Institutions or Culture? Lessons for Development from Two Natural Experiments of History

Abstract

This study uses two natural experiments from Polish history, municipal level data and regression discontinuity design to consider the relative role of institutions and culture for long-run development. The first experiment documents the persistent effects of institutions and culture on the development of the 19th century partition of Poland between the Prussian, Russian and Austrian empires. Evidence is presented that these borders are exogenous. The former Prussian partition significantly outperforms the Russian and Austrian based on tax data. We find that agrarian reforms in the 19th century sent the three parts on different trajectories to modern development. As a result, half of the households are still rural in the Russian and Austrian partitions compared to a fifth in the Prussian. The partitions differentiated the cultures between the three parts as well. To distinguish the role of institutions and culture we exploit the second experiment of history - Stalin's forced migration movements after World War II. This enables us to exclude culture as a channel of persistence and demonstrate the role of institutions in long - run development. Robustness tests indicate the distinct nature of the historic borders.