The views expressed herein are those of the authors and do not necessarily reflect the views of the Latin American and the Caribbean Economic Association. Research published in this series may include views on policy, but LACEA takes no institutional policy positions.LACEA working papers are circulated for discussion and comment purposes. Citation of such a paper should account for its provisional character. A revised version may be available directly from the author.

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We develop a model of the politics of state capacity building undertaken by incumbent parties that have a comparative advantage in clientelism rather than in public goods provision. The model predicts that, when challenged by opponents, clientelistic incumbents have the incentive to prevent investments in state capacity. We provide empirical support for the model’s implications by studying policy decisions by the Institutional Revolutionary Party (PRI) that affected local state capacity across Mexican municipalities and over time. Our difference-in-differences and instrumental variable identification strategies exploit a national shock that threatened the Mexican government’s hegemony in the early 1960s.

We examine the long-term impact of violence on educational attainment, with evidence from Colombia's La Violencia. Individuals exposed to violence during, and especially before, their schooling years experience a significant and economically meaningful decrease in years of schooling. This impact has consequences beyond human capital accumulation: exposed cohorts engage in activities with less human capital content. Violence thus influenced aggregate development -particularly the process of structural transformation, in which some sectors gain prominence as income increases. The effects result not so much from the direct destruction of physical infrastructure, but from affected households' responses to the hardships of conflict.

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