

14. 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
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Colonial Institutions, Trade Shocks, and the Diffusion of Elementary Education in Brazil,

15. 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
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Colonial Institutions, Trade Shocks, and the Diffusion of Elementary Education in Brazil,

16. 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
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Colonial Institutions, Trade Shocks, and the Diffusion of Elementary Education in Brazil,

17. 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
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,

18. 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 ( )
Larger export tax revenues
Spent more on education
2/22/2019
Colonial Institutions, Trade Shocks, and the Diffusion of Elementary Education in Brazil,