Leviathan's Shadow : The Imperial Legacy of State Capacity and Economic Development in the Kingdom of Yugoslavia

What is the effect of state capacity on economic development? Strong states are capable of mobilising the resources required to establish an efficient administration and provide public goods, which are preconditions for economic development. I consider the long-lasting division of Yugoslavia between the Habsburg and the Ottoman empire whose state capacity diverged enormously. I introduce a novel dataset of decomposed GDP of 344 micro-regions in Yugoslavia shortly after the dissolution of those empires. By applying a spatial regression discontinuity design, I find that the Habsburg empire had a substantial positive effect on economic development and state capacity. Estimating the causal effect of state capacity on economic development, yields that a one standard deviation increase in state capacity enhances GDP per capita by 8-11% and the industrial labour force by 21-29%. My results shed new light on the medium-term effects of state capacity on economic development and the mechanisms at work