Persistent Effects of Colonial Institutions on Long‐Run Development: Local Evidence from Regression Discontinuity Design in Argentina
| Author | Rok Spruk,Mitja Kovac |
| Date | 01 December 2020 |
| Published date | 01 December 2020 |
| DOI | http://doi.org/10.1111/jels.12266 |
Journal of Empirical Legal Studies
Volume 17, Issue 4, 820–861, December 2020
Persistent Effects of Colonial Institutions
on Long-Run Development: Local
Evidence from Regression Discontinuity
Design in Argentina
Rok Spruk*and Mitja Kovac
We exploit the discontinuity in the integration into the colonial court district of Real
Audiencia in Upper Peru to estimate how colonial institutions have impacted local develop-
ment across 527 departments in Argentina. Our identification strategy takes advantageof geo-
referenced spatial boundary splits with local quasi-randomization between the localities inte-
grated into the colonial court jurisdiction and the localities outside Audiencia’s jurisdiction.
The results show the impact of colonial institutions imposed by real audiencia in Upper Peru
is both strong and remarkably persistent. Departments outside the colonial court district have
lower literacy rates, a less computer-literate population, better physical and digital infrastruc-
ture, and more widespread computer ownership. The established effects of real audiencia do
not seem driven by the climatic conditions and environment of disease, and are robust to a
battery of specification checks, placebo tests, and falsification tests. We show that Audiencia’s
effect persisted through its influence on public goods provision, economic specialization pat-
terns, clientelist networks, and elite control of the political representation.
Thousands of miles away from Spain, in an age of slow communication, entrusted with the assignment of
all sorts of lucrative offices, encomiendas, and commercial privileges, and having friends, relatives and spe-
cial interests to serve, a governor was surrounded by countless officials who were eagerly awaiting their share
of booty, and who were ready at a moment’s notice to turn traitor if they could gain by such an act, It may
be said of the Spanish colonial governor as was said of Verres of old, that in stealing, once must steal three-
fold, once for himself, once for his judges, and once to pay the penalty.
Charles Henry Cunningham (1919)
*Address correspondence to Rok Spruk, School of Economics and Business, University of Ljubljana, Kardeljeva
ploscad 17, SI-1000 Ljubljana; email: rok.spruk@ef.uni-lj.si. Spruk is Assistant Professor of Economics; Kovac is
Associate Professor of Law and Economics, School of Economics and Business, University of Ljubljana.
We thank Daron Acemoglu, Lee Benham, Bernard Black, Ulf Brunnbauer, Matias Cattaneo, Jens Dammann,
Alejandro Estefan, Thiago Fauvrelle,Michael Frensch, MartinGelter, Daniel Gerber, Simon Hartmann,Eric Helland,
Tobias Hlobil, Sven Ho
¨ppner, Dan Klerman, Jonathan Klick, Pablo Kurlat, Giampaolo Lecce, Robbert Maseland,
Giovanni Mellace, Juan Sebastian Mora-Sanguinetti, Santiago Perez, Ideen Riahi, Valentin Seidler, Paul Schaudt, partici-
pants at the 14th Annual Conference on Empirical Legal Studies at Claremont McKenna College, 2018 North Ameri-
can Summer Meeting of the Econometric Society (ES) at UC Davis, 2017 SIOE Annual Meeting at Columbia
University, 2017 EMLE Midterm Meeting (Gent), 2018 German Law and Economics Annual Meeting in Ljubljana
(Laibach), 2020 Virtual Meeting of Urban Economic Association (Brown University), seminar participants at Gro-
ningen University, University of Regensburg, and twoanonymous refereesfor the comments, feedback, initiatives, and
suggestions. All the opinionsand errors are our own.
820
I. Introduction
The notion that legal institutions matter greatly for long-term growth and development has
attracted substantial scholarly attention (Posner 1998; Easterly and Levine 2003; Acemoglu
et al. 2005; Beck & Levine 2005; Cooter& Scha
¨fer 2011). A considerable body of evidence shows
that the rule of law and strongly enforced property and contract rights contribute to the wealth
of nations and their economic growth (Knack & Keefer 1995; Clague et al. 1999; Hall & Jones
1999; Rodrik et al. 2004, Banerjee et. al. 2005, Van Zanden et. al. 2012). Yet ascertaining the
impact of legal institutions on growth and development using plausible sources of variation is
less clear and still awaits conclusive quantification (Klick 2010). Most studies have examined
the relationship between legal institutions and long-term economic outcomes using cross-coun-
try variation (Acemoglu et. al. 2002). Such studies compare different legal systems and, when
sharp changes are observed in the institutions, there are numerous reasons to believe that many
other factors are influencing the growth and development (Olson 1984; Putnam 1993;
Mitchener & McLean 2003; Easterly 2007; Algan & Cahuc2010; Armour et al. 2009; Galor et. al.
