Of Kings and Criminals: Essays on Elite Violence and Economic Development

Abstract

Literature on the processes that induce economic development has yielded theories emphasising the roles of institutional design, geography, gender equality and human capital. Violence, however, has largely been treated as an outcome of development rather than a contributing factor (McIlwaine 1999; Enamorado et al. 2014). On an individual level, violence is largely driven by psychological factors, but these cannot explain regional or societal disparities. Therefore, the first of three studies in this dissertation contributes to the literature by finding a causal effect of elite violence on elite human capital. The inverse relationship that is derived is an important result, since human capital encourages technological innovation and is an important driver of economic growth (see Becker 1962; Mincer 1984; Acemoglu and Dell 2010; and Barro 2001). Further, this chapter also contributes to the Great Divergence debate and shows that at its origins were rooted in violence, at least to a certain degree, from as far back as the 14th century.

The second chapter’s chief contribution is that of the regicide indicator. Eisner’s (2011) idea was heavily expanded upon in this paper as we include more than 4000 rulers from across Europe between the 6th and 19th centuries and provide a wider-ranging and longer-term indicator for violence than has been available previously. Since empirical evidence of violence from before the 19th century is only available sporadically and for parts of Western Europe, the regicide indicator opens up entirely new avenues of violence research. Europe undoubtedly has the most complete and far-reaching dynastic lists of all world regions, as well as the most detailed biographical accounts of rulers from which the regicide indicator is constructed. Nevertheless, documenting rulers has been a universal phenomenon throughout history, meaning that this chapter sets a precedent which could also be followed in future studies of other world regions and perhaps even help to explain patterns of development elsewhere. This chapter then goes on to study the role of state capacity in elite violence, using ‘territorial state capacity’, following the divergent hypotheses of researchers such as Pinker (2011) and Tilly (1975). The empirical evidence shows a negative relationship between territorial state capacity and regicide, illustrating that state capacity likely had a largely pacifying role on trends and regional differences in interpersonal elite violence, at least since the High Middle Ages.

Finally, as a means of providing a more rounded impression of the consequences of elite violence, and of assassinations in particular, the dissertation proceeded to investigate how shocks to political risk have caused investors to react in terms of global asset allocation since 1970. How investors allocate their holdings influences the levels of financing available to firms or national treasuries; affecting the ability of firms to grow and develop their own industries as well as the ability of governments to provide public services and to direct fiscal policy.

The setting of political risk and assassinations provides an interesting conundrum, as financial doctrine dictates that investors reallocate their holdings from stocks to sovereign bonds, while governmental institutions are the source of increased risk in the aftermath of political assassinations (Markowitz 1952). The results obtained from an event analysis illustrate that investors tend to disinvest from equity following political assassinations but refrain from pursuing traditional risk-free instruments. Subsequent exchange rate depreciations likely indicate that investors prefer to move their holdings abroad, signalling that, on average, investors do not act blindly and simply follow financial doctrine. In order to make a stronger conclusion about the destination of financial flows subsequent to political assassinations, an ideal extension to this study would employ spatial methods to examine financial spillovers in conjunction with exchange rate impacts.

The study also reveals that developing countries tend to experience more severe and persistent financial market effects in the aftermath of political assassinations. Because developing countries are associated with weaker institutions, investors may believe that existing political and macroeconomic policies could be threatened by the successor of an assassinated individual. Conversely, due to stronger political institutions, investors may see political assassinations in developed countries as isolated events with the continuance of existing policies guaranteed. This suggests that setting clear and long-term policy agendas may be beneficial for governments of developing countries and help to alleviate the volatility of future capital flows.