Regional growth effects of early 20th century agricultural expansion in Puerto Rico: An instrumental variable approach

Abstract

This thesis provides an empirical exploration of regional path divergence within Puerto Rico as related to the expansion of sugar-related economic activity from 1899 to 1930, the period of highest volume of sugar production at highest intensity. By using contemporary soil data, I am able to relate soil suitability for sugar production to population changes taking place early 20th century in each County Subdivision. I interpret soil suitability to be a valid instrument at a time of a critical institutional juncture and find that sugar industry expansion from 1899 to 1930 reduces County Subdivision house values in the present. Specifically, I estimate that for every sugar related population percentage increase from 1899 to 1930, the median house value for a County Subdivision decreased by $384. This can prove quite significant for the 83 County Subdivisions that experienced population percent change increases of 100% or more from 1899 to 1930. In addition, I include an interaction term analysis that provides further evidence of this statistical relationship between municipality sugar production value in 1929, County Subdivision demographic change, and future house values in County Subdivisions. Using the available historiography to interpret the empirical results, this thesis provides a significant amount of evidence to support the hypothesis that sugar industry expansion in Puerto Rico had long term negative effects on local asset markets, increasing wealth inequality in Puerto Rico.