Tuesday, 17 March 2015

Participative Political Institutions and City Development 800–1800

New EHES working paper

Does contemporary economic development have medieval roots? 
Fabian Wahl is a PhD student
at University of Hohenheim

Numerous studies suggest that the institutional, educational and technical innovations connected with the commercial revolution in the late medieval laid the ground for the later European Industrial Revolution. 
However, the late middle ages also saw another institutional innovation, namely the emergence of participative political institutions (PPIs) in cities that have not been systematically analyzed until now. The development of these institutions marked the first turn towards more inclusive institutions since the ancient world. 

The recent EHES discussion paper by Fabian Wahl seeks to understand the consequences of this gradual shift of political institutions towards the participation of larger groups of citizens for the development of cities in the subsequent centuries. In doing so, it is the first study exploiting the remarkable heterogeneity in the participativeness of political institutions in the cities of the Holy Roman Empire in the later medieval and early modern period.

Concerning the consequences of participative political institutions for long-run city development, existing studies came to different conclusions. On the one hand, one can expect them to have a positive effect as they are associated with limited government, increased checks and balances, better fiscal and economic policy, a more credible commitment to property rights, less inequality and more civic capital. On the other hand, it is also known that, given the nature of the political system of medieval cities, those institutions could also give rise to rent-seeking, oligarchisation and conflicts within different groups of the elite. Moreover, the participative political institutions in medieval cities were closely connected with the empowerment of guilds. As there is an ongoing scholarly debate about whether the impact of guilds for economic prosperity was positive or negative one should not have a clear expectation about the effect of these institutions. Instead, it is likely that the effect of different types of participative political institutions is different and probably short-living.

The main data used for the empirical investigation of these issues originate from the “Participative Political Institutions in Pre-Modern Europe” database created by the author (Wahl 2014). This database contains information on the three most important types of participative political institutions in 104 cities in Germany, Austria, the German-speaking area of Switzerland (plus Geneva), Alsace-Lorraine and the Low Countries for every hundred year period between 800 and 1800 AD. These institutions are (i) the existence and degree of guild participation in the city council, (ii) the existence of a participative election mode of the city government and (iii) whether there was some kind of institutionalized burgher representation (e.g. a regularly meeting community assembly). As the overall effect of the universe of participative political institutions is of interest in its own right he also develops a single variable representing the overall impact of those institutions. This variable is obtained by conducting a factor analysis with the individual measures of participative political institutions. 

Furthermore, the author makes use of the comprehensive city level panel data set of Bosker et al. (2013) to supplement the data on participative political institutions. This data set also contains a variable for the existence of communal institutions in cities and hence enables to assess the effect of the participative political institutions at the extensive margin. 

To become familiar with the data, it could be instructive to have a visual view on the main data used in the study. Therefore, Figure 1 shows a map visualizing the spatial pattern of participativeness of political institutions in the sampling area. To be precise, the maps shows which city belongs to which quantile of the Participative Institutions Index (averaged over all time periods) distribution. Thus, larger circles indicate that a city belongs to a larger quantile. The highest degree of participativeness is shown by the institutions in cities located in the western (especially south western) part and middle part of Germany, while in the Low Countries, the east, south-east and north of the sampling area participativeness is not so pronounced. The area with the most participative political institutions thus approximately corresponds to the area of the highest political fragmentation, the area were the most free and imperial cities are located and were many important trade and production centers are located. 
Figure 1: Participativeness of Political Institutions of a City (Averaged over all Centuries)
The consequences of participative political institutions on city development are investigated by means of panel data regressions that allow to introduce e.g. city fixed effects to account for time-invariant heterogeneity. First, I consider the effect of each kind of PPI individually and then I present results using the single index. Separate regressions are conducted for the medieval and the early-modern period and for the Low Countries and the German-speaking area and the institutional variables are interacted with century dummies and indicating whether a certain type of participative political institution had already existed for one, two, three, four, five or six centuries in a city in a certain century to test for spatial and temporal heterogeneity in the effect of PPIs. 

From the empirical analysis, several important results emerge. When considering the effects of the different types of PPIs individually and pooled over all cities and periods, the author finds that primarily the extensive margin, i.e. the existence of communal institutions like city councils, had a robust and positively significant effect on city population. However, in the German-speaking area the existence of participative elections had positive effects on city growth. 

Regarding the notion that existing political institutions and regimes are subject to a process of degeneration and increasingly egoistic, rent-seeking policy the author finds a pattern of an increasingly negative effect the longer an institution existed, in the case of cities with guild constitutions. In addition, participative elections only had a significant positive impact in the first century of their existence and afterwards the effect became smaller and insignificant. This highlights the short-lived character of the positive impact of participative political institutions in pre-modern cities. 

When considering the Participative Institutions Index as measure of the overall impact of the different types of participative political institutions, there is only weak empirical evidence for a significant positive impact. However, the positive effect is stronger in the German-speaking area and prior to 1500 AD.

Finally, the author investigates the temporal evolution of the impact of participative political institutions from their first occurrence in 1200 AD until 1800 AD by interacting the participative political institutions index with century dummies. Figure 2 shows the resulting coefficient of the interaction term and the 95 % confidence intervals. For all observations the study detects significant positive effects in 1200 but insignificant effects in the other centuries. This implies that while these institutions contributed to the commercial revolution and the rise of cities, their impact in later centuries was limited. 

Figure 2: Temporal Evolution of the Impact of Participative Political Institutions

The blog post was written by Fabian Wahl and the working paper can be downloaded here:

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