A New Measure of State Capacity, 1789-2018

A New Measure of State Capacity, 1789-2018
Colin O’Reilly
Creighton University
Ryan H. Murphy
Southern Methodist University
7/4/20
ABSTRACT: This paper contributes to the literature on state capacity by creating a measure with
far more comprehensive data coverage across time than has previously been possible. It uses data
from the Varieties of Democracy dataset on fiscal capacity, a state’s control over its territory, the
rule of law, and the provision of public goods used to support markets. Like previous literature, it
demonstrates the historical prevalence of warfare to predict state capacity. It also links state
capacity to economic growth. Unlike previous literature, it is able to test these findings using
panel data. We are also able to quantitatively assess the position conjectured by Acemoglu and
Robinson (2019) regarding the importance of balance between the power of society and the
power of the state. These applications are meant to illustrate the ways in which the measure can
improve upon the rigor of existing literature on state capacity.
Keywords: State Capacity; Fiscal Capacity; Legal Capacity; Rule of Law; Varieties of
Democracy; Institutional Development; The Narrow Corridor
JEL Codes: H11; O43; H20; P14
Electronic copy available at: https://ssrn.com/abstract=3643637

I. Introduction
The development of effective state institutions has emerged as a hypothesis explaining
the origins of economic growth and the modern world. State capacity, broadly defined as
governmental institutions capable of achieving the goals they set for themselves, encapsulates
the ability to raise revenue efficiently, the ability to enforce a monopoly on violence within its
territory, and the provision of public goods in such a way that supports the functioning of
markets, especially the legal capacity to attain the rule of law. The measurement of state
capacity, as is the case of other attempts at measuring institutions, is difficult and amorphous.
While empirical research on state capacity often has a heavy historical bent to it, historical state
capacity is typically measured via the percentage of GDP a sovereign is capable of raising during
a time of war. We do not dispute this is a reasonable way of addressing the question, though it
only captures one element of state capacity, fiscal capacity.
A rich measure of state capacity available over a long period is necessary to fully
evaluate some of the leading theories of economic and political development. We propose
aggregating six variables from the Varieties of Democracy (V-Dem) dataset (Coppedge et al.
2019) to provide a panel of estimates of state capacity, 1789-2018, building on initial work by
Murphy and O’Reilly (Forthcoming). The potential for applying the V-Dem dataset, which is
extraordinarily dense and broad in scope, for institutions besides those pertaining narrowly to
democracy are only now beginning to be realized (Lawson and Murphy 2019: 189-190; Cornell
et al. Forthcoming). We create three versions of an index of state capacity, the broadest of which
covers all aspects of state capacity and is available for a large number of countries, but only
becomes available starting in 1900.

More specifically, in its comprehensive form, our measure of state capacity is the first
principal component of the V-Dem variables measuring the rule of law, the authority of the state
over its territory, the rigorousness and impartiality or public administration, whether public
expenditures are on particularistic or public goods, the modernity of the state’s source of its
revenue, and the universality of the provision of education. The second version of the index
removes the universality of the provision of education due to its conceptual ambiguity (i.e.,
whether it is appropriate to think of it as state capacity rather than human capital). The third
version removes the state’s source of its revenue due to gaps in its data coverage.
We take a few steps to replicate previous results in the state capacity literature to
demonstrate the effectiveness of the index. We first follow Besley and Persson (2009) in
empirically demonstrating the link between the frequency of warfare and state capacity as of
1975. We are able to find the relationship using both their original specification and state
capacity as of 1900. We then separately specify a panel of 10-year intervals 1825-2005, finding a
relationship between war and state capacity. In making use of this data, we are able to show a
potential causal link between state warfare and state capacity in a far more comprehensive set of
specifications than previously considered.
A more descriptive application of our methodology is using state capacity in conjunction
with a measure of civil society, also from V-Dem, to quantitatively specify where countries are
with respect to Acemoglu and Robinson’s (2016; 2017; 2019) “narrow corridor,” whereby
institutional and economic development occurs when state and society are in balance with one
another. We are thus able to use the methodology to provide firmer quantitative foundations for a
prominent new hypothesis within political economy. Finally, we perform a series of growth
regressions using 10-year dynamic panels, 1815-2015 and historical GDP per capita data from

the Maddison project. Results from standard panel estimates and system GMM estimates
strongly point in the direction of state capacity contributing to economic growth.
The structure of this paper follows. Section II will review much of the existing literature
on state capacity. Section III constructs our index. Section IV replicates the findings of Besley
and Persson (2009) by linking war to state capacity, and then performs a series of extensions
which show the link to be robust, if with qualifications. Section V presents the data in the frame
of Acemoglu and Robinson (2019) and performs an informal but informative test of their model.
Section VI applies the data to a series of growth regressions. Section VII concludes.
II. Literature Review and Theory
A steady stream of reviews characterizing the state capacity literature have appeared from
a variety of perspectives in recent years (Dincecco 2015; Savoia and Sen 2015; Johnson and
Koyama 2017; Berwick and Christia 2018; Piano 2019). The literature closest to the analysis that
is performed in this paper is Hendrix (2010), which we will discuss in Section III. But the
historical starting point we choose is the conclusion of North and Weingast (1989): that the
Glorious Revolution in Britain created the political incentives to effect an accountable, limited
government which sought to protect property rights. While this reading of the history has
ultimately been questioned (Oglivie and Carus 2014), those within the tradition of North and
Weingast observed that what the Glorious Revolution allowed the monarch to do was to borrow
money on much easier terms. Rather than a straightforward story about the revolution causing
the state to “get out of the way,” counterintuitively, it became one of empowering the state to
perform functions that it previously performed poorly or not at all.

Moreover, what led political leaders to invest in state capacity was the threat of war.
While this argument originates in its modern form with Tilly (1992; c.f. Brewer 1989; Acemoglu
and Robinson 2019: 269-272), a two-period model from Besley and Persson (2009; 2010)
characterizes the decision to invest in legal and fiscal capacity. This functions as the formal
starting point for the question of state capacity and war. In their model, two groups in society
consume a private good by spending wages, 𝑤𝑤(𝜋𝜋), and a public good, 𝐺𝐺𝑠𝑠 , which is produced by
the government. The government, or the group in control of the government, can invest in legal
capacity (𝜋𝜋2 − 𝜋𝜋1 ) and invest in fiscal capacity (𝜏𝜏2 − 𝜏𝜏1 ), where 𝜋𝜋𝑠𝑠 and 𝜏𝜏𝑠𝑠 represent the level of
legal and fiscal capacity in period s. The marginal cost of the public good is represented by 𝜆𝜆1
and the cost functions for investments in legal capacity and investments in fiscal capacity are
𝐿𝐿(𝜋𝜋2 − 𝜋𝜋1 ) and 𝐹𝐹(𝜏𝜏2 − 𝜏𝜏1 ) respectively.
The value of the public good, national defense, is determined by the state of the world 𝛼𝛼𝑠𝑠 ,
which is equal to a high value, 𝑎𝑎𝐻𝐻 > 2 with probability 𝜃𝜃, or a low value, 𝑎𝑎𝐿𝐿 < 2, otherwise. In
the spirit of Tilly (1992), the random variable 𝜃𝜃 can be interpreted as the risk of war and 𝛼𝛼𝑠𝑠
represents the severity of the war. Therefore, the expected value of public funds in the second
period is 𝐸𝐸( 𝜆𝜆2 ) = 𝜃𝜃𝛼𝛼𝐻𝐻 + 2(1 − 𝜃𝜃)(1 − 𝛾𝛾) , where the first term is the value of national defense
given a war in period one, and the second term is the value of redistribution to the incumbent
group which retains power with probability (1 − 𝛾𝛾). 1 To solve the model Besley and Persson
assume that the incumbent group holds political power and optimizes by maximizing,
𝑤𝑤(𝜋𝜋2 )(1 − 𝜏𝜏2 ) + 𝐸𝐸(𝜆𝜆2 )[𝜏𝜏2 𝑤𝑤(𝜋𝜋2 ) + 𝐸𝐸(𝑧𝑧2 )] − 𝜆𝜆1 [𝐿𝐿(𝜋𝜋2 − 𝜋𝜋1 ) + 𝐹𝐹(𝜏𝜏2 − 𝜏𝜏1 )]. (1)
The first term is the value of production after taxes and the second term is the value of
expenditure on public goods from taxes and natural resource rents, 𝑧𝑧2 . The final term represents
1
Both 𝛾𝛾 and 𝜃𝜃 are bounded between zero and one.

