The Long-Run Influence of Institutions Governing
Trade: The Case of Colonial and Pirates’ Ports in
Mexico
Daphne Alvarez Villa§
Jenny Guardado†
First Draft. January 2016
Abstract
In this paper we examine the long-term development impact of legal
versus illegal overseas trade in colonial Mexico. While there is ample evidence that commercial activity may lead to sustained economic benefits, it
is unclear whether these effects are driven by commercial activity per se or
by the accompanying state institutions that positively impact development
(e.g. tax-collection and legal enforcement). Using historical sources on the
presence of smuggling and piracy in Mexican coasts from the 16th to 18th
century we find that the presence of trade, either in its legal or illegal form,
leads to significantly better development outcomes compared to neighboring
areas where such activities were absent. Results are robust to instrumenting trade with natural harbors and are not driven by a mechanical effect of
carrying out trade in the present, by the length of colonial presence, or by
substantial geographical differences. These findings suggest that the positive impact of illegal trade may have compensated for the damaging effects
of a weaker state presence and the culture of illegality surrounding it.
Keywords: Colonial Trade, Institutions and Growth, Smuggling and Piracy,
Mexico.
JEL Classification: N76, N46, O17, O43.
§ University
of Oxford. Email: [email protected];
Email: [email protected]
1
† Georgetown
University.
1
Introduction
The idea that free commercial activity is economically beneficial to both households and nations dates back to David Ricardo’s Principles of Political Economy
and Taxation. Indeed, a number of studies document not only how commercial
activity creates wealth in the short and long-term (Jia, 2013) but how it may
lead to greater inter-ethnic cooperation and social peace (Jha, 2013); the emergence of institutions favoring long-run growth (Acemoglu et al., 2005); and the
diversification of economic activities (Gaikwad, 2015). Despite these findings, it
is less well understood whether the “benefits” from trade are driven by commercial activities per se or by its surrounding institutions enabling tax-collection,
legal enforcement, and the formal organization of the economic activity. In this
paper we exploit variation in the conditions governing overseas trade in colonial
Mexico to better understand its long run development impact.
Specifically, we trace the contemporary effect of colonial trade in Mexico
under two different historical arrangements (henceforth “treatments”): first,
commercial activities conducted in legally designated ports and overseen by the
Spanish Crown – which we denominate legal trade or puertos unicos. Second,
international trade carried-out in clandestine ports at the shadow of colonial law
– which we call smuggling or illicit commerce. Although colonial trade was a key
element in the relations between Spain and the American colonies, it was very
restrictive: commercial activity had to be conducted in specific ports, by designated carriers, and in specific quantities. To enforce these rules, the Spanish
Crown developed a cumbersome bureaucratic system in official ports to oversee
the export-import of goods, collect taxes, and control the quantities and types
of goods. Not surprisingly, alternative arrangements – namely, a large smuggling industry – immediately emerged to satisfy the unmet demand for goods of
the colonial population. Private individuals, generally of foreign origin (French,
Dutch and British) would bring their cargo to Mexican shores to be purchased
by local merchants or other intermediaries without the vigilant eye of the Crown.
It is estimated that a large share of goods in colonial Mexico came from contraband trade in “pirate-ports”.
Figure 1 below displays the geographical distribution along the Mexican
coastline of known points in which smuggling and piracy took place. As noticed, these were distributed all along the Pacific, Gulf of Mexico, and Caribbean
coasts. Marked with a crown were the unique ports enabled to trade by the Span-
2
ish Crown: Veracruz and Acapulco, and later Campeche. Not surprisingly, there
is less smuggling in areas sparsely populated such as the Gulf of California and
northern Mexico.
Figure 1: Points of Trade (Legal and Illegal)
Precise locations in latitude and longitude. Crown symbol: Official Ports. Skull symbol:
historical pirate presence. Note: only includes certain areas of former New Spain (Audiencia
of Mexico and Nueva Galicia). Points inland indicate that they were accessed through rivers
from the sea.
The main empirical challenge to study the impact of these different trade
arrangements is that several conditions enabling trade (either legal or illegal)
may have also led to different economic outcomes in the long-run. Pre-colonial
conditions such as proximity to population centers, mineral resources and markets, or the disease environment, may have influenced the choice of certain ports
versus others thus confounding our estimates. Our empirical strategy deals with
this concern in three ways: first, we limit our comparisons to the neighboring
areas of treated1 municipalities to control for common observable and unobservable factors. Second, we identify all natural harbors along the Mexican coastline
as a source of exogenous variation in the possibility to trade, thereby limiting
the sample to those municipalities with this clear (and common) geographical
advantage. We then compare treated natural harbors with natural harbors in
the vicinity that could have been used for maritime trade but for some arbitrary
reason were not. Finally, we look at development outcomes within the municipality (at the locality level) to control for potential municipality-wide effects not
1
i.e. ports experiencing legal or illegal trade
3
driven directly by the presence of historical trade ports.
Our empirical findings show that municipalities containing a port with either
Spanish or pirate colonial trade display significantly better long run development
outcomes compared to neighboring areas and other natural harbors where such
activities were absent. In particular, places with historical commercial activity
exhibit a lower share of the population under conditions of poverty or lacking
basic utilities, and higher municipal tax income per capita. We further find that
these results are not driven by a mechanical effect of carrying out trade in the
present, by the length of colonial presence, or by substantial geographical differences among harbors. These findings suggest that the presence of commercial
activity per se, either under the vigilant eye of the Crown or via smuggling, had
a lasting impact on the development. As a robustness check, we also exploit the
presence of a natural harbor as an instrument for illegal trade and our estimates
are similar. Overall, results suggest that relative underdevelopment in coastal
Mexican municipalities today may be driven by a historical lack of access to the
market.
Although our results for municipalities with legal colonial trade are somewhat expected, those associated with piracy and smuggling are rather surprising. Conventional wisdom and other academic studies suggest that smuggling
may be detrimental for long-run economic growth and development for numerous
reasons: first, by fostering a culture of informality and illegality in detriment of
revenue collection; second, the weaker presence of the state may make it difficult to enforce contracts and protect property rights thus depressing economic
activity; and finally, colonial smuggling was at times accompanied by piracy and
these ports were often subject to armed attacks and pillage, particularly during
the 16th and 17th century.
Instead, our findings suggest that the presence of smuggling during colonial
times may have created the necessary conditions to benefit from trade liberalization in the late 18th century (comercio libre) and after independence (1821).
For instance, merchants with the “know-how” and experience of clandestine networks had an advantage in the business once trade restrictions were lifted. Such
an early start in commercial activities (either legal or illegal) may have compensated for the damaging effects of a weak state presence and supports an emphasis
on increasing returns to scale mechanisms (Krugman 1991): initial advantages
may have amplified over time even if other ports would have been equally opti4
mal for this activity. These effects are likely to persist even after international
trade stopped being their main economic activity2 and is consistent with findings
in other countries, such as treaty-ports in China (Jia 2013).
The paper contributes to the literature in several ways. First, our findings
indicate that historical trade in Mexico led to important developments on economic activity not driven by the presence of formal institutions enabling rulers
to commit ex-ante to protect property rights (Acemoglu et al. 2005) or to coordinate traders’ actions, such as merchant guilds (Greif 1992: 129). If anything,
the presence of smuggling weakened institutions monopolizing trade such as the
Mexican Merchant Guild (Consulado de Mexico) as well as the development of
formal institutions that may constrain rulers.
Rather, this paper highlights the importance of informal (de facto) arrangements in order to understand colonial legacies. As pointed out by other studies,
the presence of extractive colonial institutions may have created lasting incentives to deviate from the law, thus explaining a persistent gap between de jure
and de facto institutions (Alvarez-Villa 2016). However, deviating from an extractive colonial law may also be long-term beneficial, as illustrated by the case
of commercial contracts between indigenous producers and state officials in colonial Mexico. For instance, Jha and Diaz-Cayeros (2013) find that places where
indigenous producers of cochineal were better able to renege from unfavorable
trade contracts and sell their crop on the spot market tend to be more developed in the long run. Our paper complements this perspective: circumventing
Spanish restrictions on trade and the inability of the state to enforce its laws
may have been long-term beneficial even if at the margin of the existing legal
framework.
Finally, we call for a more nuanced view on the role of informality on longrun economic development in the context of extractive states. While most of
the contemporary literature highlights the negative aspects of informality linked
to tax-evasion, low labor productivity, and market uncertainty (Levy 2007), illicit trade might have provided experience with international markets otherwise
monopolized by Mexico city merchants and the two designated ports for trade
during most of the colonial period (Acapulco and Veracruz). Since the official
policy during colonial times was to de-populate coastal areas (De Ita Rubio
2
Today, Mexico is not a maritime power with only a few ships and a limited number of ports
(De Ita Rubio 2012:163)
5
2012: 201) – partly to protect the population from pirates and smugglers – in
the absence of smugglers, many of these ports would have lagged behind and
performed equally poor as those places that could have sustained trade during
colonial times but did not. To the best of our knowledge, this is the first paper
to explore the long-term development consequences of smuggling activities in
colonial Mexico.
