Working Paper: CEPR ID: DP8699
Authors: Nicola Gennaioli; Hansjoachim Voth
Abstract: In 1500, Europe was composed of hundreds of statelets and principalities, with weak central authority, no monopoly over the legitimate use of violence, and multiple, overlapping levels of jurisdiction. By 1800, Europe had consolidated into a handful of powerful, centralized nation states. We build a model that simultaneously explains both the emergence of capable states and growing divergence between European powers. In our model, the impact of war on the European state system depends on: i) the importance of money for determining the war outcome (which stands for the cost of war), and ii) a country's initial level of domestic political fragmentation. We emphasize the role of the 'Military Revolution', which raised the cost of war. Initially, this caused more internally cohesive states to invest more in state capacity, while other (more divided) states rationally dropped out of the competition. This mechanism leads to both increasing divergence between European states, and greater average investments in state building on the continent overall.
Keywords: ethnicity; fragmentation; military conflict; state capacity; taxation; war
JEL Codes: H2; H3; H4; N43
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| military conflict dampens state building in politically fragmented states (D74) | weak state capacity (H11) |
| military conflict enhances state building in cohesive states when the cost of war is high (H56) | stronger state capacity (H11) |
| cost of war influences degree of state centralization and capacity (H56) | state capacity (H11) |
| military conflict can dampen state building in divided societies (D74) | weak state capacity (H11) |
| military conflict enhances state building in cohesive states (H56) | state centralization and military capabilities (H56) |