CEU Electronic Theses and Dissertations, 2026
| Author | Hilmbauer-Hofmarcher, Philipp |
|---|---|
| Title | Essays in Political Economy: Institutions and Persistence |
| Summary | Institutions lie at the heart of political economy. They shape incentives, distribute power and resources, and influence how societies respond to shocks. Yet institutions themselves are not immutable: They are disrupted and replaced through war, occupation, and reconstruction. Understanding how such disruptions translate into long-run outcomes, and why some institutional effects persist while others fade, is central to the study of comparative development. The recent convergence between political economy and economic history has deepened our understanding of these dynamics by treating historical episodes as natural experiments that reveal the mechanisms linking institutions to behavior, production, and the spatial organization of economic activity. A key mechanism through which institutional shocks can generate long-run effects operates through the geography of economic activity. Firms and workers benefit from proximity through agglomeration economies, which make dense economic environments more productive. Importantly, these benefits decay rapidly with distance. Often, agglomeration forces operate over extremely short spatial ranges (Rosenthal and Strange, 2020), sometimes within just a few city blocks or neighborhoods. Because these effects decline steeply with distance, even relatively small shifts in the location of people and firms can have large consequences for the spatial distribution of economic activity. Recent work in spatial economics highlights how such mechanisms can generate path dependence. Large shocks may push an economy from one spatial equilibrium to another, and the resulting allocation of population and economic activity can persist long after the original disturbance has disappeared. When agglomeration forces interact with frictions to migration, investment, or coordination, economies may not revert to their pre-shock configuration (Allen and Donaldson, 2022). Instead, historical disruptions can alter development trajectories by shifting the spatial equilibrium itself. In this sense, institutions may leave lasting legacies not only through policies that endure, but through the spatial reallocation of people and firms that institutional shocks set in motion. This thesis follows in that tradition. It combines the tools of empirical political economy with newly assembled historical data to study how institutional and physical shocks shape long-term political, economic, and urban outcomes. Austria’s post–World War II experience provides an ideal setting for studying these questions. In the aftermath of the war, the country was partitioned into four occupation zones administered by the Allied powers. For ten years, Austrians lived under two distinct institutional regimes: A Soviet-controlled zone in the east and Western-controlled zones in the rest of the country. The Soviet occupation was extractive and interventionist, marked by nationalization, expropriation, and state-run enterprises. The Western zones, by contrast, followed a policy orientation more supportive of markets, private enterprise, and democratic governance. This division created a temporary but profound institutional shock within a single national and cultural framework. When the occupation ended in 1955, Austria was reunified under a common political and economic system, allowing researchers to observe how regions exposed to different institutions evolved once those regimes were removed. This natural experiment makes Austria an exceptional case for studying institutional persistence: It combines variation in institutional exposure with a return to a unified national setting that eliminates many of the confounding factors that often complicate cross-country comparisons. The first chapter investigates whether temporary exposure to different political and economic institutions can generate lasting changes in political preferences. It examines how the Soviet occupation influenced electoral outcomes and ideological alignment in the short and long run. Using a spatial regression discontinuity design coupled with a difference-in-differences approach, the analysis identifies short-term increases in support for the Communist Party in areas formerly under Soviet control, driven in part by the presence of Soviet-run enterprises and their role as workplaces and social environments. Yet these effects did not persist. Once the occupation ended and national institutions converged, voting patterns quickly reverted to their pre-war alignments. The chapter thus highlights an important form of non-persistence: Temporary institutional exposure can alter behavior under specific conditions but may fail to generate enduring ideological change when underlying political institutions and incentives shift. The second chapter moves from political preferences to economic development, asking whether the same institutional division left deeper and more persistent marks on the Austrian economy. Using the same natural experiment and a combination of historical and contemporary data, it shows that areas formerly under Soviet occupation remain less economically developed today. These regions have lower population density, fewer firms, and lower-paying jobs; their residents are more likely to commute to workplaces outside