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Is ethnic diversity good or bad for economic development? Most studies find corrosive e!ects.
This paper shows that historical exposure to economic exchange can mitigate these e!ects in
the long run. I collect data from a natural experiment of Peru’s colonial history: the forced
resettlement of native populations in the 16th century. Where the resettlement concentrated
ethnically diverse populations with a history of internal crop exchange, contemporary populations
perform better systematically. Additional evidence suggests that prior experience with mutually
beneficial crop exchange shaped more open attitudes toward out-group members. Economic
complementarities helped sustain long-run, market-oriented cooperation and local trade.
