Do external shocks affect local government quality and, consequently, long-term economic development? The collapse in 1911 of the Qing Dynasty in China was one of the greatest institutional shocks in world history, marking the end of more than 2,000 years of imperial rule. We exploit this shock to examine the impact of changes in historic local government quality on economic development today. By measuring variations in governance quality across 1,664 Chinese counties and examining their impact on long-term economic development, we show that historical differences in local governance quality are strong predictors of current geographical differences in economic development. This positive relationship is robust to a rich gamut of controls and checks. To further address causality issues, we instrument historical government quality with the location of military towns in the preceding Ming dynasty. The analysis shows that history has left a deep legacy on governance differences across China that determine, to a considerable extent, current Chinese regional inequalities.