The remainder of the paper is organized as follows: Section 2 presents a brief
historical review on colonial trade and smuggling in Spanish America. Our data
is described in section 3. In section 4 we explain our empirical strategy for the
identification of the Spanish and piracy treatment effects. Section 5 reports main
results and robustness checks. Finally, section 6 concludes.
2
Colonial trade and smuggling in Spanish America
Overseas trade was a central feature of the colonial system linking the Iberian
metropolis to the colonial territories in the Americas and Asia. Yet, very early on
trade became a royal monopoly whose administration was granted to merchant
houses located in Seville, some of which were acquainted with Hernan Cortes (del
Valle Pavon 2012: 20). This arrangement would have important consequences
both for Seville and Mexico city: the former became one of the most important
markets and financial centers in Europe in the 16th century while the latter became the economic and political center of New Spain.
The establishment of the trade monopoly between Spain and the American
was in-line with mercantilistic thinking at the time.3 Under this approach “state
authorities seek national economic self-sufficiency and organize productive activity to ensure favorable trade balances and the accumulation of precious metals”
(Mahoney 2010: 21).Hence, restricting trade with the Americas was a key instrument to achieve multiple objectives such as securing markets for Spanish
manufacturers, revenue collection, and keeping foreign merchants and armies at
bay.
Not surprisingly, monopolistic regulations greatly benefited a limited number
of groups (e.g. Seville and Mexico City merchants) at the expense of other merchants and consumers in the colonies who paid relatively higher prices than they
3
This would change towards the end of the colonial period under Bourbon rule.
6
would have otherwise. For this and other reasons, the Spanish trade framework
with the colonies is often described as “biased towards the metropolitan country
[...] for the economic exploitation of colonial territories” (Kleiman, 1976: 459).
This mercantilist approach to trade stands in stark contrast to that followed by other nations at the time, most notably Britain and the Netherlands. In the latter cases, the state sought to “protect trade and production
for profit”(Mahoney 2010: 22) even if this led to economic gains to those outside
the royal circle. In fact, political development in Britain and the Netherlands,
such as the establishment of political checks on the monarchy, has been closely
linked to the rise of commercial interests and a merchant class able to bring about
institutional change in the 16th and 17th century (Acemoglu et. al. 2005). In
contrast, concentrated gains in the royal circle of Spain and Portugal hindered
the prospects of limiting the power of the Crown in the 17th century. For instance, the windfall of gold and silver from the Americas allowed the Spanish
Crown to circumvent the Cortes (the closest it had to a representative institution) to obtain revenue and consolidate its power (Drelichman and Voth 2008).
From other viewpoints, the establishment of the trade monopoly was driven
by the special needs of trading with the Americas. Travel costs and risks were
specially high, making it necessary for trade to be conducted under the protection of the Spanish Crown and linked by family ties, location and patronage
networks (Del Valle Pavon 2012: 22). Such arrangements served as warranties
for individuals willing to engage in discovery, colonization and commerce. By
acting as a guarantor, the Crown’s monopolistic arrangements allowed enough
capital to be raised for these purposes, despite of long waiting periods for returns,
as well as risks involved in sailing to distant and “barbarous” places (Hamilton,
1948).
Finally, the trade monopoly also reduced the likelihood that colonial production of gold and silver could be used to purchase foreign goods, thereby
undermining the exports of these precious metals to Spain. For instance, commercial activities with foreigners using gold or silver could only be possible when
exchanging African slaves (Del Valle Pavon 2012: 49). The discovery of large
amounts of gold and silver in Spanish colonies also contributed to the creation of
“one of the most rigid systems of state regulation of colonial trade ever adopted
by any country” (Hamilton, 1948: 41).
7
2.1
Spanish trade to the colonies
Spanish trade with the colonies, molded on the mercantilistic tradition, had the
following characteristics: First, it restricted the number of actors who could officially engage in this activity. For instance, only “official fleets” were allowed
to enter and leave Spanish ports. Foreigners wishing to trade with the colonies
would need to become “naturalized” or partner with Spanish companies. The
Crown also established severe immigration restrictions for individuals of Jewish
or Arabic origin, and any foreigner more generally (Suarez Arguello 2012: 147).
By royal decree, territories under Spanish rule were obliged to buy and sell
only from authorized Spanish merchant houses; thereby, direct trade between
the colonies and other foreign powers was considered illicit (Christelow 1942:
309). These restrictions were meant to guarantee favorable terms of exchange
and rent accumulation, thus making trade highly profitable for a select group of
merchants in the metropolis.
Second, along with limiting the number of actors involved, it also limited the
designated “ports of entry”, and goods were heavily taxed upon arrival. Ships
coming directly from Spain were only allowed to arrive in major ports, where
they had to pay royal and municipal duties. According to historical records
presented by Walton (1810), duties on entry were equivalent to 9.5 percent for
Spanish goods. Foreign goods had higher duties: they paid 15 percent when
arriving in Spain, 10 percent for being re-shipped and 7 percent as royal duty on
entry, “besides municipal and other duties, which altogether amount to about 45
per cent” (Walton, 1810, p. 161). Export goods from the colonies, in turn, also
had different customs treatment depending on the importing European country.4
Finally, trade between the colonies was severely restricted during most of the
colonial period. For example, starting in 1593 only Acapulco would receive the
Manila Galleon from the Philippines and its goods were not to be distributed
elsewhere (e.g. Peru, Panama, Guatemala, etc.). Merchants from other colonies
would have to use intermediaries (Mexican merchants) to be able to sell and
obtain Asian goods to supply their colonies. Not surprisingly, merchants from
other colonies would end up arriving in Acapulco, trading with the galleon, and
using routes destined to other goods (e.g. Cacao) to illegally transport Asian
goods to Guatemala and beyond, despite the explicit prohibition of doing so
(Yuste 2012: 216).
4
Llama, vicuña and sheep’s wools were, for example, duty-free if they were sent to Spain,
whereas they bore heavy taxes when shipped to a foreign country (Walton, 1810).
8
All major aspects of trade were regulated by the House of Trade (Casa de la
Contratacion), which was first established in Seville in 1503, and then moved to
Cadiz in 1717. Trade, navigation and migration licenses to America had to be
requested there and all ships were to be rigorously inspected by Spanish officials
upon returning to Spain (Hamilton, 1948).
2.2
Contraband trade
The natural consequence of strict trade regulation was the emergence of a highly
lucrative contraband trade in which French, British, Dutch and even Spanish
officials would participate in. According to the British naval commander Sir
John Narborough “. . . the inhabitants of Chile had silver buckles to their belts
and golden hilts to their swords but lacked the commonest of European manufactures” (Sir John Narborough’s Voyage to the South Sea: 85-87, cited by
Christelow (1942: 311)), thus highlighting the numerous opportunities for those
willing to engage in this business.
Highly visible pirate attacks on Mexican ports (Francis Drake, John Hawkins,
Lorenz de Graaf, among others) have long-captured the imaginations of many
writer’s and historians alike. For instance, the widely publicized theft of Moztecuma’s
treasure sent by Hernan Cortes in 1522 to King Carlos V of Spain by French pirates (Juan Florin). The most prevalent and “expensive” problem for the colonial
government at the time was smuggling (comercio ilicito). However, the distinction between piracy and smuggling is often blurred. Pirates and smugglers were
often the same person, or smugglers would rely on coercion and intimidation to
facilitated trade. For example, in 1567 in Riohacha (Colombia) the known pirate
John Hawkins recalls trading with the population at nighttime while bombarding Spanish military positions during the day (De Ita Rubio 2012: 184).
As mentioned, Spanish customs tariffs, quantity restrictions and temporal
constraints were largely responsible for extremely high prices of imported goods.
Foreign traders could not only offer goods at much lower prices if avoiding the
legal course through Spain, but they could obtain a much higher profit rate,
equivalent to that of the Spanish exporter in Cadiz (Walton, 1810). Therefore,
as reported by Brown (1926), English traders never had difficulties in selling
their goods and were even able to sell on credit. Conversely, Mexican producers
were also more willing to trade with foreigners than to send their products back
9
to Spain. For example, in California (now part of the US) foreigners were willing
to pay more for local goods such as pearls than if they were sent back to Spain
(Trejo Barajas 2012: 280).
Goods smuggled varied by region. For instance, in the Caribbean and Gulf of
Mexico most of the goods smuggled involved slaves and manufactures. Northeast
Mexico and the Californias exchanged silver, gold and pearls for manufactures,
mostly textiles (Trejo Barajas 2012: 280). However, the Spanish Inquisition in
Mexico was also worried about the potential impact of foreign ideas and beliefs
brought by pirates and smugglers, particularly from Reformist countries (De Ita
Rubio 2012: 190).
