Growth under extractive institutions? Latin American per capita GDP in colonial times

Arroyo Abad, Leticia and van Zanden, Jan Luiten

This paper presents new estimations of per capita GDP in colonial times for the two pillars of the Spanish empire: Mexico and Peru. We find dynamic economies as evidenced by increasing real wages, urbanization, and silver mining. Their growth trajectory is such that both regions reduced the gap with respect to Spain and even achieved parity. While experiencing swings in growth, the notable turning point is in 1780 as bottlenecks in production and later the independence wars reduced economic activity. To explain the long periods of growth between 1550 and 1780 we argue that these countries witnessed endogenous adaptations in institutions resulting in increased market orientation towards and a more balanced distribution of power between Spain and local elites. Our results question the notion that colonial institutions impoverished Latin America.