Caffeinated Development: Export Sector, Human Capital, and Structural Transformation in Colombia

This paper studies the effect of the first wave of globalization on developing countries’ structural transformation, using data from Colombia’s expansion of coffee cultivation. Counties engaged in coffee cultivation in the 1920s developed a smaller manufacturing sector by 1973 than comparable counties, despite starting at a similar level in 1912. My empirical strategy exploits variation in potential coffee yields, and changes in the probability to grow coffee at different altitudes. This paper argues that coffee cultivation increased the opportunity cost of education, which reduced the supply of skilled workers, and slowed down structural transformation. Using exogenous exposure to coffee price shocks as an instrument, I show that reductions in cohorts’ educational attainment led to lower manufacturing activity in the long-run. The effect is driven by both a decrease in demand for education, and reductions in public goods. Finally, coffee cultivation during the early 20th Century had negative long-run effects on both individual incomes and poverty rates.