The considerable extent of smuggling during the Spanish colonial period is
estimated to be sizeable but it is not exactly known for obvious reasons.5 Yet,
there is indirect evidence that foreign goods coming to Spanish colonies, both
legal and contraband, exceeded by a large amount Spanish goods. For instance,
Yuste (2012: 223) finds rather surprising that merchants from Guadalajara were
practically absent from the Acapulco trade fairs. The author suggests that since
the Manila Galleon ran parallel to the Mexican west coast prior to reaching Acapulco these merchants had plenty of opportunities to get close to the galleons in
smaller ships and clandestinely purchase its goods. More dramatically, Jose de
Galvez (royal envoy to reform the colonial government in 1765) noted how all
officials supposed to safeguard the royal interest in Acapulco have contributed
to illegal trade “in every imaginable way” (AGI Mexico 1248 cited by Pinzon
Rios 2012: 248).
Contraband trade was also greatly facilitated by the role played by foreign
actors. Both France and England promoted and directly financed pirate expeditions to intercept Spanish galleons carrying gold or took advantage of the
undersupplied colonial consumers by providing British or French manufactures.
The presence of British colonies in the Caribbean served as a base for contraband
ships to reach the shores of Spanish colonies in the mainland. Boats loaded with
contraband goods would follow licensed vessels until these have consumed their
supplies, so that smuggled goods could then be transferred. English warships
could also escort illegal vessels until they were safe, where it was customary
that captains of such warships received a percentage of the profits of contra5
See, among others, Brown(1926), Brown(1928), Nettels(1931), Goebel(1938) and Christelow(1942).
10
band trade. Although British law constantly sought to foster and legalize trade
between the British West Indies and the Spanish colonies, such attempts were
ultimately unsuccessful. Historical accounts suggest that the large contraband
trade carried-out with the aid of these British colonies during the first half of the
18th century was useful in undermining the Spanish monopoly (Goebel, 1938).
Wars in Europe also increased the value of contraband trade and provided
further incentives to foreign merchants to engage in it. For instance, during the
war between England and Spain in 1796 and the English blockade, trade was
closed between Seville and the colonies, therefore, smuggling became even more
necessary in order to secure metals and essential commodities for the population
in the colonies. In addition, until the end of the Napoleonic Wars, communication and trade between Spain and its colonies was also frequently disrupted,
which the British exploited by meeting the material needs of the colonial population (Goebel, 1938). Finally, during the war of Independence (1810-1821),
lack of land routes to safely transport goods privileged to use of maritime ones,
dominated by smugglers (Trejo Barajas 2012: 289).
The Spanish Crown was well aware of these contraband activities and sought
to counteract them: first, by channeling trade through a reduced number of
ports in order to facilitate the control of goods’ flows and the enforcement of tax
payment. Second, the Spanish government also conducted random searches of
foreign vessels in the Caribbean, and maintained the presence of a coastguard or
guarda costas at all times in the region (Hamilton, 1948; Goebel, 1938). Despite
such efforts, contraband trade was a lucrative business in the Americas during
the whole colonial period of restrictive trade and even when trade was increasingly freed under Bourbon rule although never fully implemented.
2.3
New Spain’s Ports
Despite the vast Mexican coastline, Veraruz in the Gulf of Mexico and Acapulco in the Pacific were the unique points of entry for Spanish merchandise.
Campeche, close to the Yucatan peninsula, would join in the late 18th century
(1770). These three ports were the only ones fortified and built to withstand
multiple attacks to the city and defend merchant boats stationed there or in the
vicinity.
Not only ports were limited, but coastal settlements were discouraged alto11
gether during colonial times. Early on in the colonial period (1543), Philip II
approved the “Orders for the discovery, population and pacification [of new territory]” (Ordenanzas de descubrimiento, nueva poblacion y pacificacion) which
dictated how the colonies ought to be populated. Article 41 established to not
choose coastal towns for settlement due to the presence of pirates (corsairs),
the lack of suitable land for cultivation, and the disease environment. The goal
should be to establish the minimal ports necessary for the entry, commerce and
defense (De Ita Rubio 2012: 203). Yet, this early depopulation policy in the
coastal areas did not put an end to piracy, since deserted coasts were left exposed and even facilitated contraband activities (Gerhard, 1993). Rather, its
main effect was to contribute to the inland concentration of population which
persists until today.
Figure 2: Population Density in 2000
Source: http://geografia.laguia2000.com/geografia-de-la-poblacion/mexico-poblacion
This pattern of not settling in the coast even resisted explicit attempts to
populate the coastline. For instance, in the 16th century, Nuno de Guzman
founded four villas in the western coast of Mexico which were later abandoned
due to a lack of supplies (Olveda Legaspi 2012: 232-233). The same occurred
with a number of other natural harbors found in the Mexican west coast, which
were never effectively enabled to host commercial activities. Rather, these harbors were used as point of departure for expeditions to explore the Californias,
hosted small military units, or were used by the Manila galleon as a stop for
provisions (Olveda Legaspi 2012: 238-239). For example, the port of San Blas
in Nayarit served as a military post and cargo distribution. The overall lack of
ports linking Mexican regions to international trade proved a handicap to mar12
itime power after independence despite its maritime importance during colonial
times.
2.3.1
Veracruz, Acapulco and Campeche
The most important colonial port was that of Veracruz, which held the monopoly
of shipments going to and from Spain for three hundred years. To illustrate the
magnitude of its importance, between 1540 to 1650, Veracruz controlled 85% of
the volume of exports from the Americas (including Peru) (Chaunu 1960: 522).
Even today, it is an important commercial port in the region. The municipality
of Veracruz was the first one founded in continental America (circa 1519), even
before the conquest of Mexico was completed (1521). This port, together with
that of Campeche, were the most exposed to pirate activity due to its direct
access to vessels coming from Europe as well as to the numerous islands of the
Caribbean, where a number of pirates found shelter. Figure 3 below shows the
routes used by John Hawkins, a British naval commander, to smuggle goods to
the colonies and traffic with African slaves in the Caribbean-Veracruz area in
the 17th century.
Figure 3: Pirate Routes: John Hawkins
Source: De Ita Rubio (2012: 179) from Lombardi (1983:42).
13
The second most important port, Acapulco, was designated the exclusive
point of exchange from the Americas to the Spanish colonies in Asia (Gerhard,
1993) due to its privileged geography and closeness to Mexico City (Yuste, 1992:
101; Miranda, 1994: 29). Such assignment occurred around the mid 16th century and remained in place until the end of the colonial period.6 Trade volumes
along the Pacific were never as high as those involving the Gulf of Mexico and
the Atlantic, yet, it did lead to certain economic dynamism in the region (Yuste
2012: 210).
Figure 4 below shows the two officially sanctioned trade routes from Spain
to Veracruz, by land to Acapulco, from where they would ship to and from the
Philippines in Asia.
Figure 4: Official Trade Routes
Source: De Ita Rubio (2012: 167) from Lombardi (1983: 35).
Finally, Campeche was the third colonial port mainly devoted to the export
of goods from the Yucatan Peninsula abroad. Due to its location, it was also
frequently “visited” by pirates, particularly in the 17th century. However, contraband trade carried out by pirates and professional smugglers remained an
important concern during most of the colonial period, and it blossomed in the
6
Guatulco, on the Pacific, was a main Spanish port at the beginning of the colonial period,
however, Acapulco took its place in 1573. Guatulco bay, as many others, continued to be used
for smuggling activities (Gerhard, 1993).
14
mid 18th century just prior to independence.
During the late colonial years, trade was slowly liberalized. In 1770 the port
of Campeche opened to trade with Spain; in 1774 ports of New Spain, New
Granada (roughly Colombia and Venezuela) and Peru were opened for intercolony trade; finally, in 1789 New Spain opened to trade with non-Spanish companies. It is during this period that a number of ports saw greater dynamism.
Yet, this will prove short-lived due to the English blockade and re-imposition of
some restrictions. After independence in 1821, the country entered a period of
high political instability, during which colonial ports were recurrently seized by
one insurgent group or another as a way to collect taxes on incoming merchandise and finance war activities (Miranda 1994: 34). Undoubtedly, these events
severely hampered their functioning throughout much of the 19th century, thus
undermining the commercial monopoly and importance of Acapulco in the Pacific and in Veracruz, in the Gulf of Mexico. Although a number of other ports
would gain prominence during this period Mexico in general would lose importance against other ports such as New York, Buenos Aires and Montevideo (De
Ita Rubio 2012: 163).
3
The Data
Data for this paper comes from several sources. In terms of the contemporaneous outcomes of interest, we use different measures of public good provision, tax
collection and poverty at the municipal level in Mexico. There are 2456 Mexican municipalities, distributed along 32 states; 17 of which are coastal states
involving 1535 municipalities. Measures of municipal poverty and percentage of
the population lacking basic utilities in 2010 come from CONEVAL (Consejo
Nacional de Evaluación de la Polı́tica de Desarrollo Social )7 , which tracks the
performance of social policies across Mexico. In addition, measures on the average tax collection (municipal tax income) per capita in 1995-2010, the length
of roads as a share of municipal surface, and the number of agents at the Public
Prosecution Office per 100 thousand inhabitants in 2010 are provided by INEGI
(Instituto Nacional de Estadı́stica y Geografı́a)8 .
