Thursday, 3 May 2012

Universities are useful after all

At least they were is the middle ages - even if not today!.
We present new data documenting medieval Europe's "Commercial Revolution'' using information on the establishment of markets in Germany. We use these data to test whether medieval universities played a causal role in expanding economic activity, examining the foundation of Germany's first universities after 1386 following the Papal Schism. We find that the trend rate of market establishment breaks upward in 1386 and that this break is greatest where the distance to a university shrank most. There is no differential pre-1386 trend associated with the reduction in distance to a university, and there is no break in trend in 1386 where university proximity did not change. These results are not affected by excluding cities close to universities or cities belonging to territories that included universities. Universities provided training in newly-rediscovered Roman and Canon law; students with legal training served in positions that reduced the uncertainty of trade in medieval Europe. We argue that training in the law, and the consequent development of legal and administrative institutions, was an important channel linking universities and greater economic activity.
This is the abstract of a paper on Medieval Universities, Legal Institutions, and the Commercial Revolution by Davide Cantoni and Noam Yuchtman.

Clearly institutions that give greater security of property rights and better enforcement of contracts will help in the development of markets and trade. Reducing the uncertainty associated with trade by having consistent legal enforcement of laws and regulations by legally trained people is one mechanism via which universities could help expand trade. Training in accounting would be another such mechanism. So once again we see that institutions matter.

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