March 2017 Most historians would agree with William Faulkner’s famous line “The and the Americas III. Europe Volume The Long Economic and Political Shadow of History past is never dead. It’s not even past”. This e-Book shows that perhaps The Long Economic and unexpectedly a surprising number of economists concur. Motivated by tomes of scholarly work on European and American history Economists in this collection trace the legacies of some of these landmark events Political Shadow of History on contemporary economic outcomes as well as peoples’ attitudes and beliefs. Starting from the Americas the e-Book summarises works assessing the modern-day consequences of colonial forced labour Volume III. Europe and the practices in Peru, missionary activity in South America, the sugar-cane and gold booms in Brazil, the native population forced coexistence in reserves across the US, the transition to a mechanised agricultural Americas economy as a result of the 1927 Mississippi Flood, and how the influx of European scientists fleeing Europe in the early part of the 20th century shaped the US inventive capacity. The tour de force in Europe starts with the rise of city states in Italy, continues with the Protestant Edited by Stelios Michalopoulos and Elias Papaioannou Reformation, the birth of the modern corporation, the origins and impact of anti-Semitism and the holocaust, and ends with the legacy of the communist era in Germany and of the Nazi occupation of Italy. To get to these fascinating questions, a wealth of diverse sources including historical archives, linguistic sources and anthropological maps, are cleverly combined and subjected to state of the art econometric techniques and theoretical models. The findings of this ambitious research agenda are novel highlighting the shadow of history on various aspects of the economy and the polity. While there are many open issues and debates and although development is not deterministic, one message is clear: We are shaped by history (Martin Luther King Jr). ISBN 978-0-9954701-7-0 Centre for Economic Policy Research 33 Great Sutton Street A VoxEU.org Book London EC1V 0DX CEPR Press Tel: +44 (0)20 7183 8801 Email: [email protected] www.cepr.org CEPR Press 9 780995 470170 The long economic and political shadow of history - Volume 3. Europe and the Americas CEPR Press Centre for Economic Policy Research 33 Great Sutton Street London, EC1V 0DX UK Tel: +44 (0)20 7183 8801 Email: [email protected] Web: www.cepr.org ISBN: 978-0-9954701-7-0 Copyright © CEPR Press, 2017. Cover image: bigstock The long economic and political shadow of history - Volume 3: Europe and the Americas Edited by Stelios Michalopoulos and Elias Papaioannou A VoxEU.org eBook March 2017 Centre for Economic Policy Research (CEPR) The Centre for Economic Policy Research (CEPR) is a network of over 1,000 research economists based mostly in European universities. The Centre’s goal is twofold: to promote world-class research, and to get the policy-relevant results into the hands of key decision- makers. CEPR’s guiding principle is ‘Research excellence with policy relevance’. A registered charity since it was founded in 1983, CEPR is independent of all public and private interest groups. It takes no institutional stand on economic policy matters and its core funding comes from its Institutional Members and sales of publications. Because it draws on such a large network of researchers, its output reflects a broad spectrum of individual viewpoints as well as perspectives drawn from civil society. CEPR research may include views on policy, but the Trustees of the Centre do not give prior review to its publications. The opinions expressed in this report are those of the authors and not those of CEPR. Chair of the Board Sir Charlie Bean Founder and Honorary President Richard Portes President Richard Baldwin Research Director Kevin Hjortshøj O’Rourke Policy Director Charles Wyplosz Chief Executive Officer Tessa Ogden Contents Foreword vii i Series Introduction: Historical legacies and contemporary development viii Stelios Michalopoulos and Elias Papaioannou 1 Introduction 1 Stelios Michalopoulos and Elias Papaioannou 2 Type of colonisation and Latin American development 9 Joana Naritomi 3 The persistent effects of Peru’s mining mita 19 Melissa Dell 4 Missionaries, human capital transmission and economic persistence in South America 29 Felipe Valencia Caicedo 5 Forced coexistence and economic development: Evidence from Native American reservations 39 Christian Dippel 6 When the levee breaks: Black migration and economic development in the American South 47 Richard Hornbeck and Suresh Naidu 7 Effects of high-skilled immigration on US invention: Evidence from German-Jewish émigrés 55 Petra Moser, Alessandra Voena, and Fabian Waldinger 8 The Protestant Reformation’s impact in Europe 63 Sascha O. Becker and Jared Rubin 9 How the medieval city-states experience influences contemporary trust and civic culture in Italy 71 Luigi Guiso, Paola Sapienza, Luigi Zingales 10 Trade, political institutions and legal Innovation: The birth of the corporation in Amsterdam 85 Giuseppe Dari-Mattiacci