CDDRL Working Papers, page(s): 52
This paper examines why governments in underdeveloped countries systematically pursue policies that prevent long-term economic growth. Focusing on the design and implementation of Mexico's massive land redistribution program, we argue that governments do so to improve their chances of political survival. Mexico’s incumbent PRI regime gave peasants communal property under a restrictive and inefficient property rights regime. This form of land reform created dependence upon the regime for survival. We find empirical support for this hypothesis using data from a panel of Mexican states from 1917-1992. Land distribution was higher during election years and where the threat of rural unrest was greater. We also show that economic growth and modernization eroded PRI support over the long term, and, further, that PRI support eroded more slowly in states receiving greater levels of land. Inefficient land redistribution therefore served the PRI’s electoral interests, generating a loyal political clientele; and it contributed to political stability. Nonetheless, this policy carried steep costs: land reform substantially depressed long-term economic growth. These findings hold across various model specifications and instrumental variables estimation.