History matters, once again:
This paper analyzes the roots and implications of variations in de facto institutions, within a constant de jure institutional setting. We explore the role of rent-seeking episodes in colonial Brazil as determinants of the quality of current local institutions, and argue that this variation reveals a dimension of institutional quality. We show that municipalities with origins tracing back to the sugar-cane colonial cycle – characterized by a polarized and oligarchic socioeconomic structure – display today more inequality in the distribution of land. Municipalities with origins tracing back to the gold colonial cycle – characterized by an overbureaucratic and heavily intervening presence of the Portuguese state – display today worse governance practices and less access to justice. Using variables created from the rent-seeking colonial episodes as instruments to current institutions, we show that local governance and access to justice are significantly related to long-term development across Brazilian municipalities.