Historical European Institutions, Human Capital and Development: A Plausible Exogenous IV Approach to Developed Regions

Abstract

The literature on development has pointed out some deeply-rooted determinants of current economic development. Most research on the field has been devoted to developing countries or specific to single countries. We focus on deeply-rooted determinants of development of European regions, in particular on the influence of human capital. Following an identification strategy using a recently developed instrumental variable method for weakly exogenous instruments, we explore the historical links between current human capital and the presence of universities and trade guilds in medieval times, using a newly constructed database that we also describe. We show that human capital is an important determinant of income disparities across European regions.