The Great Divide Revisited: Ottoman and Habsburg Legacies on Transition

Abstract

The former socialist countries of South East and Central Europe exhibit great variation in institutional performance. Unlike the sparse existing literature on the determinants of institutional variation in transition economies, I claim that the variation can be explained by the legacies of the Ottoman and Habsburg Empires. I, first, identify historical legacies of the Empires, which, through path dependency, have affected the current institutional performance of the successor states. Second, I show empirically that the institutions of the countries of South East and Central Europe have been significantly shaped by the Habsburg or Ottoman Empire. Moreover, I show that the Habsburg successor states have institutions that are more efficient in a market economy than the Ottoman successor states.

Keywords: Transition, Institutions, Path dependence, Ottoman Empire, Habsburg Empire

JEL Classification: N00, O17, O57, P20