Office-Selling, Corruption and Long-Term Development in Peru∗

This paper investigates the private returns to colonial offices and how these affect longterm economic and political outcomes across sub-national provinces in Peru. To estimate the private returns to office I use a unique dataset of the prices at which colonial government positions were auctioned off by the Spanish Crown between 1674 and 1751. I first show how the gap between the prices paid for office and expected wages is significantly larger in provinces with greater access to rents from agricultural, commercial and exploitative activities, thus consistent with extractive activities offering greater returns to political office. I then present evidence demonstrating that the gap between prices and wages is associated with a long-term economic downturn: places offering greater side gains from office in the 18th century today have higher poverty rates, lower public good provision and lower household consumption. Bootstrap estimates confirm that while the variation in office prices driven by “fundamentals” is associated with better economic outcomes today, the residual variation in prices – potentially associated with corruption – leads to worse development outcomes today. I then argue that one reason for such reversal is political conflict: provinces in which offices offered higher returns exhibited frequent anti-colonial rebellions and heightened antigovernment violence detrimental to growth. These results suggest that the motivation for accessing political office can have lasting negative consequences for economic and political development (JEL D73, N26, J15). ∗Earlier versions presented as “Sale of Colonial Appointments and Rent Extraction”. I am grateful to Scott Abramson, Oeindrila Dube, Sanford Gordon, Steven Pennings, Adam Przeworski, Pablo Querubin, David Stasavage, Leonard Wantchekon, Tianyang Xi, and seminar participants at Princeton, IR/PS UCSD, Emory, ITAM, and the Harris School of Public Policy as well as to conference participants of the 2014 Empirical Political Economic Network Conference, 2014 International Economics Association, 2013 Northeast University Development Consortium (NEUDC), 2013 American Political Science Association Conference, 2013 International Society for New Institutional Economics, 2013 Alexander Hamilton Conference, 2013 Midwest Political Science Association Conference, 10th Midwest International Economic Development Conference and NYU Dissertation Seminar for valuable comments on this paper. All remaining errors are my own.