Luigi Pascali
Pompeu Fabra U.



(Monday, 21st May 2012)

Title : Natural experiments of history and research in institutional analysis

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The experiment is the step of the scientific method that arbitrates between competing models or theories. Laboratory experiments are usually considered the hallmark of the scientific method. They generally compare the results obtained from an experimental sample against a control sample, which is practically identical to the experimental sample except for the one aspect whose effect is being tested. Without question, laboratory experiments are uniquely powerful in establishing chains of cause and effect but, unfortunately, they are impossible to perform in many sciences. An alternative technique, that frequently proves fruitful in economics, is the so-called natural experiment. This approach consists of comparing, preferably quantitatively and aided by statistical analyses, different systems that are similar in many respects but that differ with respect to the factors whose influence one whishes to study. In this class, I will present two recent papers that use natural experiments to test different theories on the emergence and the long-term effects of local credit institutions. In particular, Grosjean (2011) uses the occupation of South Eastern Europe by the Ottoman Empire to shed light on the persistence of financial development; Pascali (2011) uses Jewish demography in the Renaissance to explain the emergence of local banks in Italian municipalities and their long-term effect on economic development.

Bibliographical references :

Grosjean (2011), The institutional legacy of the Ottoman Empire: Islamic rule and financial development in South Eastern Europe. Journal of Comparative Economics 39, 1-16.

Pascali (2012), Banks and Development: Jewish Communities in the Italian Renaissance and Current Economic Performance, BGSE WP 562.