the cost of investment in state capacity. The incumbent faces a tradeoff between private
consumption and public goods consumption because the public good is produced by investments
in legal and fiscal capacity. They derive the first order condition with respect to legal capacity,
𝑤𝑤𝑝𝑝 (𝜋𝜋2 ){1 + 𝜏𝜏2 [𝐸𝐸(𝜆𝜆2 ) − 1]} ≤ 𝜆𝜆1 𝐿𝐿𝜋𝜋 (𝜋𝜋2 − 𝜋𝜋1 ) (2)
and with respect to fiscal capacity,
𝑤𝑤(𝜋𝜋2 )[𝐸𝐸(𝜆𝜆2 ) − 1] ≤ 𝜆𝜆1 𝐹𝐹𝜏𝜏 (𝜏𝜏2 − 𝜏𝜏1 ). (3)
Assuming that 𝐸𝐸(𝜆𝜆2 ) > 1, the first order conditions in Equation 2 and Equation 3 imply
that legal and fiscal capacity are complements, and that investments in legal and fiscal capacity
are increasing in the expected value of the public good, 𝐸𝐸(𝜆𝜆2 ). 2 All this is ultimately to mean
that the likelihood of conflict increases the value of national defense, and therefore investment in
both legal capacity and fiscal capacity. 3
The empirics in support of the theory that external war leads to the accumulation of state
capacity begins with Besley and Persson (2008) who showed that instances of war from the
Correlates of War dataset from the period 1945-1997 predict higher tax revenue as a percent of
GDP from 1975-1997. Similarly, Besley and Persson (2009) use data on the incidence of war
from 1816-1975 to successfully predict various measures of both legal and fiscal capacity.
Karaman and Pamuk (2010) compare the fiscal capacity of the Ottoman Empire to that of
countries in Europe, finding the Empire to lag behind other states, but its state responded to
military defeats with increases in fiscal capacity. Gennaioli and Voth (2015) argue that the cost
of fighting wars increased rapidly following 1500, forcing political consolidations of fragmented
2
Besley and Persson (2010) note that complementarity implies that monotone comparative statics are appropriate to
apply.
3
Analytically speaking, the derivative of the expected value of the public good with respect to the probability of
𝜕𝜕𝜕𝜕(𝜆𝜆2 )
war, 𝜃𝜃, is = 𝛼𝛼𝐻𝐻 − 2(1 − 𝛾𝛾). The conclusion follows from the fact that 𝛼𝛼𝐻𝐻 is strictly greater than 2.
𝜕𝜕𝜕𝜕

states and the rise of fiscal capacity of the states that remained; in empirical support, they point
out that following 1500, wealth became much more highly correlated with military success.
Conversely, Chowdury and Murshed (2016) find that civil war reduces fiscal capacity in a
modern dynamic panel of countries 1980-2010, although the finding that civil wars do not build
fiscal capacity is consistent with Besley and Persson (2008), among others. Finally, Dincecco et
al. (2019) find that the relationship between war and fiscal capacity is not limited to Europe and
can be generalized to Africa as well.
The model also makes predictions about the severity of war, 𝛼𝛼𝑠𝑠 . 4 In their more detailed
model, Besley and Persson (2009) present the following proposition, “A higher expected demand
𝐽𝐽
for public goods, a first-order stochastically dominating shift in 𝛼𝛼, raises 𝜆𝜆2 and thereby
investment in state capacity.” To investigate this proposition, Karaman and Pamuk (2013) collect
data on tax revenue for twelve European states – Austrian Habsburgs, the Dutch Republic,
England, France, the Ottoman Empire, the Polish-Lithuanian Commonwealth, Portugal, Prussia,
Russia, Spain, Sweden, and Venice – from the sixteenth century to the end of the eighteenth
century, and show that it relates to totals of war casualties. Also in the Besley and Persson
model, market income, 𝑤𝑤(𝜋𝜋𝑠𝑠 ), is generated through interactions in capital markets, and is
therefore a function of legal capacity. Equation 5 characterizes the relationship between state
capacity and economic growth.
𝑌𝑌2 −𝑌𝑌1 𝑤𝑤(𝜋𝜋2 )−𝑤𝑤(𝜋𝜋1 )+𝑅𝑅2 −𝑅𝑅1

= (5)
𝑌𝑌1 𝑤𝑤(𝜋𝜋1 )+𝑅𝑅1
Besley and Persson (2010) explain, “If we ignore the exogenous resource rents [𝑅𝑅𝑠𝑠 ], higher
growth is generated solely by having higher legal capacity and hence better support for private
4
Note that, in the Besley and Persson (2009) model, the derivative of the expected value of public goods with
𝜕𝜕𝜕𝜕(𝜆𝜆2 )
respect to the severity of war is = 𝜃𝜃.
𝜕𝜕𝛼𝛼𝐻𝐻

markets.” Their model functions, in some sense, as an outline of a comprehensive history of
economic development. War incentivizes fiscal capacity, which in turn creates institutions
capable of supporting markets. A large literature connecting state capacity to economic
performance has followed. Dincecco and Prado (2012) use historical war casualties as an
instrument for modern levels of taxation, which in turn predicts modern economic performance.
Cantoni and Yuchtman (2014) argue that the founding of universities in medieval Germany led
to the skills necessary for legal capacity, which in turn led to economic performance down the
road. Acemoglu et al. (2016) connects the presence of post offices in nineteenth century America
to the prevalence of patents granted as evidence of the U.S. government playing a market-
supporting role. 5 Dincecco and Katz (2016) use countries coded as accomplishing “fiscal
centralization” the first year that the state is able to raise revenue using a tax system with
uniform rates throughout its territory, and this predicts both fiscal capacity and economic
performance in a panel of data spanning four centuries. Similarly, precolonial centralization in
Africa is associated with modern development outcomes (Gennaioli and Rainer 2007). Evidence
that the quality of bureaucracies improve economic performance, while a narrower research
question than the effects of state capacity, can also be viewed as evidence of a link between state
capacity and economic performance (see, e.g., Dell et al. 2018; Cornell et al. forthcoming).
Criticisms of state capacity as an origin of development are less widespread. There are
two very recent arguments which make a variation on “backwards causality” as an explanation
for the empirical findings. Geloso and Salter (Forthcoming) argue that a reasonable reading of
the findings is that any country which became wealthy without developing state capacity would
be invaded by a country with a military, explaining the lack of modern examples of wealthy
5
See also Geloso and Makovi (2020), who are unable to reproduce the result for the Canadian province of Quebec.

