How does territorial control by non-state actors affect long-term development? We investigate the economic, social, and political consequences of temporary territorial control by guerrillas during the Salvadoran Civil War. During this period, these guerrillas displaced state authorities and promoted the creation of self-governing institutions that were highly representative of local community values and showed open distrust of the state and elites. Using a spatial regression discontinuity design, we show that areas exposed to guerrilla control have experienced worse economic outcomes over the last 20 years relative to areas adjacent to these locations that were controlled by the formal state. Our results suggest that informal participatory institutions in guerrilla-controlled areas led to the persistence of land fragmentation and disengagement with the government. We argue that when non-state actors develop governance institutions as an alternative to the state, it can lead to negative effects on development through persistent norms of distrust towards out-groups, even after they relinquish control.
