Historical trades, skills and agglomeration economies

We exploit differences in the spatial distribution of industrial and liberal occupations in the years 1872 and 1920 to instrument for today's concentration of interpersonal and analytical skills in Brazil. The data suggest that the local supply of knowledge and manufacturing provided by these historical trades favored a growth path that has shaped the occupational structure until the present day, whereby the existence of a large local consumer market was a necessary condition for this development. By means of these instruments, we present causal evidence that the regional concentration of interpersonal and analytical skills generates positive wage externalities. Particularly university graduates and workers without formal education benefit most from these agglomeration economies.