countries that have little state capacity. Secondly, Grier et al. (2020) turn much of the literature
on its head by empirically arguing that legal capacity predicts fiscal capacity, as opposed to the
other way around. How these new counterarguments will be addressed in the broader literature in
the future remains to be seen, but they are worth noting.
Those who have identified the importance of developing state capacity in a more applied,
development-focused context include Fukuyama (2004; 2011; 2014) and Andrews et al. (2017).
Fukuyama weaves state capacity and state building into his broad statements on the history of
political development, with emphasis placed on declines in state capacity within the developed
world as an explanation for weaker economic performance and stagnation in recent decades. This
is also reflected in development programs such as the Commission on State Fragility, Conflict
and Development, which counts the aforementioned Timothy Besley as one of its directors
(International Growth Centre 2018). The new Sustainable Development Goals explicitly include
state capacity in Goal 17.9, “targeted capacity-building in developing countries to support
national plans to implement all the sustainable development goals” (United Nations 2018).
Andrews et al. (2017) identify the practical challenges of building state capacity or capability
and implement their findings in developing countries in conjunction with the Building State
Capacity program at the Center for International Development. Development practitioners see
state capacity as having clear importance for economic development.
Finally, Acemoglu and Robinson (2019; 2017; 2016) re-conceptualize previous
statements on institutional development (see especially Acemoglu and Robinson 2012) in terms
of state capacity. According to Acemoglu and Robinson, what is needed for development is a
balance between the strength of the state and strength of society. If society is too weak, countries
will veer into totalitarianism. If the state is too weak, countries will fail to develop a state capable

of supporting markets because it will be strangled by traditional social institutions. When state
and society are in balance with one another, the country enters the “narrow corridor” of
institutional development whereby both state and society grow in strength together and feed off
one another. Later on, we will be able to assess the descriptions of Acemoglu and Robinson
rather directly using our method of measuring state capacity.
Theorists and practitioners alike emphasize the importance of state capacity. Yet, unlike
institutional concepts such as democracy, no measure of state capacity exists for a broad set of
countries over long periods of time. In the section that follows we attempt to address the paucity
of quantitative measures by constructing an index of state capacity. Later, we will assess the
ways in which it does and does not support the findings we have discussed.
III. Constructing State Capacity and Descriptive Findings
One survey of the literature on state capacity, Savoia and Sen (2015: 442-443), explicates
the five dimensions of state capacity: bureaucratic and administrative quality, legal capacity (a
functioning legal system), infrastructural capacity (state control over its territory), fiscal capacity
(the ability to raise revenue), and military capacity (a monopoly on violence). Our
comprehensive measure of state capacity includes variables concerning all of these dimensions,
and also correlates well with each of the measures of state capacity identified by Andrews et al.
(2017). As another point of reference, the defining aspects of state capacity given by Hendrix
(2010) are military capacity (border enforcement and a monopoly of violence), administrative
capacity (collecting and managing information), bureaucratic quality, the rule of law, and the
coherence of political institutions.6
6
In listing these, Hendrix also emphasizes that natural resource rents undermine state capacity, and uses their
presence as another measure of (a lack of) state capacity
10

Our comprehensive index, 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 , is the first principal component of six variables from
the V-Dem dataset. In reference to Savoia and Sen’s inventory of dimensions, we measure
“bureaucratic and administrative quality” using V-Dem’s measures of “particularistic or public
goods” (V-Dem code: v2dlencmps), “rigorous and impartial public administration” (v2clrspct),
and “educational equality” (v2peedueq). Concerning the “educational equality,” it reflects
whether basic universal education is achieved, not the quality thereof, and this falls under the
basic competency of the state. (See Table 1 for a complete description of all variables.) We
measure “legal capacity” using V-Dem’s rule of law sub-index (v2x_rule), which makes use of
fifteen indicators of the rule of law, and we measure both “infrastructural capacity” and “military
capacity” using “state authority over territory” (v2svstterr), which is the percentage of its
territory which a state credibly controls.
We measure “fiscal capacity” using V-Dem’s “state fiscal source of revenue” data
(v2stfisccap), which requires a longer explanation. It does not measure exactly how much
revenue a state could hypothetically raise, but it is conceptually very close. There are five
categories of responses that could be assigned to a country for a given year (while the categories
are ordinal, the final data is continuous). The lowest score (0) is received when the state is
incapable of raising revenue, followed by (1) the state relies on external financing, (2) the state
relies on ownership of assets (such as natural resources or public monopolies), (3) the state
primarily taxes land and trade, and (4) the state primarily taxes consumption, income, profits, or
capital. We would argue that this question is actually preferable to typical measures of fiscal
capacity, as it more closely corresponds to the state possessing the administrative capability of a
modern tax system. An additional benefit, in our view, of the way this variable is defined is that
11

penalizes countries that have superficially high state capacity but are actually dependent on
natural resource rents.
Thus in our comprehensive index, 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 , we use the first principal component of the six
measures described above, “particularistic or public goods,” “rigorous and impartial public
administration,” “educational equality,” “rule of law,” “state authority over territory,” and “state
fiscal source of revenue” (which we will refer to as “fiscal capacity” from this point forward).
The second version of the index, 𝑐𝑐𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓 , notes the slight conceptual ambiguity of “educational
equality” data, dropping it and re-running the principal component analysis. Although we feel
justified in interpreting educational equality as a measure of the capability of the state, we
remove it for those concerned that it may be instead measuring human capital. Practically
speaking, 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 is not available for years prior to 1900, and it differs little from 𝑐𝑐𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓 , where
data are available for both.
The third, narrow version of the index, 𝑐𝑐𝑛𝑛𝑛𝑛𝑛𝑛 eliminates fiscal capacity, not because of
conceptual reasons, but because it is a binding constraint for certain important periods for data
coverage; for example, it is unavailable for the United States between 1920 and 2005. 𝑐𝑐𝑛𝑛𝑛𝑛𝑛𝑛 ,
which is comprised of the four remaining variables, is available for more than 20 countries as far
back as 1789 and for 174 countries in 2018.
The results of the three principal component analyses are summarized in Table 2. 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐
explains 46% of the variation in both the public administration variable and the rule of law
variable, as well as 41% of the variation in the public goods variable and the educational equality
variable. The index also explains 37% and 32% of the variability in the fiscal source of revenue
and the authority over territory variables. 𝑐𝑐𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓 and 𝑐𝑐𝑛𝑛𝑎𝑎𝑟𝑟 explain similar proportions of the
variation in the variables included. The most comprehensive state capacity index, 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 , captures
12

63% of the total variation in the underlying variables, whereas the most narrow state capacity
index, 𝑐𝑐𝑛𝑛𝑛𝑛𝑟𝑟 , captures 68% of the variation. See Appendix A for additional details from the
principal component analysis.
The summary statistics for all three versions are presented in Table 3. 𝑐𝑐𝑛𝑛𝑛𝑛𝑛𝑛 is available
for over 200 years for 20 countries, but for most countries it is available for fewer periods. See
Appendix B1 for a list of the top 20 and bottom 20 countries for 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 in the year 2000, and, in
Appendix B2, the countries which have seen their scores increase or decrease the most from
2000 to 2018. The average time dimension in the unbalanced panel of 𝑐𝑐𝑛𝑛𝑛𝑛𝑛𝑛 is 94 years, whereas
the average time dimension of 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 is about 70 years, still a notable improvement relative to
existing measures of state capacity. The full 230-year time-series of 𝑐𝑐𝑛𝑛𝑛𝑛𝑛𝑛 is plotted in Figure 1
for the 14 countries with complete data. Many notable historical events are clear in the figure.
State capacity declined in Russia with the fall of the Soviet Union and an increase in state
capacity in the United Kingdom coincided with a series of reforms to political institutions around
1870. As observed by Fukuyama (2014), state capacity appears to have decreased in several
developed countries recently including Denmark, France, Sweden and the United States – though
the decrease is modest in these cases.
To assess how well our new index captures state capacity, we compare each version to
existing measures of state capacity during the period they overlap. Andrews et al. (2017) identify
three measures of state capacity: the rule of law component from the International Country Risk
Guide (data first available in 1984), the Failed State Index (available in 2005), and the sum of
three components from the World Bank World Governance Indicators (“WGI;” available in
13

