Abstract

We argue that local, long-term exposure to a centralized political authority determines sub-national patterns of contemporary economic development. Older research on economic development has focused on cross-national income accounts, often ignoring the large sub-national variation in income differences. Likewise, research on the effects of political institutions on development has mostly neglected sub-national variation in the institutional environment. Yet a growing body of work shows that the geographic reach of states within countries and their ability to foster economic exchange have varied dramatically through history. We contribute to recent research on sub-national development by creating a new measure of local historical exposure to state institutions that codes geographic distance to historical capital cities and use highly spatially disaggregated data on economic development, based on satellite data, to test their relationship. We find clear evidence, using fixed-effects estimations for both European and global data, that local historical proximity to capital cities is associated with higher levels of economic development. This finding is further substantiated through a number of robustness checks covering alternative measures, specifications, and sensitivity analyses.