William F. Maloney and Felipe Valencia Caicedo have a superb piece on the topic.
How persistence is the linkage certain regions and economic fortunes? A lot perhaps. What were the most inhabited regions in 1492 continue to be the richest places today:
We focus on the Americas, and follow the literature in taking the continent as a large historical natural experiment. We are also aided by the availability of precise anthropological and archaeological data, the product of a long tradition of research summarised in William Denevan’s 1992 book and used recently by Bruhn and Gallego (2012). These historical measures of population density can be seen as what they are, but also, following Malthus, as a proxy for prosperity.
We test for the continued influence of this variable as we control for standard geographical and weather controls, suitability for agriculture, river network density, ruggedness, and prevalence of malaria. We use country fixed effects to net out the effect of national level variables such as policies and institutions, as well as different estimators to assess the potential role of outliers.\
We reach three main conclusions in our research.
- First, and most surprisingly, we document that settlements today are located where there used to be pre-colonial settlements. This persistence is far from obvious given that in many cases the original indigenous populations were practically eradicated during the colonisation process.
- We also show that certain geographical and weather characteristics – most notably agricultural suitability, distance to the coast and malaria prevalence – were important in determining where indigenous people settled in the first place.
- Lastly, we show that places that used to be rich also tend to be richer today. Massachusetts and California, for example, had the highest density of native Americans – roughly the same average level as Chile and Argentina – in the territory that would become the United States, and they are among the richest regions today. That is largely true too among Spain and Portugal’s colonies in the hemisphere. In Colombia, there is a strong correlation of pre-colonial population density and both population and income per capita (see Figure 1). Mexico City, the richest city in Latin America, was founded on top of Tenochtitlan, the ancient capital of the Aztecs, itself the most densely populated pre-colonial area in the hemisphere.
They say policymakers should be mindful of these narratives:
Argentina offers an interesting exception to the pattern of sub-national persistence. Its reversal was mostly due to the removal of royal prohibitions on trade with Spain through the Atlantic port of Buenos Aires. That policy change meant that goods no longer had to be hauled over the Andes to Lima, Peru on the Pacific Ocean, and then back overland to the Atlantic Ocean. Releasing this once-suppressed geographical comparative advantage was a powerful shock to geographical fundamentals.
But this seems to be the exception to the rule, and policymakers attempting to make radical changes in the spatial distribution of economic activity should be mindful of the centuries-old, even pre-colonial, forces working against them.