1996). 7 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 , 𝑐𝑐𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓 , and 𝑐𝑐𝑛𝑛𝑛𝑛𝑛𝑛 all have a correlation of 0.79 or higher with each of the three
measures of state capacity given by Andrews et al. (2017). The correlation between 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 and
the sum of the three WGI indicators is 0.92. The correlations found in Table 4 also show that
𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 , 𝑐𝑐𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓 , and 𝑐𝑐𝑛𝑛𝑛𝑛𝑛𝑛 track the existing measures of state capacity well over a limited sample.
Finally, in Table 4 we also present cross-sectional correlations between each of the
aforementioned variables (in 2010) and the static measure of state history from Borcan et al,
(2018). For all seven measures of state capacity, the correlation with state history is less than 0.3;
the relationship with 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 , 𝑐𝑐𝑓𝑓𝑓𝑓𝑠𝑠𝑐𝑐 , and 𝑐𝑐𝑛𝑛𝑛𝑛𝑛𝑛 is particularly weak.
Measures of convergent validity assess how well different survey questions or variables
measure the “same” concept. We report Cronbach’s alpha (see, e.g., Ott 2018) to assess the
convergent validity of different measures of institutional quality. 8 The Cronbach’s alpha between
each of the three measures identified by Andrews et al. (2017) and 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 , 𝑐𝑐𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓 , and 𝑐𝑐𝑛𝑛𝑛𝑛𝑛𝑛 are all
greater than 0.85. That is to say, 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 , 𝑐𝑐𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓 , and 𝑐𝑐𝑛𝑛𝑛𝑛𝑛𝑛 appear to be measuring the same latent
concept of state capacity.
The closest that previous literature has come to our approach is Hendrix (2010), who uses
factor analysis to decompose state capacity. Hendrix buttresses the standard International
Country Risk Guide data and one measure of fiscal capacity with measures of military spending
(signaling more state capacity) and commodity exports (less). However, Hendrix also includes
GDP per capita and five measures of democracy. 9 These indirect proxies, which are perhaps
7
The measure of state capacity from World Governance Indicators is the sum of the control of corruption index, the
government effectiveness index and the rule of law index. This can be compared with Fukuyama (2014: 61-63), who
used a combination of control of corruption and government effectiveness.
8
Scores are bounded between zero and one. In its standard applications, scores above 0.8 are considered an
indication of high validity.
9
Much of the motivation in Hendrix (2010) for using democracy comes from the idea that countries with middling
scores in democracy are the most prone to conflict (and democracy thereby has an inverted-U relationship with
conflict). This was pointed out by Vreeland (2008) to be the residue of how the Polity IV index was designed.
14

problematic more often than not for hypothesis testing in general, are simply no longer necessary
given the presence of the Varieties of Democracy data. Other literature that makes use of
questionable proxies for state capacity include those which use the Doing Business report
(Larsson 2013), which on many margins is about limiting the power of government, or Polity
IV’s executive constraint (Asadullah and Savoia 2018) which is a measure of democratic
political institutions. And even in their seminal article, Fearon and Laitin (2003) use the log of
GDP per capita as a proxy for military and bureaucratic capacity.
In the following sections, we turn to applications of 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 , 𝑐𝑐𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓 , and 𝑐𝑐𝑛𝑛𝑛𝑛𝑛𝑛 . These
applications further test the validity of the approach and demonstrate ways it can be used to test
hypotheses in the literature. For the remainder of this paper we will at times refer to our approach
and 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 , 𝑐𝑐𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓 , and 𝑐𝑐𝑛𝑛𝑛𝑛𝑛𝑛 as “an” index, for rhetorical purposes. We will still specify which
version of the index we are referring to, as appropriate.
IV. Application 1: State Capacity and War
The first application of the index tests the hypotheses developed by Besley and Persson
(2010) and sketched in Section II, namely that war contributes to the development of state
capacity. Following Besley and Persson (2009), we test if the proportion of years a country was
at war prior to 1975 is associated with greater state capacity since 1975. Equation 1 regresses
state capacity, 𝑐𝑐𝑖𝑖 , on the proportion of years at war, 𝑤𝑤𝑖𝑖 , which is defined as the number of years
at war between 1816 and 1975, or since the country joined the interstate system. 10 Instead of
measuring state capacity by tax revenue as a share of GDP, as in Besley and Persson (2009), we
Oddly, Hendrix acknowledges this and includes both Polity IV and its squared term anyway, as well as Vreeland’s
adjustment to it (and its squared term).
10
War years and membership in the interstate system is obtained from the Correlates of War dataset for consistency
with Besley and Persson (2009). Joining the interstate system often corresponds to gaining independence.
15

test the hypothesis using 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 , 𝑐𝑐𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓 , and 𝑐𝑐𝑛𝑛𝑛𝑛𝑛𝑛 developed in Section III. Additional control
variables, 𝑥𝑥𝑖𝑖 , include dummy variables for legal origin and the average democracy index from
the V-Dem dataset.
𝑐𝑐𝑖𝑖 = 𝛽𝛽𝑤𝑤𝑖𝑖 + 𝛿𝛿𝑥𝑥𝑖𝑖 + 𝜀𝜀𝑖𝑖 (1)
Earlier empirical studies of state capacity and war have relied on cross-sectional
measures of state capacity, as long panels were unavailable. Using the new indexes, we construct
an unbalanced panel of 10-year periods from 1825 to 2005 (for example, the 1825 period
includes years from 1825 to 1816). To test for the effect of war on future state capacity, we
regress state capacity in period t on the proportion of years at war in period t, period t-1, and
period t-2 as shown in Equation 2. 11 Adding country fixed effects, a lagged dependent variable
and additional control variables in Equation 3 extends the model.
𝑐𝑐𝑖𝑖𝑖𝑖 = 𝛼𝛼𝑤𝑤𝑖𝑖𝑖𝑖 + 𝛽𝛽1 𝑤𝑤𝑖𝑖𝑖𝑖−1 + 𝛽𝛽2 𝑤𝑤𝑖𝑖𝑖𝑖−2 + 𝜏𝜏𝑡𝑡 + 𝜀𝜀𝑖𝑖𝑖𝑖 (2)
𝑐𝑐𝑖𝑖𝑖𝑖 = 𝛼𝛼𝑤𝑤𝑖𝑖𝑖𝑖 + 𝛽𝛽1 𝑤𝑤𝑖𝑖𝑖𝑖−1 + 𝛽𝛽2 𝑤𝑤𝑖𝑖𝑖𝑖−2 + 𝛾𝛾𝑐𝑐𝑖𝑖𝑖𝑖−1 + 𝛿𝛿𝑥𝑥𝑖𝑖𝑖𝑖 + 𝜇𝜇𝑖𝑖 + 𝜏𝜏𝑡𝑡 + 𝜀𝜀𝑖𝑖𝑖𝑖 (3)
The results of estimating the cross-sectional regression in Equation 1 using each of the
three new state capacity measures are presented in Table 5. The first three columns show the
relationship between the proportion of years at war prior to 1975 and state capacity after 1975.
The final three columns include controls for legal origin and the average level democracy before
1975. 12 Consistent with Besley and Persson (2009), greater exposure to war prior to 1975 is
associated with greater state capacity in all specifications. The relationship is robust to using
1900 as the threshold rather than 1975, as shown in Table 6. Results from a long cross-section
11
Ten-year periods for which fewer than five observations are available are dropped from the sample to avoid high
values of proportion of years at war based on limited data. Including these observations produces similar estimates.
Equation 2 also includes period dummy variables, 𝜏𝜏𝑡𝑡 .
12
We use V-Dem’s high-level index of electoral democracy which attempts to answer the question “To what extent
is the ideal of electoral democracy in its fullest sense achieved?”
16

