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The institutional legacy of the Ottoman Empire: Islamic rule and financial development in South Eastern Europe

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  • Grosjean, Pauline

Abstract

This paper uses a historical experiment - the occupation of South Eastern Europe by the Ottoman Empire - to shed light on the persistence of financial development. Interest-lending prohibition persisted under Islamic rule much longer than in the rest of Europe. The unique history and political fragmentation of the region allows investigating within-country effects, in six countries that were formerly only partly occupied by the Ottoman Empire. Former Islamic rule is consistently associated with lower contemporaneous formal financial development, both across and within countries. It is associated with a decrease in bank penetration by 10% across countries and 4% within countries. However, within country, the effect of the Ottoman Empire is confined to financial development. There is no association between former Ottoman rule, income, small and medium sized enterprise development or entrepreneurship. The effect is robust to controlling for a wide number of observable characteristics. Moreover, localities with Armenian, Jewish or Greek minorities, who were allowed to practice interest lending under Ottoman rule, have higher levels of bank penetration. By contrast, Islamic religion and trust in the financial system play no role in explaining such long-term persistence.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Comparative Economics.

Volume (Year): 39 (2011)
Issue (Month): 1 (March)
Pages: 1-16

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Handle: RePEc:eee:jcecon:v:39:y:2011:i:1:p:1-16

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Web page: http://www.elsevier.com/locate/inca/622864

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Keywords: Banking penetration Institutional persistence Islamic finance Ottoman Empire;

References

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Citations

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Cited by:
  1. Stix, Helmut, 2013. "Why do people save in cash? Distrust, memories of banking crises, weak institutions and dollarization," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4087-4106.
  2. Nico Voigtländer & Hans-Joachim Voth, 2012. "Persecution Perpetuated: The Medieval Origins of Anti-Semitic Violence in Nazi Germany," The Quarterly Journal of Economics, Oxford University Press, vol. 127(3), pages 1339-1392.
  3. Mendelski, Martin & Libman, Alexander, 2011. "History matters, but how? An example of Ottoman and Habsburg legacies and judicial performance in Romania," Frankfurt School - Working Paper Series 175, Frankfurt School of Finance and Management.
  4. Grosfeld, Irena & Zhuravskaya, Ekaterina, 2013. "Persistent effects of empires: Evidence from the partitions of Poland," CEPR Discussion Papers 9371, C.E.P.R. Discussion Papers.
  5. Cizakca, Murat, 2012. "Why West Asia declined," MPRA Paper 41877, University Library of Munich, Germany.
  6. Beck, Thorsten, 2012. "Foreign Bank Ownership and Household Credit," Working Papers on Finance 1206, University of St. Gallen, School of Finance.
  7. Pauline Grosjean, 2011. "A History of Violence: The Culture of Honor as a Determinant of Homicide in the US South," Discussion Papers 2011-13, School of Economics, The University of New South Wales.
  8. Hake, Mariya & Urvová, Jarmila & Beckmann, Elisabeth, 2013. "Determinants of Households’ Savings in Central, Eastern and Southeastern Europe," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 3.
  9. Murizah Osman Salleh & Aziz Jaafar & M. Shahid Ebrahim, 2011. "The Inhibition of Usury (Riba An-Nasi'ah) and the Economic Underdevelopment of the Muslim World," Working Papers 11002, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
  10. Brown, Martin & Guin, Benjamin & Kirschenmann, Karolin, 2013. "Microfinance Banks and Household Access to Finance," Working Papers on Finance 1302, University of St. Gallen, School of Finance.
  11. Irena Grosfeld & Ekaterina Zhuravskaya, 2013. "Persistent effects of empires: Evidence from the partitions of Poland," Working Papers halshs-00795231, HAL.
  12. Beck, T.H.L. & Brown, M., 2011. "Use of Banking Services in Emerging Markets -Household-Level Evidence (Replaces CentER DP 2010-092)," Discussion Paper 2011-089, Tilburg University, Center for Economic Research.
  13. Demirguc-Kunt, Asli & Klapper, Leora & Randall, Douglas, 2013. "Islamic finance and financial inclusion: measuring use of and demand for formal financial services among Muslim adults," Policy Research Working Paper Series 6642, The World Bank.

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