From 2019... The 1862 Homestead Act granted 10% of the land in the United States to 1.6 million individuals; areas with greater historical exposure to homesteading are poorer and more rural today

From 2019... There’s No Such Thing As Free Land: The Homestead Act and Economic Development. Ross Mattheis, Itzchak Tzachi Raz. Harvard Job Market Paper, December 31, 2019. https://scholar.harvard.edu/files/iraz/files/Raz_JMP_2019.pdf

Abstract: The 1862 Homestead Act provided free land conditional on five years of residency and cultivation to settlers of the American West. In total, the Act granted 10% of the land in the United States to 1.6 million individuals. This study examines the impact of the Act on long-run development. Using spatial regression discontinuity and instrumental variable designs, we find that areas with greater historical exposure to homesteading are poorer and more rural today. The impact on development is not only driven through differences in the urban share of the population; cities in homesteading areas are less developed and non-agricultural sectors are less productive. Using newly geo-referenced historical census data, we document the path of divergence starting from the initial settlement. We find that homesteading regions were slower to transition out of agriculture. The historical and empirical evidence is consistent with the hypothesis that the transitory distortions caused by the Act’s residency and cultivation requirements induced selection on settlers’ comparative advantage in agriculture. This, in turn, inhibited the development of non-agricultural sectors and the subsequent benefits of agglomeration.

Appendix C Alternative Explanations

In this section, we consider two competing hypotheses regarding channels. The first is that a higher prevalence of land consolidation and large landowners in non-homesteading regions had a positive impact on development. The second is that homesteading contributed to the development of cultural traits and values that were unfavourable for long-run economic development. We find that neither hypothesis is supported by the empirical facts.

C.1 Land Consolidation and Large Landowners

A main competing hypothesis regarding channels focus on the existence of large landowner. Some historians have argued that the large land holdings of absentee owners, often referred to as land speculators, had an adverse effect on economic development (Gates, 1973; Swierenga, 1977). Specifically, it has been argued that absentee owners slowed economic development by keeping land idle and away from settlers, contributed to the raise in farm tenancy and lower investments in agriculture, and reduced local tax collection needed to support public goods. Recent studies in economics provide causal evidence supporting some of these arguments (Raz, 2018; Smith, 2019). On the other hand, other scholars have argued that absentee landownership actually had a positive impact, stressing their important function as land retailers, their risk-bearing and informational roles, their contribution to the development of early cities, and the fact that they helped to attract settlers west (North, 1974; Swierenga, 1977).

Moreover, Cogswell (1975) finds a negative correlation between absentee landownership and farm tenancy, and argues that land “speculators may have directly reduced the proportion of tenant farmers by offering land on credit” (p. 27). Can a lower prevalence of large land owners in the homesteading region be responsible for the adverse impact on long-run development?

In the context of the Osage land cessions, this seems less plausible. Similar to privatization under the Homestead Act, land on the Osage cessions was only sold to actual settlers, in tracts not exceeding 160 acres. Nevertheless, this is not the general case for the counterfactual to homesteading,45 and it is theoretically possible that unlike homestead tracts, for which property rights were only awarded after five years, land on the Osage cessions was quickly consolidated and passed to the hands of large landowners.

To assess the likelihood of this possibility, we utilize census data on the average size of farms, available at the civil townships level in 1930,46 and use the discontinuity in homestead assignment across the historical Osage boundary to examine effects on farm sizes. The results of the analysis are presented in table C.1. We do not find any statistically significant effects. Not only that, but the point estimates are highly unstable across specification and bandwidth, which suggests that the lack of statistical significance is not likely to be driven by low power alone.

C.2 Values and Culture

Another competing hypothesis we consider is that settlement under the Homestead Act shaped values and culture, which in turn affected economic activity. We will consider two separate hypotheses.

The first is that the settlement under the Act contributed to the creation of more egalitarian communities with a closely knit social structure. Some historians have argued that the adverse conditions during the first years of settlement draw homesteaders to rely on each other’s assistance. Lee (1979) notes that "Homestead neighbors shared labor, provisions and most important of all, each other’s company" (p. 552). Moreover, he argues that the relative equality of possessions and social status in homesteaders’ communities helped prevent disputes and divisions. The common practices of labor sharing and mutual assistance and the relative social equality shaped the social nature of the newly formed communities, making them more egalitarian and cohesive and strengthening within them the sense of communal values.

Collectivism, or communal values, have been found to be negatively associated with economic growth (Gorodnichenko and Roland, 2011).47 It is thus possible in theory that homesteading led to stronger communal values relative to communities that were not settled under the Act, which in turn lowered economic development in the long-run.48

We use the IV strategy and county level data to examine this hypothesis. Table C.2 presents the results. In column (1), we use survey data from the Moral Foundations Questionnaire49 to measure the relative importance of universal values over communal values. We follow the procedure in Enke (2019) to aggregate individual level data to the county level. There does not seem to be any association between homesteading and the prevalence of universal values. In columns (2)-(4), we examine effects on the share of religious adherents, the divorce-to-marriage ratio, and the fraction of single female households with children out of total households with children. These measurements were found to be correlated with collectivism or communal values. We do not find any evidence for an impact of the Act on on these outcomes. Moreover, the point estimates across the different outcomes are not aligned. The point estimate suggest a positive effect on religiosity, but also on divorces and the relative importance of universal values over communal values, and a negative impact on single parenthood.

Another hypothesis is that acquiring land for “free” affected homesteaders’ view regarding the importance of economic success as a mean to achieve personal welfare, and therefore the degree to which they (and latter, their children) were willing to exert effort in the labor market. This in turn contributed to a lower economic development in the long-run.

In order to test the plausibility of this hypothesis, we look for effects of the Act on labor market participation. To do so, we use the RD strategy and full count census data for years 1880, and 1900- 1940. The results are presented in Figure C.1. We do not find any association between historical homesteading and labor force participation. The RD estimate of β from equation (1) are insignificant in all years. Moreover, the point estimates are positive in some years, while negative in others.