are consistent with the theoretical predictions and previous empirical evidence that war or the
threat of war leads to greater state capacity.
Panel estimation is feasible by exploiting the longer time dimension of the new state
capacity index. The results of estimating the pooled model in Equation 2 are in the first column
of Tables 7 through 9. In all three specifications the contemporaneous proportion of years at war
has an insignificant association with the index of state capacity. Since the index includes a
measure of the state’s control over territory and interstate war usually involves the challenging of
borders, an insignificant or even negative contemporaneous effect of war on the state capacity
index is expected. A positive coefficient on one of the lags of the proportion of years at war is
evidence that war induces investments in future state capacity as predicted by the Besley and
Persson (2009, 2010) model. The first lag of war in Column 1 is not significant, but the second
lag of war has a positive and significant effect, indicating that war is associated with greater state
capacity decades later.
The pooled model may suffer from omitted variable bias and serial correlation. If the
propensity for war is determined by time invariant country characteristics such as geography, the
correct model accounts for country fixed effects. However, if war is determined by recent
investments in state capacity, the correct model accounts for lags of the dependent variable. The
results from a lagged dependent variable model are presented in Column 2 and show that the
contemporaneous effect of war on state capacity is negative, whereas the lagged effect of war is
positive. A greater proportion of years at war is associated with greater state capacity in the
following decade and the net effect of all three war proportion coefficients is statistically
17

significant. 13 The results from estimating a lagged dependent variable model are robust to the
inclusion of legal origin and democracy, as shown in Column 4.
Alternatively, the fixed effects model in Column 3 does not materially change the
estimate of the contemporaneous effect of war, but the effects of lagged war are not statistically
significant. 14 Controlling for country-specific effects renders the effect of war on future state
capacity insignificant. Either country fixed effects that are correlated with war are sapping the
explanatory power of the lagged war variable, or country-specific factors are the ultimate
determinant of state capacity. Assuming that countries with a greater proportion of years at war
tend to have high state capacity, the fixed effects model will underestimate the parameter and
lagged dependent variable model will overestimate the parameter. 15 Therefore, panel estimates
are somewhat inconclusive. Moreover, these kinds of techniques are of course incomplete in
assessing causality; the point we wish to emphasize is that they are an improvement over existing
literature and this improvement is made possible by the development of the index.
Applying the long time dimension of the new index reveals certain nuances that earlier
cross-sectional estimates could not. Specifically, limited evidence suggests the possibility that
country-specific factors, not war, may determine state capacity. Though the regressions here may
raise more questions about the ultimate causes of state capacity than they resolve, 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 , 𝑐𝑐𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓 ,
and 𝑐𝑐𝑛𝑛𝑛𝑛𝑛𝑛 may facilitate more rigorous attempts to resolve those questions empirically. This
section demonstrates that richer measures with better data coverage may help us better
understand the determinants of state capacity. The sections that follow show similar applications
of the new index to questions about the consequences of state capacity.
13
The sum of the coefficients on the war proportion variables yields a significant F-statistic of 5.13.
14
A Hausman test rejects a random effects model.
15
See the discussion found in Angrist and Pischke 2009: 243-247.
18

V. Application 2: State Capacity and The Narrow Corridor
With our method of measuring state capacity in hand, we are able to operationalize the
diagrammatic model of institutional development presented in Acemoglu and Robinson (2019;
c.f. 2016; 2017) and in effect, to test it. (We will refer to Acemoglu and Robinson for the
remainder of this section as AR). AR argue that the source of institutional and economic
development is the dynamic played out between the strength of the state and the strength of
society. A weak society with a strong state will see its society get crushed (via a “Despotic
Leviathan”), while a strong society with a weak state will prevent the state from gaining in its
capabilities (an “Absent Leviathan”). Countries that develop are in the “narrow corridor” where
society and the state, effectively balancing one another, grow in unison (with a “Shackled
Leviathan”). More formally, Acemoglu and Robinson (2017) model the narrow corridor as a
saddle path that propels countries toward a strong state and strong civil society if they achieve a
sufficient balance between the two forces.
AR convey this argument diagrammatically throughout the book (e.g., 2019: 64, 268,
290), with the strength of society on the x-axis and the strength of the state on the y-axis. The
corridor is denoted by an area falling between two positively-sloped lines emanating from the
origin. The corridor is larger when both state and society are stronger. While historical events
may move countries into or out of the corridor, the crux of the model is that countries falling
within the corridor will continue moving outwards within the corridor, while countries outside of
it will collapse towards one of the axes. The slow-changing nature of institutions means that
existing measures of state capacity are ill suited to capture the dynamic nature of the AR model.
Figure 2 attempts to illustrate this relationship with data. On the x-axis, we use the civil
society organization participatory environment index from Varieties of Democracy, which
19

“include[s], but [is] not limited to, interest groups, labor unions, spiritual organizations if they
are engaged in civic or political activities, social movements, professional organizations,
charities, and other non-governmental organizations” (Coppedge et al. 2019: 47). On the y-axis,
we use 𝑐𝑐𝑛𝑛𝑛𝑛𝑛𝑛 , such that as many countries as possible appear on the chart. We include any country
for which both 𝑐𝑐𝑛𝑛𝑛𝑛𝑛𝑛 and the civil society index are available in the year 1850. Both indexes are
presented in a standardized form. On the chart, we plot each country’s position in 1850 and 2010
and linearly smooth the movement of the country in state capacity and civil society space to
visualize the dynamics over the long run. To capture the idea of a widening corridor in AR, we
draw two dashed lines with a widening gap as both state capacity and civil society increase. The
boundaries of the corridor intersect when state capacity and civil society are two standard
deviations below their mean value, and the corridor widens to two standard deviations in size
when the corridor is two standard deviations greater than the mean value of each variable. (This
is by nature arbitrary but produces a visually acceptable result.) This plot is the first empirical
representation of AR’s narrow corridor over period long enough to capture the model’s long term
dynamics.
We are able to make out a corridor in some sense. Nearly all countries have increased
both their strength of society and their strength of the state over this period. But it’s unclear
whether this supports the hypothesis of AR, especially the existence of a saddle path relationship.
We do not observe countries falling into one of three categories (Despotic Leviathan, Absent
Leviathan, or Shackled Leviathan); rather, nearly all countries, over this time frame, appear to be
in a broad corridor with leviathans in the process of being shackled. Using the reference lines as
a theoretical corridor, seven countries enter the corridor and then remain in the corridor
20

