Political Competition and Economic Divergence: Development Before and After the Black Death

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We study how political competition drove a major divergence in development after the labor supply shock of the Black Death. We leverage the interaction between the timing of the exogenous labor supply shock and a boundary between the politically concentrated, low competition East and the politically fragmented, high competition West of Europe. We investigate disaggregated panel data 1200-1800 and find that after the shock, urban construction and the development of city institutions fell by one-third and remained depressed where political competition was low ex ante. This holds (1) comparing neighboring and otherwise similar cities on either side of the boundary, (2) comparing cities subject to the same ruler within states spanning the boundary, and (3) using dynastic shocks as an IV for local political concentration. We find this urban divergence shifted outside options in labor markets and predicts the subsequent institutionalization of serfdom and the spread of farms using labor coercion.