The key explanatory variables are indicators capturing whether trade in a
7
8
http://www.coneval.gob.mx
http://www.inegi.org.mx/
15
given place was conducted under Spanish institutions or based on informal smuggling arrangements. To code Spanish presence we use historical sources of the
main maritime ports during colonial times in New Spain (now Mexico). These
locations are reported by Gerhardt (1993), from which we also code the distribution of Spanish colonial towns in general to measure the importance and length
of colonial presence. In addition, we identify those places in which contraband
trade was rampant due to the presence of professional smugglers or pirates. The
location of these ports is coded from historical narratives of the presence of pirates on both coasts of Mexico. On the Pacific side, detailed accounts on the
presence of piracy are provided by Gerhardt (1990) which covers the 16th century until the late 18th century. In the Caribbean –Gulf of Mexico- the main
sources come from regional histories (Alsedo y Herrera (1883); Muñoz (2007,
2004)).
As a result, we identify 34 main ports or areas in which goods where exchanged during colonial times either legally, as in the royal ports of Acapulco,
Campeche and Veracruz, or illegally via non-official ports (e.g. Banderas Bay or
Bahia de Banderas, now close to Puerto Vallarta). Although there is also evidence of pirates’ presence in royal ports, these will be considered to be Spanishtreated (and not treated by pirates), given the relative prevalence of Spanish
state institutions in these places. A visual representation of the main treated areas is provided in Figure 1, which portrays the regional distribution of all known
points of entry of merchant goods (legal or not).
It is important for our empirical strategy to compare treated ports with places
that are most similar in a number of observed and unobserved covariates. Since
places more similar to a given port are its neighbors, we identify municipalities
in the vicinity, namely, those that fall within a radius of 100, 50 or 20 kilometers
from each treated port. These neighboring regions, and the municipalities they
encompass, are shown in figures 5 and 6.
16
Figure 5: Vicinities around treated ports
Figure 6: Neighboring municipalities
Aside from historical sources of pirate activity and official colonial ports, we
separately identify the universe of natural harbors along Mexican coastlines as
an exogenous measure of the possibility to trade. We determine the location of
natural harbors by the presence of water inlets, bays, estuaries or river mouths
on the coastline. Following this approach, pioneered by Jha (2013),9 we identify
226 natural harbors for all of Mexico, which could have plausibly provided natural protection to mercantile activities. These harbors are distributed along 82
9
Our procedure is slightly different since Jha (2013) relies on all natural indentations or
water bodies within 10 kilometers of the coastline as potential medieval harbors, whereas we
require that water bodies are connected with the sea.
17
municipalities (out of 152 coastal municipalities), and they constitute our set of
“all natural harbors”.
Additionally, following Gaikwad (2015), we place restrictions on the suitability of harbors based on the relative elevation of the surrounding territory.
Mountainous topography around harbors, more than any other feature necessary
in modern times10 to safely navigate harbors, was necessary to store ships as it
provided shelter from winds and bad weather (Gaikwad, 2015). Hence, we define
a subset of ‘protected natural harbors’ as follows: for each detected natural harbor we calculate the mean terrain elevation within 10 kilometers radial distance
from the coastline. If elevation is above the 30th percentile of elevation among
all natural harbors, this place is considered a ‘protected natural harbor’ in our
main analyses. We further consider harbors with elevation above the median in
the Appendix to verify our results. Figures 7 and 8 show the distribution of our
set of protected natural harbors (those with elevation above the 30th percentile)
which are present along 51 municipalities. If we only consider harbors surrounding elevation above the median, the number of municipalities drops to 26.
Figure 7: Harbors above 30th pct elevation
10
Larger ships increased requirements for the suitability of ports.
18
Figure 8: Harbors above median elevation
We also code the presence of current maritime ports in Mexico. This information is obtained from the Mexican state office for communications and transport
–SCT (Secretarı́a de Comunicaciones y Transportes). Current maritime ports
are distributed along 71 municipalities, 22 of which were also treated in the colonial period.
Table 1 presents the descriptive statistics of the different variables mentioned
in this section for municipalities in coastal states under the two different treatment status.11
[Table 1 here]
Finally, we further look at within municipality outcomes, namely, development measures at the locality level. Data comes from the 2010 census which
collects information for locations, defined as settlements of up to 30,000 people.
We identify all localities within a radius of 30 kms of natural harbors that still
belongs to the municipality and created an average of the shareof population
with access to basic assets (radio, tv, fridge, washing machine, car, computer,
telephones, cell-phones or internet); we also examine access to sewage, water,
quality of household floor, and electricity, as well as the illiteracy rate in the
population.
11
Table A1 in the Appendix reports descriptive statistics for municipalities directly on the
coastline (panel A) and for all Mexican municipalities (panel B).
19
4
Empirical Strategy
Overseas trade in colonial Mexico was either legally conducted under colonial
rule, or via extra-legal means by pirates.12 The underlying institutions established under these two scenarios implied markedly different degrees of state capacity, compliance with the law, and thus a different market structure and social
organization around trade. Because of the importance of this economic activity
during the colonial period in places used as legal ports, and the length of the
presence of state institutions, we expect that those places with trade and higher
state capacity do better in the long-run than those that could have conducted
trade but did not. This hypothesis is consistent with previous findings in the
literature (Jia 2013; Gaikwad 2013; Fujita and Mori 1996). Yet, the effect for
pirate ports is ambiguous a priori: informality and illegality often undermine
sustained growth due to legal uncertainty. Yet, smuggling may also provide the
“spark” (e.g. initial investment) for sustained development following an increasing returns mechanism (Krugman 1991).
Estimating the different treatment effects is not straightforward, since it is
likely that these ports were not chosen at random and are therefore not comparable with other coastal places. Several pre-conquest or pre-treatment characteristics affecting future development might have explained the selection of these
places as trade ports. Proximity to native labor force and natural resources
may have, for instance, acted as such driving forces. As a result, estimation of
the treatment effect is only possible among places sharing similar pre-treatment
characteristics.
4.1
Linear model with vicinity fixed effects
Our first strategy to allow for this quasi-experimental setting is to compare
municipalities in close vicinity. Their proximity guarantees that a number of
observable and unobservable factors will be common to treated and control areas. For each treated municipality we find its close neighbors within different
radii of geodetic distances, namely 20, 50 and 100 km.13 We then introduce
vicinity fixed effects at a given distance, to compare each treated municipality
12
Although we are aware that corruption also existed in official ports, as a matter of degree,
pirate-ports were completely devoted to this activity.
13
Our procedure provides at least one closest neighbor for each treated municipality regardless
of its radius of distance.
20
with its neighbors.14 Neighboring municipalities in Mexico do not only share
pre-treatment conditions as population and geographic features, but they still
share today cultural traits, federal laws and institutions, labor markets, disease
environment, among other factors. The idea of having several distances is to
observe the sensitivity of our estimates to neighboring areas of different sizes,
where smaller vicinities have arguably more common factors. Our baseline model
is given by:
Yij = ηj + β Spanish portij + γ P irate portij + θ colonial townij + ij
(1)
where Yij is an outcome variable for municipality i in vicinity j, ηj is a fixed
effect for vicinity j, and colonial town takes the value of 1 if municipality i was a
town in the colonial period thus capturing municipality-specific features related
to the size of settlements and their history, in particular, whether it enjoyed
the presence of a local state. This variable controls for potential agglomeration
effects whereby those places early established will continue to be prominent over
time. As outcome variables we consider the mean municipality tax income per
capita between 1995 and 2010, and for year 2010, the share of poor individuals,
share of people lacking basic utilities, ratio of the length of roads network over
municipal surface and number of agents at the Public Prosecution Office for each
100 thousand inhabitants.
4.2
Natural harbors approach
Even after controlling for common features at the vicinity level, being a pirate or
Spanish treated port could be related to municipality-specific unobservable traits
that might explain later outcomes. Our second strategy deals with this concern
by using a source of exogenous variation in the possibility to trade, namely, the
presence of a natural harbor.
Until the mid-19th century, navigation in maritime ports depended on the
availability of natural harbors. These were places able to provide shelter and
safe anchorage for ships and vessels. Natural harbors were then key for carrying
out trade by allowing the loading and unloading of goods. This exogenous con14
Treated municipalities that are neighbors within 20 km distance have perfectly or almost
perfectly overlapping vicinities; in these cases, a single fixed effect is defined.
21
dition for trade has been already used in other studies for other purposes. Jha
(2013) relies on natural indentations or water bodies along the coastline, whereas
Gaikwad (2015) focuses on natural indentations protected by mountainous topography in their surroundings. We use these two approaches in order to define
our set of natural harbors, as well as a subset of protected natural harbors.15
Whether a municipality contains a natural harbor is thus an exogenous condition for the presence of historical trade, which significantly restricts the number
of treated municipalities.16 We argue that the presence of a natural harbor induced the selection of a given place by its clear geographical advantages, which
are either unrelated to future development, or common to all natural harbors
(e.g. the possibility of maritime trade in the colonial period).17 Therefore, we
compare the restricted set of treated municipalities with all other natural-harbor
municipalities along Mexican coastlines that had the same likelihood of being
chosen. In other words, among natural harbors in the vicinity, the choice of any
given one can be considered as-if random.