thereafter as the AR dynamics predict. In contrast, 33 countries exit the corridor after previously
being in the corridor. Appendix C summarizes these dynamics.
Of course, there is significant heterogeneity across time in most of these countries and the
linear representation of their dynamics masks substantial variation over the 160 years. We
provide a deeper breakdown by decade in Figure 3 for the 53 countries with data available
starting in 1900. But we still do not observe the trifurcating process described by AR in most
cases. Furthermore, several countries exhibit the dynamics predicted for countries that are “in the
corridor” although they would not have been thought of as exemplars, from our reading of AR.
By this we not only mean that they improved on both margins from 1850 to 2010, but have
moved upwards and rightwards at least somewhat continuously. These include countries such as
Thailand, Morocco, and Nepal. Costa Rica behaves as AR expect it to, but Guatemala is observed
to have a more powerful society than a powerful state, which is the opposite of what AR claim.
This is also to say that the lack of trifurcation is not due to the selective sample of 53 countries.
We also do not observe countries that “should” be in the corridor behaving as expected.
According to our measures, countries such as Austria, Denmark, Switzerland, and the United
States have been roughly stagnant since 1950, even though AR’s “Red Queen” effect posits that
these countries should be improving still further. Countries like those four have seen institutional
development since then, but perhaps this development is better thought of as economic
liberalization than it is as either state or social capacity.
To provide an even more direct test of The Narrow Corridor, we place all countries (once
per decade) in a grid and create a pseudo-transition probability matrix. We look to see, for
example, the probability of a country which falls in the interval of [-0.2,0.2] in its power of
society and [-0.2,0.2] in its state capacity will move northeast on the grid over the following
21

decade. 16 If The Narrow Corridor is correct, countries that are balanced should have a higher
probability of doing so. We do not observe this dynamic in Figure 4A. In the course of creating
the figure, however, the observed pattern is sensitive to small changes in how institutional
improvement is defined, which is to say that whatever pattern that you observe in this
presentation of the data is not especially robust. This can be seen in Figure 4B, where the only
change that is performed is increasing the size of the interval to create larger “buckets.”
Though we are able operationalize and even observe AR’s narrow corridor, the dynamic
behavior implied by AR is not borne out by the data. This does not completely falsify AR, and the
intention of this exercise was to provide another application of our methodology. One may view
the lack of corroboration of AR as problematic for our methodology. However, we did not
identify any example in Figure 2 as being facially unreasonable, and practically speaking, AR
had not chosen to use hard data over long periods in their diagrams. While we are ultimately able
to find support for what is generally found in the state capacity literature in the rest of this article,
this application of the state capacity data is not consistent with the core arguments of AR.
VI. Application 3: State Capacity and Economic Performance
An additional prediction of the Besley and Persson (2010) model, among others, is that
greater fiscal capacity and, in turn, greater legal capacity are associated with economic
performance. To test the hypothesis that state capacity is a determinant of economic
performance, we regress the logged level of real gross domestic product per capita on the level of
state capacity in the previous ten-year period as expressed in Equation 4. To address concerns of
16
We define a movement to the northeast as either an increase in state capacity, an increase in civil society or an
increase in both.
22

both endogeneity and Nickell bias, in the most complete specification we estimate a dynamic
panel using system GMM.
𝑦𝑦𝑖𝑖𝑖𝑖 = 𝛼𝛼𝑦𝑦𝑖𝑖𝑖𝑖−1 + 𝛽𝛽𝑐𝑐𝑖𝑖𝑖𝑖−1 + 𝛾𝛾𝑥𝑥𝑖𝑖𝑖𝑖−1 + 𝜏𝜏𝑡𝑡 + 𝜇𝜇𝑖𝑖 + 𝜀𝜀𝑖𝑖𝑖𝑖 (4)
The results of estimating Equation 4 are presented in Tables 10 through 12. Regardless of the
measure of state capacity, the effect of state capacity on growth is positive and significant in the
pooled model without period effects in Column 1, and with period effects in Column 2. The
inclusion of country fixed effects in Column 3 increases the magnitude of the effect. The model
in Column 4 includes both country and period effects. Though the effect of state capacity is
positive, it is consistently significant only if 𝑐𝑐𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓 is used. The final two columns show that the
results from the pooled specifications are robust to controlling for absolute latitude. The positive
association between state capacity and economic performance in the long panel at hand is
consistent with the literature analyzing short panels and historical cases.
The fixed effects models described above may suffer from Nickell bias because of the
inclusion of a lagged dependent variable as well as endogeneity. To assuage these concerns, we
estimate the results using system GMM in Table 13. One drawback of using system GMM
estimation on such a long panel is the abundance of instruments which can lead to unreliable
tests due to overidentification (Roodman 2009). We reduce the number of instruments by
collapsing all instrument sets and limiting the lags used as instruments. Odd numbered columns
present estimates using only the first valid instrument available whereas even numbered columns
present estimates using as many as two additional lags or lagged differences as instruments. The
effect of state capacity is positive and significant in all specifications.
These results suggest that state capacity is associated with high standards of living across
three measures of state capacity. The results here are the first cross-country evidence from a long
23

panel testing the hypothesis that state capacity impacts the standard of living. Our cross-country
findings complement the rich historical evidence that state capacity is associated with economic
development.
VII. Conclusion
We construct an index of state capacity which runs from 1789-2018 and includes as many
as 174 countries. The comprehensive version of the index contains measures of all the major
dimensions of the concept: fiscal capacity, the quality of the bureaucracy, legal capacity, and a
monopoly of violence within a state’s borders. We also re-calculate the index by removing two
measures, one of which is conceptually ambiguous, and the second of which improves data
coverage. Our index is highly correlated with the measures of state capacity emphasized by
Andrews et al. (2017), although not state history.
We apply this data to questions previously posed in the literature. Because we have a
very lengthy (although unbalanced) panel, we are able to employ panel data methods that are
more rigorous than those that were used previously. We are also more able to directly test the
hypotheses in question by using a more general measure of state capacity in place of
unidimensional measures of fiscal capacity. Broadly speaking, we are able to corroborate what
was previously found in the literature.
First, we are able to corroborate the causal (or at the least correlative) relationship
between war and state capacity. We first match the methodology of Besley and Persson (2009)
and subsequently employ a series of panels using country-decades of 1825-2005 as units of
observation. Our panel estimates raise questions about the nature of the relationship between war
and state capacity that earlier cross-sectional methods could not. We then consider the recent
24

arguments from Acemoglu and Robinson (2019; 2016). We are able to observe some of the
patterns they describe vis-à-vis institutional development, but not others. Finally, we place our
state capacity measure in a series of growth regressions. Generally, our findings support what has
been found in the literature, namely that state capacity has a positive effect on growth.
We see future uses for our method of measuring state capacity as twofold. First, we are
able to give historical estimates of state capacity that are not wholly reliant on fiscal capacity and
war, which, we believe, are better tests of the hypotheses formulated in the literature. Second, the
broader data coverage allows for more robust testing of hypotheses than those outlined by
Andrews et al. (2017); data coverage using our methodology now approaches the quality of data
coverage in democracy indexes, for example. The extensive historical time-series opens the door
for researchers to leverage potentially countless historical quasi-natural experiments to make
causal inferences both about building state capacity and its relation to economic development.
It should also be emphasized that the broader versions of our index (𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 and 𝑐𝑐𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓 )
encapsulate each of the dimensions of state capacity, which more sharply distinguishes this
measure from the generic “institutions matter” hypothesis. Finally, we owe our ability to create
this methodology to the extensive work performed by the authors of the Varieties of Democracy
project, and we suspect that there are many other potential uses for their dataset that remain
unexplored.
25

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29

Table 1: Varieties of Democracy Indicator Descriptions
Rule of law:
To what extent are laws transparently, independently, predictably, impartially, and
equally enforced, and to what extent do the actions of government officials comply with
the law?
Underlying indicators from V-Dem: compliance with high court, compliance with
judiciary, high court independence, lower court independence, executive respects
constitution, rigorous and impartial public administration, transparent laws with
predictable enforcement, access to justice for men, access to justice for women, judicial
accountability, judicial corruption decision, public sector corrupt exchanges, public
sector theft, executive bribery and corrupt exchanges, executive embezzlement and
theft. Full variable descriptions available in the V-Dem codebook.
State authority over territory:

Over what percentage (%) of the territory does the state have effective control?
Rigorous and impartial public administration:

Are public officials rigorous and impartial in the performance of their duties?
Particularistic or public goods:

Considering the profile of social and infrastructural spending in the national budget,
how "particularistic" or "public goods" are most expenditures?
Educational equality:
To what extent is high quality basic education guaranteed to all, sufficient to enable
them to exercise their basic rights as adult citizens?
State fiscal source of revenue:

On which of the following sources of revenue does the central government primarily
rely to finance its activities?
Notes:
1) These abridged descriptions are from the V-Dem codebook (Coppedge et al. 2019).
2) The rule of law variable is constructed using Bayesian factor analysis to both extract the latent concept
of rule of law from the set of underlying indicators and to account for measurement error. The V-Dem
Methodology describes this procedure in more detail (Coppedge et al. 2019b).
3) The V-Dem indicators are constructed by aggregating the ordinal responses of multiple country experts
to the question corresponding each indicator. Responses must be aggregated across coders, converted
from an ordinal to an interval scale, and adjusted for the possibility that country experts have different
thresholds for coding. A Bayesian item response model developed by Pemstein et al. (2019) recovers the
latent concepts being measured and makes various adjustments and corrections for coding differences.
See the Maxwell et al. (2018) policy brief for an accessible description and Pemstein et al. (2019) for
technical details. An exception is the state control over territory indicator which uses a bootstrapping
method to aggregate the responses of country experts.
30

Table 2: Principal Components – Proportion of Variation Explained
Comprehensive Narrow w/ Fiscal Narrow
𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 𝑐𝑐𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓 𝑐𝑐𝑛𝑛𝑛𝑛𝑛𝑛
Rule of law index 0.4631 0.518 0.5558
State authority over territory 0.3166 0.3581 0.3868
Rigorous and impartial public admin. 0.4609 0.5121 0.5500
Particularistic or public goods 0.4125 0.4336 0.4889
State fiscal source of revenue 0.3712 0.3912
Educational equality 0.4061
Notes: The table reports the proportion of variation in each input variable explained by each of
the three versions of the state capacity index.
31

Table 3: Summary Statistics:
State Capacity Mean Standard Minimum Maximum Observations
Variable Deviation
Narrow Index overall 0.000 1.649 -4.459 3.536 N = 18248

(𝒄𝒄𝒏𝒏𝒏𝒏𝒏𝒏 ) between 1.316 -3.025 2.841 n = 194
within 0.855 -4.843 2.923 T-bar = 94.1
Narrow with overall 0.000 1.752 -4.982 3.922 N = 17307

Fiscal Index between 1.423 -3.195 3.224 n = 192
(𝒄𝒄𝒇𝒇𝒇𝒇𝒇𝒇𝒇𝒇 ) within 0.921 -5.700 3.770 T-bar = 90.1
Comprehensive overall 0.000 1.940 -5.663 4.214 N = 12127

Index (𝒄𝒄𝒄𝒄𝒄𝒄𝒄𝒄𝒄𝒄 ) between 1.663 -4.080 3.498 n = 175
within 0.878 -4.616 3.000 T-bar = 69.3
Notes: Summary statistics of unbalanced annual panel data for 𝑐𝑐𝑛𝑛𝑛𝑛𝑛𝑛 and 𝑐𝑐𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓 from 1789 to 2018
and for 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 from 1900 to 2018.
32

Table 4: Correlations and Cronbach’s Alpha for Measures of State Capacity
*State
History ICRG WGI FFI 𝑐𝑐𝑛𝑛𝑛𝑛𝑛𝑛 𝑐𝑐𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐
State Correlation 1
History N 157
ICRG Correlation 0.2821 1

N 125 4492
Cronbach .4001
WGI Correlation 0.1776 0.9339 1
N 154 2680 3395
Cronbach 0.2998 0.9469
FFI Correlation -0.1669 -0.8786 -0.9166 1
N 152 1857 2328 2328
Cronbach 0.2765 0.9131 0.9573
Correlation
𝑐𝑐𝑛𝑛𝑛𝑛𝑛𝑛 -0.0072 0.7854 0.8813 -0.8314 1
N 156 4491 3395 2328 18248
Cronbach 0.0129 0.8503 0.8923 0.8962
Correlation
𝑐𝑐𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓 0.0091 0.7834 0.8872 -0.8501 0.9817 1
N 156 4259 3323 2328 17307 17307
Cronbach 0.0171 0.8591 0.9144 0.8962 0.9882
Correlation 0.031 0.8032 0.9004 -0.875 0.9747 0.987 1
𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 N 156 4259 3323 2328 12127 12127 12127
Cronbach 0.0573 0.8739 0.9213 0.9099 0.9678 0.9880
Note: Pairwise correlations and the number of observations and Cronbach’s alpha shown. ICRG
is the rule of law measure from the International Country Risk Guide. FFI is the Failed States
Index. WGI is sum of the three indexes from the World Governance Indicators described in
Section III. We use the state history variable constructed using a 5% discount rate from Borcan,
Olsson and Putterman (2018). Cross-sectional correlations for the state history variable use
observations from 2010 for all other variables.
33

Table 5: War and State Capacity – Long Cross-section (1975)
(1) (2) (3) (4) (5) (6)
VARIABLES 𝑐𝑐𝑛𝑛𝑛𝑛𝑛𝑛 𝑐𝑐𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 𝑐𝑐𝑛𝑛𝑛𝑛𝑟𝑟 𝑐𝑐𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐
War Proportion 3.944*** 4.985*** 5.677*** 2.481** 3.351*** 3.778***

(1.181) (1.290) (1.429) (0.971) (1.041) (1.170)
French -0.00458 -0.0586 0.0260
(0.227) (0.244) (0.272)
German 1.279*** 1.384*** 1.776***
(0.260) (0.286) (0.317)
Scandinavian 1.508*** 1.692*** 2.085***
(0.468) (0.477) (0.511)
Democracy 4.076*** 4.633*** 5.113***
(0.470) (0.496) (0.567)
Constant 0.161 0.233 0.0397 -1.102*** -1.167*** -1.582***
(0.139) (0.153) (0.172) (0.271) (0.283) (0.317)
Observations 140 140 140 140 140 140

R-squared 0.062 0.079 0.081 0.536 0.568 0.573
Robust standard errors in parentheses
*** p<0.01, ** p<0.05, * p<0.1
Notes: War proportion is the proportion of years at war between 1816 is 1975 from the
Correlates of War dataset. Legal origin dummy variables are included for French, German and
Scandinavian legal origins. Democracy is the democracy index of from the V-Dem dataset.
34

Table 6: War and State Capacity – Long Cross-section (1900)
(1) (2) (3) (4) (5) (6)
VARIABLES 𝑐𝑐𝑛𝑛𝑛𝑛𝑛𝑛 𝑐𝑐𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 𝑐𝑐𝑛𝑛𝑛𝑛𝑛𝑛 𝑐𝑐𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐
War Proportion 3.202** 3.703*** 4.112** 3.058*** 3.592*** 4.154***