and Enrico Perotti 11 Anti-Semitism in Germany and the geography of hate 95 Nico Voigtländer and Hans-Joachim Voth The Long Economic and Political Shadow of History- Volume 3: Europe and the Americas 12 Social structure and development: A legacy of the Holocaust in Russia 109 Daron Acemoglu, Tarek A. Hassan, and James A. Robinson 13 The Pale of Jewish settlement and persistent anti-market culture 119 Irena Grosfeld and Ekaterina Zhuravskaya 14 The long lasting political legacy of the Nazi occupation of Italy 131 Nicola Fontana, Tommaso Nannicini, and Guido Tabellini 15 The effect of Communism on attitudes and beliefs 141 Alberto Alesina and Nicola Fuchs- Schündeln vi Foreword This third and final volume from CEPR’s economic history series traces the legacies of landmark events, drawing on seminal works from European and American history. Economists show how these moments of historical significance have shaped both contemporary economic outcomes and people’s beliefs and attitudes. Starting with the American continent, the authors assess the modern-day consequences of colonial forced-labour practices in Peru; missionary activity in South America; the sugar-cane and gold booms in Brazil; the Native population’s forced coexistence in the US reservation system; the transition to a mechanised agricultural economy; and how an influx of European refugee scientists in the early 20th century shaped the US inventive capacity. Focus then turns to Europe, with the rise of city states in Italy; the Protestant reformation; the birth of the modern corporation; the origins and impact of anti-Semitism and the Holocaust; and finally, the legacies of the communist era in Germany and the Nazi occupation of Italy. Investigating historic events enables their outcomes and consequences to be better measured and accounted for. The parameters of the models in this book are logical and thorough, creating an exemplary guide to applied econometric techniques which can be used for future policy research. CEPR is grateful to Professors Elias Papaioannou and Stelios Michalopoulos for their joint editorship of this eBook. Our thanks also go to Sophie Roughton and Simran Bola for their excellent and swift handling of its production. CEPR, which takes no institutional positions on economic policy matters, is delighted to provide a platform for an exchange of views on this crucially important topic. Tessa Ogden Chief Executive Officer, CEPR March 2017 vii i Series Introduction: Historical legacies and contemporary development Stelios Michalopoulos and Elias Papaioannou Brown University and CEPR; London Business School and CEPR Study the past if you would define the future. Confucius We are made by history. Martin Luther King, Jr. 1 The emergence of New Economic History Those 18th and 19th century philosophers who shaped economic thought (David Ricardo, Adam Smith, Karl Marx, John Stuart Mill), in company with early 20th century scholars such as John Maynard Keynes and Joseph Schumpeter, believed in the blending of core economic ideas (value maximisation, incentives, market laws) with history. Political economy – as economics was referred to at the time – was a discipline that combined elements from a wide array of social sciences and interpreted them with its new tools. Yet, efforts to draw insights from history and related disciplines with which to shed light on economic questions lost steam during the latter part of the last century. The neoclassical approach would leave little room for a deeper understanding of important historical events in the growth process, such as colonisation, institutional changes and cultural traits that most people would instinctively see as fundamental drivers of comparative development. Not modelling explicitly the role of history, geography- ecology, and culture (religion, beliefs, family ties, norms), led to these features being viewed empirically as a ‘residual’ of the growth process driven by capital deepening, either in the physical sense of tools and machines or in the human sense of education and health. viii Series introduction: Historical legacies and contemporary development Stelios Michalopoulos and Elias Papaioannou And, while new growth theories show how small differences in initial endowments may translate into large differences, when it comes to urbanisation, agglomeration, and well- being, they were agnostic on the origins of these initial conditions, naturally rooted in the historical record. But economists’ disregard for history was not confined to the growth literature or macroeconomics. The total number of published economic history papers in ‘top’ general-interest journals declined (McCloskey 1976, Abramitzky 2015), as economists moved from relatively simple, intuitive theories and applied methods to more complex, often esoteric, mathematical models and elaborate quantitative- econometric empirical approaches (see also Temin 2013).1 However, since the late 1990s there has been a revival; a ‘new economic history’ literature has emerged that studies important historical episodes, with the goal of tracing their consequences on contemporary outcomes.