The long-term effect of slavery on inequality today

According to a new working paper, 1800s slavery explains approximately 20% of income inequality in Brazil today. While the direction of the impact is not surprising, I'm impressed by its magnitude. I wonder how much investment in cash transfer programs would be necessary to achieve an effect of similar magnitude. Thanks John B. Holbein‏ for pointing to this study on Twitter.

Fujiwara, T., Laudares, H., & Caicedo, F. V. (2017). Tordesillas, Slavery and the Origins of Brazilian Inequality.

From the abstract:

"...To deal with the endogeneity of slavery placing, we use a spatial Regression Discontinuity framework, exploiting the colonial boundaries between the Portuguese and Spanish empires in current day Brazil. We find that the number of slaves in 1872 is discontinuously higher in the Portuguese side of the border, consistent with this power’s comparative advantage in this trade. We then show how this differential slave rate has led to higher income inequality of 0.103 points (Gini coefficient), approximately 20% of average income inequality in Brazil. To further investigate the role of slavery on economic development, we use the division of the Portuguese colony into Donatary Captancies. We find that a 1% increase in slavery in 1872 leads to an increase in inequality of 0.112. Aside from the general effect on inequality, we find that more slave intensive areas have higher income and educational racial imbalances and worse public institutions today"

ps. This paper also reminds me of this post on how presidential elections are impacted by a 100 million year old coastline in the USA. Hint: geology determined the distribution of productive land, which influenced the spatial distribution of African slaves which in turn influenced the electoral distribution. I'm not saying I'm convinced by this argument but I have to recognize it uses a quite inventive identification strategy.

image credit: Fujiwara et al (2017)