In a baseline exercise, we estimate the following model among municipalities
with the presence of a natural harbor:
Yh = α + β Spanish porth + γ P irate porth + θ colonial townh + h
(2)
Finally, as mentioned above, we consider the sample of natural-harbor (or
protected-natural-harbor) municipalities under our initial approach. That is:
Yhj = ηj + β Spanish porthj + γ P irate porthj + θ colonial townhj + hj
(3)
where h denotes a natural-harbor (or protected-natural-harbor) municipality
and j denotes its vicinity.
15
See definition criteria in the previous section of the data.
Treated municipalities are now 19, or 14 with the presence of a protected natural harbor,
out of 34 in the original sample.
17
It can be safely claimed that natural harbors influenced trade since the colonial period, and
not just thereafter. In particular, the introduction of steamships in the 19th century increased
the size of vessels, which required port structures and greater depth in already active harbors.
This infrastructure was also increasingly built at other coastal places (not natural harbors),
which made them suitable for trade.
16
22
5
Results and robustness checks
Estimates of model (1) are shown in Table 2 including all Mexican municipalities,
and in Table 3 including only municipalities in coastal states. The three panels
in each table correspond to different sizes of vicinities around treated places,
which determine vicinity fixed effects in each case (within 100 km, 50 km or 20
km distance). We find robust evidence that the presence of Spanish and pirate
ports is related to better development outcomes in the long run (except for the
length of roads explained by piracy trade). In particular, coefficients for both
treatments are statistically significant and related to less poverty, greater access
to basic utilities and higher municipal tax income per capita when comparing
neighboring municipalities located at different distances (20,50 or 100 kilometers).
Estimates from a restricted sample of municipalities in coastal states, considering variation within a 100 km radius (Panel A in Table 3), indicate that being
a Spanish colonial port (pirate port) is significantly related to a 23.17 (11.83)
percentage points lower share of poor individuals, to a 21.34 (15.93) percentage points lower share of population lacking basic utilities and to a 0.17 (0.12)
thousand Mexican pesos higher tax income per capita. The magnitude of these
effects are important, equivalent to 1.3 (0.66), 0.71 (0.53) and 1.45 (1.03) standard deviations of their respective dependent variables.
Both treatments are in general associated with a greater number of agents
at the Public Prosecution Office per 100 thousand inhabitants, although this
relationship is not significant. On the other hand, the presence of a pirate port
is associated with a lower availability of road infrastructure while a Spanish port
has the opposite relation, and this result is robust to the different vicinity sizes.
[Table 2 here]
[Table 3 here]
Results for the baseline exercise among natural harbors are reported in Table
4. The first panel in the table restricts our original sample to all identified natural
harbors along Mexican coasts, whereas the second panel only considers natural
harbors protected by a mountainous topography. Estimates of the treatments
are similar across panels and to those in previous tables, although piracy is no
longer significant to explain higher tax collection per capita. It is interesting to
note that colonial towns among natural harbors, after controlling for the ports
23
treatments, are on average significantly worse off in terms of poverty measures
and tax income. Only road infrastructure seems to be positively related to the
fact of being a town in the colonial period. This suggests that results are not
merely driven by the length of Spanish presence, or the early presence of the
state.
[Table 4 here]
Table 5 further includes vicinity fixed effects at a 100 km radius from each
treated natural harbor.18 Results lead to the same conclusions as before: Spanish
and pirate harbors in the colonial period are today relatively richer, have better
access to basic utilities and a larger municipal taxing capacity. Royal harbors
display a greater presence of the state, whereas current road infrastructure is on
average lower in former pirate harbors.19
One difference is worth noting in this exercise. Whereas the significance
of the coefficients is robust in almost all cases, magnitudes relating to poverty
measures are now smaller, and this drop is particularly clear for the Spanish
treatment effect. This suggests an upward bias in our initial estimates with
all municipalities in coastal states (or all Mexican municipalities), which was
corrected by limiting the comparison between treatment and control group to
close-neighboring natural harbors that had arguably the same likelihood to be
chosen.20 This potential bias would be consistent with the intuition that Spanish
colonizers, acting under the colonial state guarantee, could choose the best places
for carrying out trade. On the other hand, pirates, who were performing an illegal
and hidden activity, were less able to choose, and their selection for trading ports
was more likely random.
[Table 5 here]
In the following section we seek to understand these findings by discussing
relevant channels or direct consequences of the two treatments.
18
For some 50 km vicinities there is no variation or even no neighboring harbors. Estimates
using this vicinity size support results explained here, and they are presented in the Appendix
(Table A2, panels A and B), despite the fact that the presence of many treated harbors will be
captured by the vicinity fixed effects.
19
Table A3 in the Appendix uses elevation above the median of all harbors as criterion for
defining protected natural harbors.
20
Magnitudes of the Spanish treatment effect are still important. In the most conservative
estimates, this effect is between 0.54 and 1.3 standard deviations of the dependent variables.
24
State Capacity, Increasing Returns and Trade.
Clearly, the experience of smuggling during colonial times is positively associated with development outcomes today. This effect cannot be explained by
simple geographical traits or the length of colonial presence. Moreover, this result runs against conventional wisdom: places lacking state presence and with
established “criminal” activities are rarely a paragon of development. The key
question then is: why these ports became relatively more developed than similar
ones that did not host these trade activities?
A priori there are two main reasons. First, it is possible that smuggling led
to permanent settlements and the steady rise of an incipient merchant class and
petit-bourgeoisie promoting development. Yet, numerous accounts coincide that
most coastal areas (particularly in the Mexican West) were sparsely populated
throughout the 18th century and smuggling constituted a sporadic event bringing together merchants, smugglers and local suppliers (for example, when foreign
vessels or the Manila galleon appeared). Olveda Legaspi (2012: 238) describes
how Matanchen and Chacala (ports in the Pacific coast) had a “floating population” sustained by sporadic trade. Moreover, it appears that during colonial
times trade restrictions and the lack of roads connecting ports with inland towns
made it very difficult to capitalize on illegal trade then (but not later). Thus
suggesting that the benefits from trade appeared “later” in the colonial period.
The second possibility suggested by our findings is that the presence of smuggling during colonial times may have created the necessary conditions to benefit
after trade was liberalized in the late 18th century (comercio libre) as part of
the Bourbon Reforms and after independence (1821). This process started in
1770 by opening Campeche to trade with Spain and continued until 1789 when
other European powers were able to trade with all ports in New Spain (now
Mexico).21 Routes already used for smuggling, such as those bringing (illegal)
Cacao from Guayaquil to Acapulco blossomed when such restrictions were lifted.
In the case of Acapulco, trade was no longer limited to the periodical arrival of
the Manila galleon leading to more permanent settlements (Pinzon Rios 2012:
249). Other ports, such as San Blas, used as a maintenance stop and military
ward, also became an “indispensable stop” in the Mexican northwest after trade
liberalization (Pinzon Rios 2012: 269). Similarly, Mazatlan and Guaymas blos21
This disposition actually lasted until 1796 when the English blockade interrupted all forms
of trade with the colonies and restrictions were reinstated.
25
somed after independence in the early 19th century (Olveda Legaspi 2012: 244),
precisely the ports where American merchants have engaged in illegal trade with
Durango’s and Chihuahua’s merchants (Trejo Barajas 2012: 280). Presidios and
others forts located in the Californias and northern Mexico thrived commercially
in the late 18th century due to the presence of “merchant boats, foreign smugglers and their own demands” (Trejo Barajas 2012: 278).
The underlying mechanism we find more convincing is one of increasing returns (Krugman 1991), whereby initial investments, in this case “know-how” or
the experience of clandestine networks, leads to an initial advantage in the business once trade restrictions were lifted. This initial advantage also comes from
the fact that smuggling brought about efficiency gains from free trade relative to
the Spanish monopoly: larger volumes of trade at lower cost fostered consumption, an incipient merchant class, as well as the networks and knowledge which
may have offset the lack of state capacity, law and order. Such developmental
advantage might have persisted even after trade stopped being the main economic activity in Mexico more generally22 and in those places in particular. For
instance, during the 19th century colonial trade suffered heavily at the hands of
different insurgent factions.
It is important to note, however, that the magnitude of the effect of pirate
ports on development is always smaller than that of Spanish presence. In all
tables we report the p-values from a test of the equality of the coefficients under both treatments. Results generally indicate a significant lower magnitude of
the piracy treatment effect relative to the Spanish effect in the general sample.
Among natural harbors this difference is not so clear, although point estimates
are in general smaller for the piracy treatment. This lower effect is consistent
with the idea that pirate ports have established slightly more unfavorable conditions for the development of state institutions in comparison to Spanish ports.
Yet, piracy still had a developmental advantage over those natural harbors that
did not experienced trade.
