Deus Vult! Military Capacity and Economic Development in the Teutonic-Order State

I investigate how a state can foster early economic development via its military capacity, before the birth of modern states. For three centuries, the Teutonic Order, a monastic-military organization, ruled East Prussia, in contemporary Northern Poland. To support an enduring military campaign against the pagan tribes of the area, the Teutonic Order organized a centralized state to mobilize settlers, merchants, and resources. Using a regression discontinuity design across East Prussia’s borders, I document how those territories experienced higher economic development than their neighbours when they were controlled by the Teutonic Order in the 13th - 15th century. I find that after the military defeat of the Order the border areas do not show any discontinuity in economic development. My analysis of mechanisms shows that development in the Order’s state was not only in the interests of the military and religious elites, but also of merchants and settlers. I suggest that the military capacity of the Order drove development through the mobilization of people and resources. Nevertheless, this research suggests that a decisive military defeat can undermine the state’s ability to drive development if it does not have other forms of capacity.