The Spanish encomienda, a colonial forced-labor institution that lasted three centuries, killed many indigenous people and caused others to flee into nomadism. And yet we show that Colombian municipalities with encomiendas in 1560 enjoy better outcomes today across multiple dimensions of development compared to those without: higher municipal GDP per capita, tax receipts, and secondary school enrolments; lower infant mortality and unsatisfied basic needs; larger populations; and superior fiscal performance and tax collection efficiency. Why? A mediation exercise using data on local institutions in 1794 shows that encomiendas affected development overwhelmingly by helping build the local state. Detailed historical evidence shows when and how encomenderos founded local institutions early on in places where they settled. Places lacking encomiendas also lacked local states for up to 300 years. These institutions mobilized public investment in ways that doubtless suited encomenderos, but over time spurred greater economic and human development.
