Persistent Anti-Market Culture: A Legacy of the Pale of Settlement after the Holocaust

Abstract

We investigate the long-term effects of the presence of Jews in Eastern Europe before World War II, and of their disappearance during the Holocaust. We use the “Pale of Settlement,” the area to which Jewish residents were confined in the Russian Empire, as a source of exogenous variation in the size of the Jewish population before the Second World War. Based on election and survey data, we find that current residents of the Pale, compared to their counterparts outside the Pale, vote more for socialist anti-market parties, have lower support for the market economy and democracy, are less engaged in entrepreneurship, but exhibit higher levels of trust. At the same time, the Pale has no lasting effects on average consumption, income, and education levels. Regression discontinuity at the Pale border helps identification. We show that the effect of the Pale is related to the former presence of Jews rather than the inflow of new migrant population into the formerly-Jewish areas. We suggest a possible mechanism and present evidence consistent with it: The non-Jewish population, at the time when two groups lived together side-by-side, developed a persistent anti-market culture and bonding trust, rooted in ethnic hatred towards Jews. We show that, consistent with the mechanism, current residents of towns closer to places of pogroms exhibit higher trust and anti-market attitudes even controlling for the historical share of Jews in the population and the Pale.

Keywords: Holocaust, Pale of Settlement, political development, ethnic animosity, persistence, culture

JEL Classification: O11, P16, P36, N40