This is evident considering results for some of our outcome variables: the
presence of piracy is negatively related to some state presence outcomes as road
infrastructure and number of agents at the Public Prosecution Office relative
to population, for which the presence of a Spanish port is positively associated.
22
Today, Mexico is not a maritime power with only a few ships and a limited number of ports
(De Ita Rubio 2012:163)
26
Thus, whereas the presence of piracy may have led to less poverty, state presence outcomes are not so clearly benefited. For instance, in the case of roads
– a long-term investment – these differences are most likely driven by the fact
that the colonial government early on invested in roads linking Veracruz, Mexico
City and Acapulco. Yet, roads linking major cities such as Guadalajara, Tepic
or other Gulf cities to the coast will still be lacking for a number of years making
inland communications difficult.
5.1
Robustness checks
Current trade
An alternative explanation for our findings is that the effect we see today is
merely because historical (legal or illegal) ports also conduct trade in the present.
If this is the case, then we should see that among current ports in Mexico – that is,
open to maritime trade – there should be no effect of smuggling or legal colonial
trade on current development outcomes. We then cross-check our estimates
by restricting the sample to present port municipalities in Mexico. Results for
model (1) among maritime ports today are shown in Table 6. Conclusions remain
robust: those ports with a colonial history of trade of any kind are significantly
better off today, and the effect of Spanish trade is even larger.23
[Table 6 here]
This exercise provides further insights on the mechanisms operating in the
long run. It can now be claimed that the positive effects of Spanish and pirates’
ports are not driven by the fact that many of these places carry out trade today.
Hence, supporting the idea that other mechanisms are at play, arising probably
from the early history of these ports – such as the presence of early ”know-how”
and smuggling networks.
Correcting for a potential measurement error in smuggling
Although historical records are very detailed in the location of piracy in New
Spain, we might be concerned that these records are not exhaustive, given the
illegal and hidden character of this activity.
23
See Panel C in Table A2 for vicinity fixed effects within 50 km.
27
In order to correct for this potential measurement error, we employ an IV
strategy relying on the presence of a protected natural harbor as an instrument
for current trade. As previously discussed, geographical features of natural harbors provided necessary conditions for trade, allowing the entrance, shelter and
storage of ships. These features were of particular importance five centuries ago,
when sophisticated port infrastructure was not available, and part of it was not
even needed due to the smaller size and tonnage of ships.
Our assumption is that the particular combination of geographical features
making a natural harbor are not related to any factor determining development
today, except for the possibility in the past to access continental places from the
sea and the ability to exchange. Therefore, natural harbors should have affected
current outcomes only through their effect on historical trade carried-out by vessels who found it suitable prior to the maritime revolution.24
In order to properly predict the piracy treatment with the presence of a
protected natural harbor, we exclude Spanish royal ports from the first stage.25
IV estimates are presented in Table 7. The first stage is reported for each sample
size (which slightly varies across dependent variables) in columns (1), (4), (6)
and (8), and we can verify that the presence of a protected natural harbor is a
strong predictor of piracy ports. IV estimates lead to the same conclusions as
before, except for the relative magnitude of the piracy treatment effect. It is
now larger than the effect of the presence of a Spanish port.
[Table 7 here]
These results further support the importance of having access to free trade
in the past. The consequences of this trade are, according to these estimates,
even bigger than those from trade under the control of state institutions which
fostered a monopolistic market structure.
Locality level (within municipality) outcomes
One final concern is that by looking at municipality aggregate outcomes
(e.g. the average across the whole municipality), findings may be driven by
24
We are not aware of any reported evidence of arrival of large sized ships and vessels in
Mexico before the colonial period.
25
A protected natural harbor will then only predict the presence of trade in those harbors, for
which the absence of royal ports is known; i.e. it will predict the presence of pirate commercial
activities.
28
municipality-wide factors unrelated to the presence of historical trade, or by areas that were not actually affected by historical trade but nonetheless belong to
the same municipality. To address this concern, we look at development patterns
within a municipality, namely outcomes at the locality or village level.
We consider the provision of public goods, household assets and education
in localities within a 30 kilometers radius of each harbor that still lie within the
municipality. Since these are directly in contact or in close proximity to the
harbor, it is easier to attribute the observed effects to the presence of trade, as
opposed to other municipality-wide events.
We then estimate the following model:
Ylh = α + β harbor treatedlh + θ colonial townlh + φlh + lh
(4)
where Ylh is an outcome variable for locality l that is within a 30 km radius
of harbor h; harbor treated indicates whether the natural harbor close to locality
l had the presence of colonial trade or not; colonial town takes the value of 1
if locality l belongs to a municipality already established during colonial times;
and φ captures locality specific traits such as altitude.
Results are presented in Table 8 and they show that localities close to treated
harbors are less likely to lack household assets such as radio, fridge or television,
and less likely to lack sewage. Although we do not find significant differences in
education and electricity provision, the coefficients hold a negative sign suggesting higher literacy levels and electricity coverage for treated localities. Finally
and rather surprisingly, households in localities close to treated harbors have,
on average, less access to potable water – although the strength of this statistical association is weak. In sum, using evidence at different levels of aggregation
(within municipalities) we are able to find some support for our previous findings.
[Table 8 here]
6
Conclusion
Despite extensive evidence on the long term impact of overseas trade, the role
of state institutions accompanying commercial activities has not been extensively studied. This paper examines the long run effect on development of overseas trade in colonial Mexico, conducted under two institutional arrangements,
29
namely, Spanish rule and smugglers. We use historical records on the location of
piracy and Spanish ports in New Spain (now Mexico), identify natural harbors
along Mexican coasts as a source of exogenous variation in the possibility to
trade, and compare harbors in the close neighborhood.
We find that being a Spanish or pirate port in the colonial period significantly
led to better development outcomes in terms of poverty measures and municipal
taxing capacity today, which are not driven by the fact of carrying out trade in
the present. The positive piracy effect, although in some cases lower than the
Spanish, is interpreted as a strong support to the long term impact of trade,
whether it was developed legally or not. We further argue that free trade underlying piracy activities, as opposed to a trade monopoly under Spanish rule, may
have led to an important volume of traded goods and consumption, an incipient merchant class, as well as important networks and know-how which allowed
these places to capitalize on trade liberalization.
Piracy, although not classifiable as a formal colonial institution, was spread
throughout Spanish America and emerged as as a result of a rigid trade monopoly.
Therefore, this study contributes not only to the understanding of heterogeneous
legacies from colonial activities, but also to the knowledge of important long run
effects of de facto institutions. Future work will examine the inland impact of
smuggling in transportation networks and other distribution centers.
30
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33
34
1474
municipal tax
per capita
1498
1501
1501
1501
1501
1501
agents prosecution office
per 100 thousand people
colonial town
presence natural harbor
presence harbor above
30th pct elevation
presence harbor above
median elevation
presence current port
0.03
0.01
0.02
0.04
0.25
3.77
0.33
0.05
57.68
0.18
0.11
0.16
0.20
0.43
36.15
0.34
0.11
30.06
No treated
mean
sd
71.13 17.68
3
3
3
3
3
3
3
3
3
1.00
0.33
0.67
0.67
1.00
12.34
0.40
0.19
19.87
0.00
0.58
0.58
0.58
0.00
6.93
0.31
0.10
14.80
Spanish port
Obs mean
sd
3
39.23 10.92
31
31
31
31
31
31
26
31
31
Obs
31
0.61
0.19
0.39
0.55
0.55
8.16
0.22
0.20
31.39
0.50
0.40
0.50
0.51
0.51
5.36
0.13
0.34
20.99
Pirate port
mean
sd
53.66 15.08
Notes: *Difference in means between Spanish and pirate ports is significant at the 10% level.
