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For what you meant by recursion, that makes more sense.
But as for whether this is correct or not, read the next paragraph in
the site docs
(http://docs.python.org/dev/library/site.html#module-site). It says "A
path configuration file is a file whose name has the form package.pth
and exists in one of the four directories mentioned above". So the
"newly added path" is the four paths mentioned in that paragraph (e.g.,
the ones that involve sys.prefix and sys.exec_prefix.
So the docs do not suggest that any recursive check is done, nor does it
need to worry about pre-existing directories. It just needs to check
site-packages locations and site-python.
If site.py is not checking those directories, it is a bug, otherwise I
think the current behaviour matches the documentation.