Institutional Transplant and Cultural Proximity: Evidence from Nineteenth-Century Prussia

The economic impact of exported institutions depends on the underlying cultural environment of the receiving country. We present evidence that cultural proximity between the exporting and the receiving country positively affects the adoption of new institutions and the resulting long-term economic outcomes. We obtain this result by combining new information on pre-Napoleonic kingdoms with county-level census data from nineteenthcentury Prussia. This environment allows us to exploit a quasi-natural experiment generated by radical Napoleonic institutional reforms and deeply rooted cultural heterogeneity across Prussian counties. We show that counties that are culturally more similar to France, in terms of either religious affiliation or historical exposure to French culture, display better long-term economic performance. We analyze a range of alternative explanations and suggest that our findings are most easily explained by cultural proximity facilitating the adoption of new institutions.