State Capacity and Long-Run Performance

Abstract

We examine the long-term links between state capacity and economic performance. Our database is novel and spans 11 countries and 4 centuries in Europe, the birthplace of modern economic growth. A dynamic simultaneous equation panel model indicates that the performance effects of states with modern extractive and productive capabilities are significant, large, and robust to a broad range of methods, specifications, controls, and sub-samples. We find that the establishment of an effective state increased per capita GDP by 10 percent over a half-century and by 14 percent over a full century.