Levels of development vary widely within countries in the Americas. We argue that part of this variation has its roots in the colonial era, when colonizers engaged in different economic activities in different regions of a country. We present evidence consistent with the view that “bad” activities (those that depended heavily on labor exploitation) led to lower economic development today than “good” activities (those that did not rely on labor exploitation). Our results also suggest that differences in political representation (but not in income inequality or human capital) could be the intermediating factor between colonial activities and current development.

This paper estimates the economic effects of a recent reform that simplified business entry regulation in Mexico. The reform was introduced in different municipalities at different points in time. Using microlevel data, I find that the reform increased the number of registered businesses by 5%. This increase was due to former wage earners' opening businesses. Former unregistered business owners were not more likely to register their business after the reform. The reform also increased wage employment by 2.2%. Finally, the results imply that the competition from new entrants decreased the income of incumbent businesses by 3%.