Why do communities with greater shares of ethnic minorities have worse public goods provision? Many studies build on the increasingly contested hypothesis that diversity (or some other demographic feature) in and of itself causes public goods underprovision and other detrimental outcomes. We contribute to this debate by introducing new historical data on Brazilian municipalities and examining both local racial composition and public outcomes as a function of common path-dependent processes. We show that, despite having similar levels of income in the present, municipalities that had lower levels of state capacity in the past, and that are located in the remote areas where slave exile communities had settled, experience lower public goods provision and have larger shares of Afro-descendants in the population today. Our results indicate that once these historical and spatial patterns of state development are taken into account, there is little support for the idea of a causal link between racial demography and public goods outcomes. Since demographic composition is necessarily a function of multiple processes endogenous to public outcomes, its effects cannot be identified without accounting for these underlying causes (such as related to migration and slavery).