2009, Putterman & Weil 2010; Tabellini 2010; Maseland2013).The use of subnational variation
in economic outcomes is less vulnerable to such frailties since several common factors can be
held fixed and might help in identifying the relationship between legal institutions and eco-
nomic development (Sobel & Coyne 2011). Given that it is difficult to establish plausibly exoge-
noussourcesofvariation,itisalmostimpossible to isolate the effect of a particular legal
institutionongrowthanddevelopment,whereaspanel-data techniques are unlikely to rectify
theissuesinceinstitutionstendtochangeslowlyovertime(Leamer1983;Angrist&
Pischke 2010; Helland & Klick 2011; Klerman et al. 2011;Helland 2016).
Previous ground-breaking literature identifies vastly different levels of development
and human capital within South American countries (Acemoglu & Dell 2010; Bruhn &
Gallego 2012; Acemoglu et al. 2014; Chanda et. al. 2014; Mitton 2016). Several streams of
institutional explanations have emerged to account for the deep differences in long-term
development (David 1994). First, historical circumstances shape the development of the
formal institutional framework and its informal underpinnings, which tend to survive
and, hence, matter for economic interactions and outcomes (Huntington 1968; Greif
1989; Mokyr 1990; North 1989, 1991; Landes 1998, Spolaore & Wacziarg 2013). The insti-
tutional framework’s survival and persistence can be explained by the abundance of fac-
tor endowments (Engerman & Sokoloff 2012), legal traditions (La Porta et al. 1998),
historical disease environment (Acemoglu et al. 2001), African slave trade (Nunn 2008,
2009), medieval access to trade-promoting institutions of religious tolerance (Jha 2013),
or by exogenous invasions bringing radical institutional changes with a long-lasting
impact (Acemoglu et al. 2011).
In spite of more than 200 years of common institutional framework, large differ-
ences in economic development are present in Argentina. The province of Santa Cruz in
the Patagonian foothills has USD 30,000 GDP per capita, which is comparable to Italy
and Slovenia. In the north, the province of Misiones has GDP per capita USD 4,000,
which is comparable with Ukraine and Albania. In this article we estimate the causal
effect of the colonial institutions on local long-term development by exploiting the
Persistent Effects of Colonial Institutions 821
discontinuity in the integration into the Spanish colonial empire across modern-day
Argentina. Specifically, we take advantage of the fact that the northern half of Argentina
was integrated into the colonial empire while the southern half was not. The source of
variation in the long-term development between both halves of Argentina comes from
the colonial jurisdiction held by Audiencia Real.
Audiencia Real was the principal judicial body in the Spanish colonial empire. It
was a key institution that worked in tandem with the Crown and royal officials, and held
a fixed territorial jurisdiction. After the conquest of the Americas, the Crown of Castille
introduced the audiencias to foster state capacity and administer the jurisdiction over a
vast new territory by bringing the settlement area and the conquistadors under royal con-
trol to enforce law and order. The audiencia was an example of a proto-institution that
combined executive, legislative, and judicial power, including several administrative func-
tions. It had a general appellate jurisdiction over subordinate courts within its borders,
and original jurisdiction with respect to criminal and civil cases. Legal scholars suggest
that audiencia’s ability to administer the jurisdiction was present only within a certain
radius of the court and dissipated at longer distances from the court (Mirow 2004). In
this respect, the area under the control of the audiencia can be described as a market
basket of extractive institutions imposed by Spain through Audiencia Real in Upper Peru,
while the area outside the audiencia in southern Argentina had no colonial institutions
at all. Our comparison thus contrasts the extractive institutional structure in the northern
half of Argentina, which was integrated into the colonial empire, with a vast area in
southern Argentina that was never de facto integrated into the colonial empire and had
no tangible institutional structure before it became part of the nascent Argentine repub-
lic following its independence from Spain.
1
Audiencia Real was long been regarded as a center of stability and continuity in
the colonial government and as a constraint on the power of local caudillos that
reinforced both political stability and some degree of the rule of law. A breaking point
came in 1687 when the Spanish crown, given its dire financial crisis, decided to raise
additional revenue by selling the positions of audiencia officers to the highest bidders,
creating pervasive principal-agent and adverse-selection problems because the local cre-
ole elites, who were in the position to gain most from a rampant takeover of power in
judicial politics, were successful in most of these bids, despite possessing questionable
qualifications for the posts. The policy of office sales brought far-reaching consequences
by turning audiencia from a source of stability into a source of venality, opportunism,
and rent seeking.
2
Office sales attracted the type of colonial governors who sought to
abuse power for personal gain by extracting rents from the indigenous and non-elite pop-
ulation. Pervasive rent seeking, notorious corruption, and rampant abuses of power by
governors became the norm, especially in the form of bribery and intimidation of
1
Viceroyalty of the Rı´o de la Plata, established in 1776, claimed de jure jurisdiction over the southern half of
Argentina but had no de facto control over the area (Lynch 1958).
2
In more precise terms, between 1673 and 1752, about 80 percent of colonial administrators entered offices of
power and colonial bureaucracy by purchasing the position from the Crown.
822 Spruk and Kovac
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