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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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  • Grosjean, Pauline, 2011. "The institutional legacy of the Ottoman Empire: Islamic rule and financial development in South Eastern Europe," Journal of Comparative Economics, Elsevier, vol. 39(1), pages 1-16, March.
  • Handle: RePEc:eee:jcecon:v:39:y:2011:i:1:p:1-16
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    Cited by:

    1. BenYishay, Ariel & Grosjean, Pauline, 2014. "Initial endowments and economic reform in 27 post-socialist countries," Journal of Comparative Economics, Elsevier, vol. 42(4), pages 892-906.
    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. Jha, Saumitra, 2014. "‘Unfinished business’: Historic complementarities, political competition and ethnic violence in Gujarat," Journal of Economic Behavior & Organization, Elsevier, vol. 104(C), pages 18-36.
    4. 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, vol. 10(2), pages 1-42, August.
    5. 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.
    6. 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.
    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. Elira Karaja & Jared Rubin, 2017. "The Cultural Transmission of Trust Norms: Evidence from a Lab in the Field on a Natural Experiment," Working Papers 17-08, Chapman University, Economic Science Institute.
    9. 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.
    10. repec:eee:jcecon:v:45:y:2017:i:3:p:456-480 is not listed on IDEAS
    11. Dombi, Akos & Grigoriadis, Theocharis, 2017. "Ancestry, Diversity & Finance: Evidence from Transition Economies," Discussion Papers 2017/4, Free University Berlin, School of Business & Economics.
    12. Sander, Harald & Kleimeier, Stefanie & Heuchemer, Sylvia, 2016. "The resurgence of cultural borders during the financial crisis: The changing geography of Eurozone cross-border depositing," Journal of Financial Stability, Elsevier, vol. 24(C), pages 12-26.
    13. 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).
    14. Beck, Thorsten & Brown, Martin, 2015. "Foreign bank ownership and household credit," Journal of Financial Intermediation, Elsevier, vol. 24(4), pages 466-486.
    15. Islam, Md. Rabiul & Madsen, Jakob B. & Raschky, Paul A., 2015. "Gold and silver mining in the 16th and 17th centuries, land titles and agricultural productivity," European Journal of Political Economy, Elsevier, vol. 39(C), pages 150-166.
    16. Grosfeld, Irena & Zhuravskaya, Ekaterina, 2015. "Cultural vs. economic legacies of empires: Evidence from the partition of Poland," Journal of Comparative Economics, Elsevier, vol. 43(1), pages 55-75.
    17. 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), issue 3, pages 8-29.
    18. Irena Grosfeld & Ekaterina Zhuravskaya, 2013. "Persistent effects of empires: Evidence from the partitions of Poland," Working Papers halshs-00795231, HAL.
    19. Cizakca, Murat, 2012. "Why West Asia declined," MPRA Paper 41877, University Library of Munich, Germany.
    20. Beckmann, Elisabeth & Stix, Helmut, 2015. "Foreign currency borrowing and knowledge about exchange rate risk," Journal of Economic Behavior & Organization, Elsevier, vol. 112(C), pages 1-16.
    21. 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.
    22. 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, vol. 25(2), pages 177-206, June.
    23. 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.
    24. 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.

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