The long term impact of ethnic cleansing: wealth and strong institutions?

This paper uses the 1609 expulsion of 300,000 Muslims from the Iberian peninsula to analyze the mechanisms through which exploitative institutions dampen the development of pre-industrial economies. The evidence suggests that the persistence of extractive arrangements in formerly Muslim lands stunted the development of the non-agricultural sector long after the expulsion. Arguably exogenous variation in the Christian re-settlers’ human capital is then used to investigate the extent to which initial differences in human capital explain the observed divergence in between-institutional outcomes. The results cast doubt on the long-term importance of such differences and stress the role of institutions, at least for the specific case of early modern Spain.

That is a new paper by Eric Chaney, a Berkeley econ grad now at Harvard.