Neighbor-Pair and Instrumental Variable Methodology

To rule out that better development reflects pre-existing 'locational fundamentals' (good soil, water, trade routes) rather than the encomienda, the researchers use neighbor-pair fixed effects (comparing adjacent municipalities where one had encomienda and one did not, so unmeasured local characteristics cancel out) plus an instrumental variable—the least-cost path of the conquistadores reconstructed from a 1560 imperial agent's records and NASA geographic data—which correlates with encomienda presence but not directly with modern outcomes.