When Peripheries Become Important

The aim of this paper is to explain how and why incumbents are willing to undergo the costs of increasing state capacity in rural peripheries, remote and sparsely populated areas where the benefits of building the state are typically low. While resource booms may motivate incumbents to invest in state capacity, their ability to do so is fundamentally shaped by the pre-existing configuration of violent actors and rural elites. Using a difference-in-differences design to study the oil palm boom in Colombia and its effects on the process of state expansion, the paper finds that the palm boom had a positive effect on property taxes and the reduction of violence in areas where rebel groups were present, where rural elites where weak, and mayors were more dependent on the central state. In contrast, in areas with paramilitary groups and where rural elites were predominant, the palm boom undermined fiscal institutions. The palm boom in Colombian peripheries, conditional on violent groups, invariably had an impact on property taxes, only occasionally on the reduction of homicide rates, and never on state-funded teachers. In the process of state expansion, the path is tortuous and not all good things may always go together.