Multinationals, Monopsony, and Local Development: Evidence From the United Fruit Company

Esteban Méndez and Diana Van Patten

Econometrica, 2022, vol. 90, issue 6, 2685-2721

Abstract: This paper studies the role of private sector companies in the development of local amenities. We use evidence from one of the largest multinationals of the 20th century: the United Fruit Company (UFCo). The firm was given a large land concession in Costa Rica—one of the so‐called “Banana Republics”—from 1899 to 1984. Using administrative census data with census‐block geo‐references from 1973 to 2011, we implement a geographic regression discontinuity design that exploits a land assignment that is orthogonal to our outcomes of interest. We find that the firm had a positive and persistent effect on living standards. Company documents explain that a key concern at the time was to attract and maintain a sizable workforce, which induced the firm to invest heavily in local amenities—like the development of education and health infrastructure—that can account for our result. Consistent with this mechanism, we show, empirically and through a proposed model, that the firm's investment efforts increase with worker mobility.

Date: 2022
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