# **1 Introduction**

A growing body of evidence reveals that current economic underdevelopment can be traced back to specific historical episodes, with long-lasting impacts typically arising through either domestic institutions or cultural traits (Hall and Jones, 1999; Acemoglu et al., 2001; Dell, 2010; Nunn, 2008, 2009, 2014). Less attention has focused on uncovering specific channels by which a bad legacy can be turned into a relatively more prosperous future. In this paper, we identify the interaction between the dismantling of coercive institutions and the distribution of rents from natural resource exports as an important driver of the development path of marginalized communities following the end of apartheid, the system of racial segregation enforced in South Africa between 1948 and 1994.<sup>1</sup> Apartheid legislation classified inhabitants into racial groups and institutionalized segregation of residential areas, enforced by means of forced removals and strict control of population movements. In 1970, black people were deprived of their citizenship, legally becoming citizens of one of ten tribally based self-governing homelands, four of which became nominally independent states.<sup>2</sup> At the same time, they were prevented from working outside the corresponding homeland, unless a pass for a particular area was issued. Black inhabitants were granted inferior property rights, while labor legislation severely restricted their pay and access to skilled and semi-skilled occupations. Supply of public goods was segregated, with markedly inferior provision to black people. In the aftermath of the 1994 democratic elections, all homelands were legally reintegrated into South Africa, and the newly elected government assumed responsibility for the effective dismantling of coercive institutions previously imposed on marginalized racial groups.

Using community-level data from the 1996 and 2011 population censuses, we provide quantitative evidence on the legacy of apartheid. In October of 1996, just over one year after Nelson Mandela took office as the first President elected in a fully representative democratic election, communities located just-inside and just-outside the former homelands exhibited large differentials with regard to the racial composition of the population, income per capita and several other socio-economic indicators. Fifteen years later, these gaps remained sizable in general, but income convergence occurred at a different pace across local communities of the former homelands.

> 1Racial segregation in South Africa began in colonial times under Dutch and British rule. However, apartheid as an official policy was introduced following the 1948 general election. Although the official abolishment of apartheid occurred in 1990, with repeal of the last set of the remaining apartheid laws, the effective end of the regime is widely regarded as arising from the democratic general elections of April 1994.

> 2Throughout this paper we will adopt the term _homelands_ to designate the ten self-governing territories set aside for black inhabitants, noting however that these areas are also commonly referred to as _bantustans_ (Clark and Worger, 2011)

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