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Factor endowments, the rule of law and structural inequality

Published online by Cambridge University Press:  20 May 2016

DANIEL L. BENNETT  and
BORIS NIKOLAEV
DANIEL L. BENNETT*
Affiliation:
Economics and Business Analytics, Patrick Henry College, Purcellville, Virginia, USA Department of Economics, Florida State University, Tallahassee, FL, USA
BORIS NIKOLAEV*
Affiliation:
Department of Economics, Oxford College of Emory University, Oxford, Georgia, USA
*
*Email: bennettecon@gmail.com
**Email: borisnikolaev@gmail.com
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Abstract

This paper provides an empirical test of the Engerman–Sokoloff hypothesis that factor endowments influenced the development of the rule of law, which in turn has perpetuated income inequality. Using a measure of the suitability of land for growing wheat relative to sugarcane as an instrument for the rule of law, as measured by area 2 of the Economic Freedom of the World index, we estimate the potential causal impact of the rule of law on the long-run net income inequality. Conditioning on geography, ethnolinguistic fractionalization and legal tradition, the rule of law exerts a negative impact on inequality that is both economically and statistically significant. The results are robust to additional control variables, two alternative measures of the rule of law, an alternative instrumental variable and the exclusion of strategic country samples and outliers.

Type
Research Article
Information
Journal of Institutional Economics , Volume 12 , Issue 4 , December 2016 , pp. 773 - 795
Copyright
Copyright © Millennium Economics Ltd 2016 

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