818
length roads/surface*
income
1501
percentage with lack of
basic utilities
percentage of poor
Obs
1501
1535
1535
1535
1535
1535
1532
847
1508
1535
Obs
1535
Table 1: Descriptive statistics for municipalities in coastal states
0.05
0.02
0.03
0.05
0.26
3.88
0.33
0.05
57.07
0.21
0.13
0.18
0.22
0.44
35.76
0.33
0.12
30.15
All obs.
mean
sd
70.71 17.84
Table 2: Linear model with vicinity fixed effects
(1)
% of poor
(2)
% with lack
of basic utilities
Panel A: Vicinities within 100 km
spanish port
-22.955***
-20.685**
(5.147)
(10.449)
pirate port
colonial town
p-value test
spanish=pirate
colonial town
p-value test
spanish=pirate
(5)
agents prosecution office
per 100 thousand people
0.169***
(0.051)
0.043
(0.094)
5.351
(3.722)
-17.042***
(3.751)
0.124***
(0.032)
-0.055*
(0.028)
2.387*
(1.365)
0.881
(0.715)
-0.604
(1.208)
-0.011***
(0.004)
0.154***
(0.027)
2.807
(2.133)
[0.06]
[0.74]
[0.44]
[0.31]
[0.41]
0.201***
(0.048)
0.154
(0.124)
6.256**
(2.875)
-10.477***
(2.356)
-13.261***
(3.891)
0.111***
(0.028)
-0.059**
(0.030)
2.085
(1.376)
0.564
(0.750)
-0.868
(1.291)
-0.011***
(0.004)
0.145***
(0.025)
2.731
(2.024)
[0.00]
[0.02]
[0.09]
[0.08]
[0.13]
0.164**
(0.070)
0.084
(0.101)
4.804
(3.182)
Panel C: Vicinities within 20 km
spanish port
-21.545***
-23.922***
(4.475)
(7.834)
pirate port
(4)
length roads/
surface
-12.390***
(2.714)
Panel B: Vicinities within 50 km
spanish port
-28.310***
-30.679***
(3.997)
(6.466)
pirate port
(3)
municipal tax
income per capita
-6.522***
(2.293)
-9.052***
(3.448)
0.117***
(0.034)
-0.088***
(0.027)
-0.578
(1.614)
0.876
(0.759)
-0.530
(1.317)
-0.011***
(0.004)
0.140***
(0.025)
2.675
(2.008)
p-value test
spanish=pirate
[0.00]
[0.07]
[0.52]
[0.08]
[0.07]
Observations
Mean dependent
variable
2456
67.42
2456
48.82
2412
0.06
1535
0.37
2415
4.01
colonial town
Notes: Robust standard errors in parentheses. * p − value < 0.10; ** p − value < 0.05; *** p − value < 0.01.
35
Table 3: Linear model with vicinity fixed effects among municipalities
in coastal states
(1)
% of poor
(2)
% with lack
of basic utilities
Panel A: Vicinities within 100 km
spanish port
-23.171***
-21.339***
(4.316)
(8.098)
pirate port
colonial town
p-value test
spanish=pirate
colonial town
p-value test
spanish=pirate
(5)
agents prosecution office
per 100 thousand people
0.174***
(0.051)
0.180**
(0.085)
4.183
(4.517)
-15.930***
(3.874)
0.124***
(0.033)
-0.009
(0.023)
1.667
(1.826)
-0.412
(0.918)
-4.476***
(1.638)
-0.012***
(0.004)
-0.036*
(0.020)
4.807
(4.339)
[0.02]
[0.53]
[0.38]
[0.03]
[0.51]
0.199***
(0.049)
0.269**
(0.119)
4.912
(3.693)
-10.124***
(2.388)
-12.233***
(4.015)
0.111***
(0.028)
-0.021
(0.028)
1.547
(1.697)
-0.764
(0.972)
-4.751***
(1.742)
-0.012***
(0.004)
-0.024
(0.020)
4.521
(3.858)
[0.00]
[0.04]
[0.09]
[0.02]
[0.28]
0.163**
(0.070)
0.234***
(0.090)
3.123
(4.208)
Panel C: Vicinities within 20 km
spanish port
-19.743***
-18.546***
(4.220)
(6.735)
pirate port
(4)
length roads/
surface
-11.826***
(2.736)
Panel B: Vicinities within 50 km
spanish port
-26.535***
-25.886***
(3.920)
(5.787)
pirate port
(3)
municipal tax
income per capita
-6.412***
(2.311)
-8.416**
(3.485)
0.118***
(0.034)
-0.034
(0.029)
-1.152
(1.983)
-0.242
(0.982)
-4.310**
(1.780)
-0.012***
(0.004)
-0.025
(0.020)
4.400
(3.762)
p-value test
spanish=pirate
[0.00]
[0.16]
[0.54]
[0.00]
[0.20]
Observations
Mean dependent
variable
1535
70.71
1535
57.07
1508
0.05
847
0.33
1532
3.88
colonial town
Notes: Robust standard errors in parentheses. * p − value < 0.10; ** p − value < 0.05; *** p − value < 0.01.
36
Table 4: Baseline model restricting the sample to natural harbors
(1)
% of poor
(2)
% with lack
of basic utilities
Panel A: All natural harbors
spanish port
-26.687***
(8.166)
(3)
municipal tax
income per capita
(4)
length roads/
surface
(5)
agents prosecution office
per 100 thousand people
-26.983**
(11.504)
0.201***
(0.067)
0.247
(0.159)
5.380
(5.141)
pirate port
-9.357***
(3.449)
-15.602***
(4.785)
0.154
(0.109)
-0.016
(0.043)
1.721
(1.238)
colonial town
15.130***
(3.552)
15.343**
(6.308)
-0.199***
(0.068)
0.084**
(0.037)
-0.345
(1.364)
82
54.83
82
35.93
82
0.20
74
0.23
82
7.10
[0.04]
[0.29]
[0.63]
[0.10]
[0.48]
0.195***
(0.066)
0.249
(0.163)
5.065
(5.288)
Observations
Mean dependent
variable
p-value test
spanish=pirate
Panel B: Protected natural harbors
spanish port
-25.955***
-23.734*
(8.493)
(12.003)
pirate port
colonial town
Observations
Mean dependent
variable
p-value test
spanish=pirate
-8.500**
(4.119)
-12.940**
(5.677)
0.154
(0.106)
0.026
(0.058)
1.585
(1.719)
18.791***
(4.339)
21.206***
(6.980)
-0.204***
(0.068)
0.127***
(0.042)
-0.335
(1.669)
51
53.50
51
31.20
51
0.19
45
0.22
51
7.45
[0.04]
[0.33]
[0.67]
[0.19]
[0.52]
Notes: Robust standard errors in parentheses. * p − value < 0.10; ** p − value < 0.05; *** p − value < 0.01.
37
Table 5: Among natural harbors with vicinity fixed effects
(1)
% of poor
(2)
% with lack
of basic utilities
(3)
municipal tax
income per capita
(4)
length roads/
surface
(5)
agents prosecution office
per 100 thousand people
-13.510
(8.305)
0.171**
(0.072)
0.205
(0.124)
7.295**
(3.629)
-9.790**
(4.044)
-13.094**
(5.991)
0.191**
(0.074)
-0.029
(0.036)
0.100
(1.373)
14.053***
(4.710)
18.054*
(9.601)
-0.180***
(0.065)
0.042
(0.071)
0.197
(1.068)
82
54.83
82
35.93
82
0.20
74
0.23
82
7.10
[0.26]
[0.97]
[0.83]
[0.08]
[0.06]
0.137*
(0.080)
0.260**
(0.098)
6.182
(3.775)
Panel A: All natural harbors
spanish port
-18.120***
(5.517)
pirate port
colonial town
Observations
Mean dependent
variable
p-value test
spanish=pirate
Panel B: Protected natural harbors
spanish port
-16.032**
-13.442
(6.686)
(10.994)
pirate port
colonial town
Observations
Mean dependent
variable
p-value test
spanish=pirate
-9.129*
(5.166)
-9.178
(8.148)
0.165**
(0.072)
-0.024
(0.048)
-0.516
(2.026)
18.750***
(6.276)
24.476*
(13.039)
-0.184***
(0.064)
0.115
(0.094)
0.029
(1.404)
51
53.50
51
31.20
51
0.19
45
0.22
51
7.45
[0.47]
[0.79]
[0.79]
[0.01]
[0.11]
Notes: Robust standard errors in parentheses. Vicinity fixed effects within 100 km radius. * p − value < 0.10; **
p − value < 0.05; *** p − value < 0.01.
38
Table 6: Among current maritime ports with vicinity fixed effects
(1)
% of poor
spanish port
-41.551***
(9.384)
(2)
% with lack
of basic utilities
-65.201***
(12.149)
pirate port
-10.762**
(4.654)
-19.931***
(6.163)
0.310**
(0.148)
-0.001
(0.054)
1.961
(1.735)
7.721
(6.374)
10.835*
(6.334)
-0.337**
(0.144)
-0.127*
(0.072)
0.196
(1.584)
71
48.18
71
28.67
71
0.27
65
0.30
71
7.57
[0.00]
[0.00]
[0.10]
[0.03]
[0.00]
colonial town
Observations
Mean dependent
variable
p-value test
spanish=pirate
(3)
municipal tax
income per capita
0.585**
(0.255)
(4)
length roads/
surface
0.152*
(0.086)
(5)
agents prosecution office
per 100 thousand people
10.684***
(3.416)
Notes: Robust standard errors in parentheses. Vicinity fixed effects within 100 km radius. * p − value < 0.10; **
p − value < 0.05; *** p − value < 0.01.