the former Soviet zone. The analysis attributes these enduring disparities to a migration shock that accompanied the end of the war and the early occupation period. Large numbers of people fled westward to escape Soviet control, shifting population and economic activity toward regions under Western administration. From the perspective of spatial equilibrium models, such a shock can move an economy onto a new development path. When workers and firms relocate, the productivity advantages associated with dense economic environments tend to follow them, reinforcing growth where activity concentrates while leaving other regions behind. Because the benefits of agglomeration operate over short distances, even relatively modest shifts in population distribution can alter local economic trajectories. The results therefore suggest that the institutional shock did not merely create temporary disruption. Instead, it triggered a spatial reallocation of people and firms that moved the Austrian economy toward a new spatial equilibrium. Once agglomeration forces reinforced these patterns, economic activity remained concentrated in the locations that initially benefited from migration flows. As a result, economic outcomes did not revert to their pre-war spatial distribution even after the institutional divide itself disappeared. The third chapter broadens the scope to consider the resilience of urban systems in the face of physical destruction. It studies Vienna’s reconstruction after extensive bombing during World War II, using newly digitized, building-level data on wartime damage linked to modern records on property values, firm activity, and demographics. The analysis finds that while heavily bombed areas experienced intense post-war reconstruction and population growth, there were no enduring differences in income, education, or real estate prices compared to less affected areas. Urban recovery, in this context, was rapid and remarkably complete. The findings point to a recovery process characterized by rebuilding and re-densification rather than socioeconomic divergence. Together, these chapters use Austria’s mid-twentieth-century history to explore the boundaries of institutional persistence. The results reveal a nuanced picture: Political attitudes appear highly adaptive, economic geography can retain deep institutional imprints through migration and agglomeration, and cities can display remarkable resilience under stable post-war institutions. Across these cases, the thesis underscores the value of economic history as an empirical foundation for political economy. Archival records, the geography of occupation, and digitized historical data make it possible to trace the mechanisms through which institutions affect behavior, population movements, and spatial organization, and to test whether these effects persist once the original institutional environment disappears. By integrating detailed historical evidence with modern econometric methods, this work contributes to a broader conversation about the dynamics of persistence and change. It suggests that institutional legacies depend less on the duration of an institutional regime than on the mechanisms through which its effects are transmitted. Institutional shocks that alter beliefs may fade quickly once incentives change, whereas shocks that trigger migration and reshape the geography of economic activity may persist for decades because agglomeration forces reinforce the resulting spatial patterns. Methodologically, the thesis combines the empirical nature of modern political economy with the archival depth of economic history. Each chapter leverages Austria’s post-war setting as a quasi-experimental framework, exploiting sharp institutional and spatial boundaries created by the Allied occupation and the destruction of war. The use of spatial regression discontinuity designs, paired with difference-in-differences strategies, enables identification of causal effects within historically specific contexts. At the same time, the thesis makes a contribution through the construction and digitization of novel historical datasets ranging from detailed occupation-zone maps and archival records of Soviet-run enterprises to building-level data on wartime destruction and post-war reconstruction in Vienna. These data provide the empirical foundation necessary to link micro-level historical variation to contemporary political and economic outcomes. To sum up, this dual focus on institutional mechanisms and empirical innovation highlights the complementarity between political economy and economic history. The former provides the methodological tools to identify and interpret causal effects, while the latter supplies the context and data that reveal how such effects unfold over time. By combining the two, this thesis seeks not only to document Austria’s post-war transformation, but also to contribute to a more general understanding of how institutional shocks are transmitted or mitigated. In doing so, it underscores the broader potential of historically grounded political economy: To use the lessons of the past to better understand the persistence, or non-persistence, of institutions in shaping the economic and political landscapes of the present. |
| Supervisor | Szeidl, Adam |
| Department | Economics PhD |
| Full text | https://www.etd.ceu.edu/2026/hilmbauer_philipp.pdf |
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