Jean-Paul Faguet

It gets very few resources in terms of taxation, and it just basically maintains an army. And in some countries, a currency, in other countries, not a currency. Colombia didn't have a single currency until about 70 years after its creation. I mean, it was unbelievable, right?

So these local institutions in 1539, let's say, and thereafter, are doing important local jobs in terms of provision of potable water. So, for example, in Tunha, which is a second institution, encomienda-based municipality that's founded in Colombia by the Spanish. They basically dig trenches in a canal and they bring potable water from the mountains into a fountain in the middle of town.

And in 1539, this is the source of potable water. And then the Spanish lords send their indentured servants out to like fill urns with water and take them back and that's what they drink. But it's the encomienda-based local government that's doing that. They manage waste. They regulate commerce.

So if you're selling food or if you're tanning leather or if you're engaged in commerce more generally in the town, it's the local government that's regulating you and making sure that the food isn't unsafe, etc. So it's actually... It's a more capable and more involved, more sophisticated local state than I certainly ever expected for 1500s full stop, let alone 1500s Latin America.

And then these places, the state sort of grows in capacity. And I guess the simple baseline comparison is that where there was not encomienda, there's no incentive for anyone to set up the colonial state. There have been indigenous institutions throughout Latin America, but especially in places like Colombia, they're just demolished because you have population declines in excess of 95%.

So if 95 percent of the indigenous population has died, the institutions that they ran fall completely apart. And they're basically, you know, scattered people like trying to run away from the Spanish or a couple of tribes off in the Amazon or in the Sierra Nevada in the north. So, you know, institutions of government collapse.

Yes, very good. You've put your finger on exactly the empirical challenge and the threat to our result, which is what economists call locational fundamentals. And so to expand a little bit on what you said, the argument would be, well, where did the Spanish go? The Spanish went to where there were large numbers of indigenous people because they wanted to enslave them and get them to work for them.

Where were these indigenous people living? They're living in places that tend to be more favorable to development anyway. Because the soils are better, there's a ready source of water, there's easy access to trade routes, you know, rainfall. I mean, whatever it may be. Maybe there are subsoil minerals that they're exploiting.

Whatever it may be, but there's some fundamental thing that's driving the modern day development outcomes. And the encomienda is just sort of accommodating itself to that. It's not the causal factor. So what we do... And I'm going to get a little bit into the nitty gritty of the methodology. We use a method called neighbor pair fixed effects.

So the idea here is that all else equal, any two neighboring municipalities in Colombia are going to tend to be similar in terms of these locational fundamentals. They're going to have similar soil, similar rainfall, similar amounts of gold or absence of gold or whatever it may be.

And so we're gonna use a methodology that compares neighbor pairs where one did and the other did not have encomienda. And so ideally these things should be similar in every way that we can't measure. We're also gonna control in our regressions for all the things that we can measure. So we have a ton of, Colombia has very good quality data.

One of the nice things about working in Colombia is that it's one of the best qualities of data of any Latin American country and amongst developing countries generally. Data is held to be good quality in places like India, Brazil, Mexico, and also Columbia. So we have lots of data on locational characteristics that can be measured.

And then we look at neighbor-pair differences where anything that is not measured is presumably controlled for just by virtue of being a neighbor, where one has encomienda, the other doesn't. And so this is one means of identification, but many people say, well, okay, that's okay, but it's not good enough. So then we take one additional big step

which is what in econometrics is called instrumental variables, where we come up with an instrument which is ideally highly correlated with the thing that we're trying to pin an argument on, which is the encomienda.

So our instrument is highly correlated with the presence or absence of encomienda, but it should be uncorrelated with the outcome variable that we're trying to ascribe to the encomienda, which is modern development outcomes like health, education, GDP per capita, etc., And so we've tried different instruments.

And one of my junior colleagues, a Colombian called Laura Soto, I mean, this was a team effort and, you know, everybody contributed to it. But I think she had the fundamental spark, the initial idea, which was she was reading the accounts of a guy called Tomas Lopez from 1560, who was an imperial leader.

um agent sent by the crown to to gather information to allow for better taxation of these spanish lords who are making like you know good modern day businessmen and trying to evade taxes like crazy right and again with 15 with 16th century technology evading taxes wasn't that hard this guy was sent by the crown to just like take take a census a catalog as it were catalog

how many Spaniards were where, how big their farms were, how big their houses were, and crucially for us, how many encomienda Indians they had working for them. How many pigs, how many horses, all this kind of stuff. But crucially for us, how many encomienda Indians they had working for them.

And what Laura, what my colleague saw is that this guy describes exactly the route that he took through Colombia. And he says, I'm going to try to find where all these conquistadores are. How am I going to do that? Well, the best way I can come up with is just to try to retrace their steps because wherever they got to, you know, was via their path.

So I'm going to try to take the same path that they all took to get where the places are that they founded, you know, towns and villages. or where they have encomiendas. And so we then combine that. This is another very SFI thing. We combine that with modern data from the NASA mission that is mapping the geography of the planet.