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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. Demirguc-Kunt Asli & Klapper Leora & Randall Douglas, 2014. "Islamic Finance and Financial Inclusion: Measuring Use of and Demand for Formal Financial Services among Muslim Adults," Review of Middle East Economics and Finance, De Gruyter, De Gruyter, vol. 10(2), pages 42, August.
  2. Grosfeld, Irena & Zhuravskaya, Ekaterina, 2013. "Persistent effects of empires: Evidence from the partitions of Poland," CEPREMAP Working Papers (Docweb), CEPREMAP 1311, CEPREMAP.
  3. Nico Voigtländer & Hans-Joachim Voth, 2011. "Persecution Perpetuated: The Medieval Origins of Anti-Semitic Violence in Nazi Germany," Working Papers, Barcelona Graduate School of Economics 551, Barcelona Graduate School of Economics.
  4. Beck, Thorsten, 2012. "Foreign Bank Ownership and Household Credit," Working Papers on Finance, University of St. Gallen, School of Finance 1206, University of St. Gallen, School of Finance.
  5. Pauline Grosjean, 2011. "A History of Violence: The Culture of Honor as a Determinant of Homicide in the US South," Discussion Papers, School of Economics, The University of New South Wales 2011-13, School of Economics, The University of New South Wales.
  6. Helmut Stix, 2012. "Why Do People Save in Cash? Distrust, Memories of Banking Crises, Weak Institutions and Dollarization," Working Papers, Oesterreichische Nationalbank (Austrian Central Bank) 178, Oesterreichische Nationalbank (Austrian Central Bank).
  7. 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, Bangor Business School, Prifysgol Bangor University (Cymru / Wales) 11002, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
  8. repec:hal:wpaper:halshs-00795231 is not listed on IDEAS
  9. 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, Frankfurt School of Finance and Management 175, Frankfurt School of Finance and Management.
  10. Brown, Martin & Guin, Benjamin & Kirschenmann, Karolin, 2013. "Microfinance Banks and Household Access to Finance," Working Papers on Finance, University of St. Gallen, School of Finance 1302, University of St. Gallen, School of Finance.
  11. Saumitra Jha, 2013. ""Unfinished Business": Ethnic Complementarities and the Political Contagion of Peace and Conflict in Gujarat," NBER Working Papers 19203, National Bureau of Economic Research, Inc.
  12. Elisabeth Beckmann & Mariya Hake & Jarmila Urvová, 2013. "Determinants of Households’ Savings in Central, Eastern and Southeastern Europe," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), Oesterreichische Nationalbank (Austrian Central Bank), issue 3, pages 8-29.
  13. Beck, T.H.L. & Brown, M., 2011. "Use of Banking Services in Emerging Markets -Household-Level Evidence (Replaces CentER DP 2010-092)," Discussion Paper, Tilburg University, Center for Economic Research 2011-089, Tilburg University, Center for Economic Research.
  14. Elisabeth Beckmann & Helmut Stix, 2014. "Foreign currency borrowing and knowledge about exchange rate risk," Working Papers, Oesterreichische Nationalbank (Austrian Central Bank) 188, Oesterreichische Nationalbank (Austrian Central Bank).
  15. Cizakca, Murat, 2012. "Why West Asia declined," MPRA Paper 41877, University Library of Munich, Germany.
  16. Martin Mendelski & Alexander Libman, 2014. "Demand for litigation in the absence of traditions of rule of law: an example of Ottoman and Habsburg legacies in Romania," Constitutional Political Economy, Springer, Springer, vol. 25(2), pages 177-206, June.

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