AN ECONOMIC THEORY OF THE EVOLUTION OF THE STATES SYSTEM, AND EVIDENCE FOR EUROPE 1000-1800

We provide a theory and empirical evidence on the evolution of the state system in pre-industrial Europe. We study sovereign polities with a fiscal, regulatory and military capacity that is imperfect and declining in space. Ruling elites make strategic non-cooperative investments in state capacity to maximize rents. The resulting territorial competition shapes the equilibrium evolution of the state system. Increasing productive potential imply changes in the type, size and number of polities and impact the distribution of economic activity across space. We assemble geo-referenced yearly data on all sovereign polities ruling over Europe 1000-1800. We document highly non-monotonic patterns of (dis)aggregation of political geography and transition phases with spikes in wars prior to the emergence of modern territorial countries. Estimates of the impact of political geography on local (city) growth document a changing role of type and size of polities and a reversal of the role of centrality within polities.