39
40
0.028***
(0.009)
colonial town
1535
57.07
[0.05]
[0.12]
-2.230
(1.894)
-33.272**
(13.746)
(3)
% with lack
of basic utilities
-88.222***
(29.744)
1535
70.71
1.125
(1.148)
-31.337***
(8.782)
-61.296***
(20.809)
(2)
% of poor
11.89
1508
0.02
0.028***
(0.009)
-0.157
(0.111)
0.195***
(0.056)
(4)
First
stage
[0.09]
1508
0.05
-0.027***
(0.010)
0.251***
(0.072)
(5)
municipal tax
income per capita
0.593**
(0.232)
9.33
847
0.03
0.042***
(0.016)
-0.163
(0.120)
0.177***
(0.058)
(6)
First
stage
[0.00]
847
0.33
-0.012
(0.023)
0.081
(0.103)
(7)
length roads/
surface
-0.568**
(0.251)
11.90
1532
0.02
0.028***
(0.009)
-0.156
(0.111)
0.195***
(0.056)
(8)
First
stage
[0.44]
1532
3.88
4.557
(4.398)
5.504
(4.820)
(9)
agents prosecution office
per 100 thousand people
9.683
(7.122)
Notes: Robust standard errors in parentheses. Vicinity fixed effects within 100 km radius. * p − value < 0.10; ** p − value < 0.05; ***
p − value < 0.01.
11.90
1535
0.02
-0.157
(0.111)
spanish port
Observations
Mean dependent
variable
p-value test
spanish=pirate
F stat for instrument
0.195***
(0.056)
protected
natural harbor
pirate port
(1)
First
stage
Table 7: IV estimates for piracy with vicinity fixed effects among municipalities in coastal states
41
* p < 0.10, ** p < 0.05, *** p < 0.01
Standard errors in parentheses
0.379
0.035**
(0.015)
150
Colonial Town
Observations
Mean dependent
variable
R2
0.000***
(0.000)
Elevation
Treated
(1)
No Assets
-0.035***
(0.013)
0.167
0.034
(0.039)
150
0.000***
(0.000)
(2)
No Drain
-0.119***
(0.038)
0.230
0.065***
(0.024)
150
0.000***
(0.000)
(3)
No Dirt Floor
-0.056***
(0.020)
0.075
0.122***
(0.045)
150
-0.000
(0.000)
(4)
No Water
0.076*
(0.044)
0.180
0.023*
(0.013)
150
0.000***
(0.000)
(5)
No Electricity
-0.007
(0.012)
0.114
0.018***
(0.007)
156
0.000***
(0.000)
(6)
Illiterate
-0.004
(0.007)
Table 8: Within municipality outcomes: Localities 30kms from natural harbors
Table A1. Descriptive statistics
Obs
No treated
mean
sd
Spanish port
Obs mean
sd
Panel A: Among municipalities on the coastline.
percentage of poor
127
59.09 18.26
3
Obs
Pirate port
mean
sd
Obs
All obs.
mean
sd
39.23
10.92
22
52.89
14.84
152
57.80
17.95
percentage with lack of
basic utilities
127
42.72
27.31
3
19.87
14.80
22
29.40
18.11
152
40.34
26.49
municipal tax
per capita
127
0.14
0.32
3
0.19
0.10
22
0.26
0.39
152
0.16
0.33
length roads/surface*
107
0.30
0.56
3
0.40
0.31
17
0.22
0.12
127
0.29
0.52
agents prosecution office
per 100 thousand people
127
5.49
5.23
3
12.34
6.93
22
7.53
4.68
152
5.92
5.28
colonial town
127
0.20
0.41
3
1.00
0.00
22
0.50
0.51
152
0.26
0.44
presence natural harbor
127
0.50
0.50
3
0.67
0.58
22
0.77
0.43
152
0.54
0.50
presence harbor above
30th pct elevation
127
0.29
0.46
3
0.67
0.58
22
0.55
0.51
152
0.34
0.47
presence harbor above
median elevation
127
0.15
0.36
3
0.33
0.58
22
0.27
0.46
152
0.17
0.38
presence current port
127
0.38
0.49
3
1.00
0.00
22
0.73
0.46
152
0.44
0.50
Panel B: Including all Mexican municipalities.
percentage of poor
2422 67.63 18.47
3
39.23
10.92
31
53.66
15.08
2456
67.42
18.52
income
percentage with lack of
basic utilities
2422
49.08
30.69
3
19.87
14.80
31
31.39
20.99
2456
48.82
30.65
municipal tax
per capita
2378
0.06
0.12
3
0.19
0.10
31
0.20
0.34
2412
0.06
0.12
length roads/surface*
1506
0.37
0.40
3
0.40
0.31
26
0.22
0.13
1535
0.37
0.39
agents prosecution office
per 100 thousand people
2381
3.94
29.32
3
12.34
6.93
31
8.16
5.36
2415
4.01
29.12
colonial town
2422
0.29
0.45
3
1
0
31
0.55
0.51
2456
0.29
0.46
presence natural harbor
2422
0.03
0.16
3
0.67
0.58
31
0.55
0.51
2456
0.03
0.18
presence harbor above
30th pct elevation
2422
0.02
0.12
3
0.67
0.58
31
0.39
0.50
2456
0.02
0.14
presence harbor above
median elevation
2422
0.01
0.09
3
0.33
0.58
31
0.19
0.40
2456
0.01
0.10
presence current port
2422
0.02
0.14
3
1
0
31
0.61
0.50
2456
0.03
0.17
income
Notes: *Difference in means between Spanish and pirate ports is significant at the 10% level.
42
Table A2. Restricted samples with vicinity fixed effects (50 km)
(1)
% of poor
(2)
% with lack
of basic utilities
Panel A: All natural harbors
spanish port
-14.886***
(4.031)
(3)
municipal tax
income per capita
(4)
length roads/
surface
(5)
agents prosecution office
per 100 thousand people
-11.871**
(5.574)
0.177***
(0.054)
0.203***
(0.061)
6.195
(3.857)
pirate port
-17.323***
(5.429)
-24.319***
(5.986)
0.296***
(0.090)
-0.060
(0.039)
1.133
(1.917)
colonial town
15.003***
(3.972)
11.133
(8.976)
-0.208***
(0.074)
0.097**
(0.047)
1.054
(2.146)
82
54.83
82
35.93
82
0.20
74
0.23
82
7.10
[ 0.72]
[ 0.13]
[0.26]
[0.00]
[ 0.24]
0.177***
(0.057)
0.203***
(0.065)
6.195
(4.081)
Observations
Mean dependent
variable
p-value test
spanish=pirate
Panel B: Protected natural harbors
spanish port
-14.886***
-11.871*
(4.265)
(5.898)
pirate port
-19.882***
(6.028)
-22.775***
(7.199)
0.299**
(0.115)
-0.094**
(0.044)
1.325
(3.052)
colonial town
20.223***
(4.788)
20.532*
(11.388)
-0.224***
(0.063)
0.158***
(0.054)
1.233
(2.676)
51
53.50
51
31.20
51
0.19
45
0.22
51
7.45
[0.50]
[0.25]
[0.35]
[0.00]
[0.35]
1.106***
(0.264)
0.482
(0.346)
3.625
(5.522)
Observations
Mean dependent
variable
p-value test
spanish=pirate
Panel C: Current maritime ports
spanish port
-72.514***
-101.630***
(9.841)
(14.621)
pirate port
-12.898**
(5.801)
-21.222**
(8.786)
0.421***
(0.118)
0.062
(0.047)
-1.356
(2.093)
colonial town
15.342***
(4.972)
7.134
(5.632)
-0.304***
(0.087)
-0.122
(0.100)
7.988**
(3.736)
71
48.18
71
28.67
71
0.27
65
0.30
71
7.57
[0.00]
[0.00]
[0.00]
[0.19]
[0.24]
Observations
Mean dependent
variable
p-value test
spanish=pirate
Notes: Robust standard errors in parentheses. * p − value < 0.10; ** p − value < 0.05; *** p − value < 0.01.
43
Table A3. Among protected natural harbors with elevation above median
(1)
% of poor
Panel A: Baseline model
spanish port
-17.427***
(4.344)
(2)
% with lack
of basic utilities
(3)
municipal tax
income per capita
(4)
length roads/
surface
(5)
agents prosecution office
per 100 thousand people
-2.181
(10.193)
0.325***
(0.085)
0.088**
(0.036)
9.832**
(3.574)
pirate port
-11.210***
(3.713)
-7.433
(8.309)
0.326*
(0.189)
0.035
(0.055)
1.338
(3.299)
colonial town
26.750***
(4.783)
23.296**
(9.609)
-0.323**
(0.121)
0.108**
(0.042)
0.284
(3.553)
[0.02]
[0.44]
[0.99]
[0.27]
[0.00]
0.270***
(0.050)
0.091*
(0.051)
14.693***
(1.600)
p-value test
spanish=pirate
Panel B: With vicinity fixed effects (100 km)
spanish port
-9.748**
20.779***
(4.020)
(3.191)
pirate port
-9.921**
(4.712)
-11.772
(8.982)
0.322**
(0.143)
0.010
(0.052)
-0.482
(4.455)
17.765***
(4.968)
0.124
(3.802)
-0.247***
(0.080)
0.109*
(0.058)
-3.936*
(2.028)
p-value test
spanish=pirate
[0.98]
[0.00]
[0.72]
[0.21]
[ 0.00]
Observations
Mean dependent
variable
26
49.31
26
22.95
26
0.26
22
0.16
26
9.29
colonial town
Notes: Robust standard errors in parentheses. * p − value < 0.10; ** p − value < 0.05; *** p − value < 0.01.
44