Political instability and long run economic growth across the old world

Abstract

This study investigates determinants of differences in the long run economic development across the Old World. It provides support for the primary role politics played in driving these differences. In particular, the evidence supports the hypothesis that from the tenth century on, the rise of equestrian warfare favored nomadic groups over settled societies in terms of military power. The military dominance of nomads induced political instability in the semi-arid steppes and surrounding regions they inhabited. Political instability, in turn, reduced economic growth. The hypothesis is investigated using a Difference in Difference (DD) empirical strategy with a data set of ninety-one countries from the fifth to the seventeenth centuries. The proxy used for economic growth is population and the main dependent variable, measuring the destabilizing impact of semi-arid steppes, is its distance to each country in the sample. Controlling for various geographical, historical and political variables, econometric results identify a significant and substantial negative impact of being proximate to the steppes on population levels after the tenth century. These findings shed light on one of the key questions in economic history, i.e. the gradual rise of the West, which was protected from the semi-arid steppes at the cost of other economic centers in the Old World, which were not. Rather than a unicausal mechanism, we point out to a complex interaction between geography, military technology and politics in driving the differences.