Discussion papers // Ibero America Institute for Economic Research 119
Recent literature has pointed out that the historical distribution of assets is crucial in explaining the observed rigidity in post-war income inequality levels. This paper explores the causes and consequences of historical land distribution employing new and existing estimates of land inequality in cross-country OLS regressions. The two central questions addressed are 1) what explains the cross-country variation in land inequality at the end of the colonial period? 2) how does initial land inequality relate to current income inequality? It is shown that land distribution is determined by (colonial) institutions responding to relative factor endowments and natural geographic conditions as the disease environment and the feasibility to grow particular food- or cash-crops. Local conditions and institutional responses differed largely from region to region. Whereas the direct relation between initial land inequality and income inequality appears to be weak, controlling for (colonial) institutional variables reveals a strong relation between initial land inequality and current (1990s) income inequality. High levels of income inequality, specifically in Sub Saharan Africa and Latin America, are shown to have fundamentally different colonial origins.