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Freedom of enterprise and economic development in the German industrial take-off

Martin Dohmen

European Economic Review, 2022, vol. 148, issue C

Abstract: This paper examines the interaction between institutions and market size as drivers of economic development. I use the division of the Kingdom of Westphalia as a natural experiment to show that only reforms in both dimensions combined stimulated economic growth during the German industrial take-off. Homogeneous counties were allocated quasi-randomly to Prussia or the Electorate of Hesse as part of a package deal at the Congress of Vienna. In Prussian counties, Gewerbefreiheit (freedom of enterprise) and the abolition of guilds increased incentives to industrialise manufacturing production, yet these counties and those under the guild system developed similarly. Only the establishment of the German Zollverein (customs union), which increased market size considerably, enabled counties featuring the Gewerbefreiheit to experience significantly higher growth.

Keywords: Institutions; Guilds; Industrial Revolution; Market size; Economic history (search for similar items in EconPapers)
JEL-codes: N13 N43 O43 O47 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:148:y:2022:i:c:s0014292122000915

DOI: 10.1016/j.euroecorev.2022.104163

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