Human capital in the regions of the Russian Empire and inequality in land distribution at the turn of the 20th century

This paper is an empirical test of what is called a unified theory of inequality and growth (Galor and Zeira, 1988, 1993; Galor and Moav, 2004; Galor, 2012) – in early stages of industrialization inequality enhanced the process of development by channeling resources towards individuals whose marginal propensity to save is higher, thus enhancing physical and human capital accumulation. In later stages of development, however, equality has stimulated human capital formation and growth and unequal distribution of income became a hurdle for economic development. A number of studies have found that human capital is higher and more evenly distributed in countries with lower income and wealth inequalities. In particular, Baten and Hippe (2018) argued that inequality in the distribution of land ownership in Europe (including Russia) in the 19th century had a negative impact on human capital formation (as measured by numeracy rate) as landowners did not have incentives to promote educational institutions or were not willing to pay the necessary taxes. In contrast, we find that in the regions of Russian Empire in 1897 uneven distribution of land was associated with higher levels of human capital (as measured by the average years of schooling and literacy rate), whereas the distribution of the human capital across the regional population (as measured by literacy and the proportions of inhabitants with higher, secondary and primary education) was more even. The difference in the results is caused by the different measurements of land inequality; our result is totally consistent with the unified theory of the inequality and growth.