Oligarchic Land Ownership, Entrepreneurship, and Economic Development

This paper develops a theory in which oligarchic ownership of land or other natural resources impedes entrepreneurship in the manufacturing sector and thereby retards structural change and economic development. We show that, due to oligopsony power of owners in the agricultural labor market, higher ownership concentration is harmful for start-ups by landless, credit-constrained households, whose investment possibilities depend on the income earned in the primary sector. Employing U.S. state-level data for 1880 and 1910 we …nd, consistent with the presence of oligopsony power, that a higher share of landowners in the population was associated with higher wages for farm labor. Moreover, we discuss historical evidence from Latin America, India, Taiwan and South Korea. (JEL O10, O13, O40) Falkinger: Socioeconomic Institute, University of Zurich, Zürichbergstr. 14, CH8032 Zurich (email: [email protected]. Grossmann: Department of Economics, University of Fribourg, Bd. de Pérolles 90, CH-1700 Fribourg (email: [email protected]). We are grateful to Abhijit Banerjee, Ann Markusen, Omer Moav, Guido Tabellini, Heinrich Ursprung and Fabrizio Zilibotti for valuable hints and suggestions. Timo Boppart and Gianfranco Ia…gliola provided excellent research assistance. We are also indebted to seminar participants at the workshop “Economic Growth and Institutions”(University of Copenhagen), the European Economic Association meeting 2006 in Vienna, the German Economic Association meeting 2006 in Bayreuth, as well as research seminars at the University of Munich, Konstanz and Hannover.