Little is known about the extent and forces of path dependence in developing countries. Colonial era railway construction in Kenya provides a natural experiment to study the emergence and persistence of a spatial equilibrium. Data spanning over one century show that railways determined the location of European settlers, Asian traders and the main cities at independence. Europeans then left, Asians departed and railways declined in the immediate post‐independence period, constituting local shocks to physical and human capital. Yet the colonial cities persisted. We test four explanations for path dependence based on institutional persistence, technological change, sunk investments and spatial coordination failures.
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