(1.265) (1.362) (1.579) (1.011) (1.139) (1.285)
French -0.285 0.00645 0.142
(0.386) (0.337) (0.382)
German 1.611** 1.947** 2.408***
(0.727) (0.719) (0.781)
Scandinavian 2.379*** 2.924*** 3.369***
(0.430) (0.353) (0.368)
Democracy 6.314*** 7.252*** 7.861***
(1.450) (1.521) (1.775)
Constant -0.104 -0.00144 -0.393 -1.301*** -1.650*** -2.341***
(0.304) (0.332) (0.372) (0.457) (0.421) (0.498)
Observations 41 41 41 40 40 40
R-squared 0.062 0.070 0.069 0.622 0.637 0.629
*** p<0.01, ** p<0.05, * p<0.1
Notes: War proportion is the proportion of years at war between 1816 is 1900 from the
Scandinavian legal origins. Democracy is the democracy index of from the V-Dem dataset.
35

Table 7: War and State Capacity – Panel (𝑐𝑐𝑛𝑛𝑛𝑛𝑛𝑛 )
(1) (2) (3) (4)
VARIABLES Time FE LDV Time + Country FE Controls + LDV
State Capacity (t-1) 0.918*** 0.885***

(0.0110) (0.0205)
War Proportion 0.445 -0.337** -0.368* -0.280*
(0.385) (0.157) (0.199) (0.158)
War Proportion (t-1) 0.483 0.432*** 0.0236 0.456***
(0.323) (0.152) (0.220) (0.150)
War Proportion (t-2) 0.889*** 0.171 0.206 0.218
(0.339) (0.151) (0.140) (0.148)
French -0.0185
(0.0576)
German 0.196***
(0.0733)
Scandinavian 0.321***
(0.0595)
Democracy 0.0239
(0.124)
Constant -0.148 0.272** -1.447*** 0.130
(0.509) (0.136) (0.257) (0.161)
Observations 947 936 947 929

R-squared 0.053 0.851 0.414 0.851
Number of countries 152 152 152 152
*** p<0.01, ** p<0.05, * p<0.1
Notes: War proportion is the proportion of years at war during the 10-year period from the
Scandinavian legal origins. Democracy is the democracy index of from the V-Dem dataset. LDV
indicates that a lagged dependent variable is included.
36

Table 8: War and State Capacity – Panel (𝑐𝑐𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓 )
(1) (2) (3) (4)
State Capacity (t-1) 0.934*** 0.907***

(0.0102) (0.0197)
War Proportion 0.521 -0.442** -0.440** -0.390**
(0.445) (0.170) (0.195) (0.175)
War Proportion (t-1) 0.483 0.344** -0.159 0.370***
(0.365) (0.140) (0.202) (0.138)
War Proportion (t-2) 0.867** 0.202 0.0222 0.246
(0.411) (0.151) (0.146) (0.150)
French 0.0132
(0.0584)
German 0.230***
(0.0751)
(0.0602)
Democracy 0.0514
(0.138)
Constant 0.0188 0.315** -1.544*** 0.105
(0.506) (0.154) (0.274) (0.152)

R-squared 0.048 0.869 0.459 0.869
*** p<0.01, ** p<0.05, * p<0.1
37

Table 9: War and State Capacity – Panel (𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 )
(1) (2) (3) (4)
State Capacity (t-1) 0.940*** 0.919***

(0.0110) (0.0213)
War Proportion 0.597 -0.434* -0.758*** -0.406*
(0.566) (0.220) (0.270) (0.224)
War Proportion (t-1) 0.645 0.446** -0.339 0.460**
(0.446) (0.211) (0.314) (0.208)
War Proportion (t-2) 1.063** 0.179 -0.0921 0.202
(0.481) (0.198) (0.204) (0.194)
French 0.0137
(0.0637)
German 0.249***
(0.0840)
(0.0686)
Democracy 0.00855
(0.154)
Constant -0.836** -0.127 -1.156*** -0.207*
(0.387) (0.0992) (0.129) (0.123)

R-squared 0.065 0.876 0.500 0.877
*** p<0.01, ** p<0.05, * p<0.1
38

Table 10: State Capacity and Growth: 𝑐𝑐𝑛𝑛𝑛𝑛𝑛𝑛
(1) (2) (3) (4) (5) (6)
VARIABLES Pooled Period FE Country FE Period& Pooled Period FE
Country FE
Log GDP per capita (t-1) 0.995*** 0.968*** 0.933*** 0.621*** 0.991*** 0.946***
(0.0127) (0.0143) (0.0228) (0.0339) (0.0129) (0.0144)
State Capacity (t-1) 0.0177** 0.0269*** 0.0675*** 0.0226 0.00966 0.0135
(0.00892) (0.00865) (0.0191) (0.0161) (0.0103) (0.00994)
Absolute Latitude 0.00154* 0.00359***
(0.000793) (0.000889)
Constant 0.233** 0.288*** 0.726*** 2.455*** 0.225** 0.280***
(0.102) (0.107) (0.184) (0.229) (0.101) (0.102)
Observations 1,118 1,118 1,118 1,118 1,118 1,118

R-squared 0.917 0.929 0.838 0.887 0.918 0.931
Number of Countries 159 159 159 159 159 159
*** p<0.01, ** p<0.05, * p<0.1
Table 11: State Capacity and Growth: 𝑐𝑐𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓

(1) (2) (3) (4) (5) (6)
VARIABLES Pooled Period FE Country FE Period & Pooled Period FE
Country FE
(0.0133) (0.0150) (0.0267) (0.0359) (0.0135) (0.0151)
State Capacity (t-1) 0.0174** 0.0292*** 0.0717*** 0.0324* 0.0113 0.0178*
(0.00873) (0.00854) (0.0218) (0.0182) (0.0101) (0.00969)
Absolute Latitude 0.00123 0.00333***
(0.000821) (0.000905)
Constant 0.260** 0.354*** 0.832*** 2.553*** 0.248** 0.336***
(0.107) (0.112) (0.213) (0.245) (0.107) (0.108)
Observations 1,047 1,047 1,047 1,047 1,047 1,047

R-squared 0.914 0.927 0.833 0.883 0.915 0.929
*** p<0.01, ** p<0.05, * p<0.1
39

Table 12: State Capacity and Growth: 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐
(1) (2) (3) (4) (5) (6)
VARIABLES Pooled Period FE Country FE Period & Pooled Period FE
Country FE
(0.0156) (0.0168) (0.0344) (0.0386) (0.0151) (0.0164)
State Capacity (t-1) 0.0287*** 0.0304*** 0.0837*** 0.0335 0.0197* 0.0195*
(0.00911) (0.00893) (0.0249) (0.0214) (0.0105) (0.0103)
Absolute Latitude 0.00222** 0.00314***
(0.000953) (0.00103)
Constant 0.515*** 0.470*** 1.419*** 2.956*** 0.509*** 0.478***
(0.130) (0.131) (0.285) (0.282) (0.125) (0.125)
Observations 911 911 911 911 911 911

R-squared 0.908 0.920 0.770 0.835 0.908 0.921
Robust standard errors in parentheses *** p<0.01, ** p<0.05, * p<0.1
40

Table 13: State Capacity and Growth: GMM Estimation
(1) (2) (3) (4) (5) (6)
VARIABLES 𝑐𝑐𝑛𝑛𝑛𝑛𝑛𝑛 𝑐𝑐𝑛𝑛𝑛𝑛𝑛𝑛 𝑐𝑐𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓 𝑐𝑐𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐
(0.0645) (0.0630) (0.0874) (0.0769) (0.107) (0.0987)
State Capacity 𝑐𝑐𝑛𝑛𝑛𝑛𝑛𝑛 (t-1) 0.139*** 0.155***
(0.0433) (0.0450)
State Capacity 𝑐𝑐𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓 (t-1) 0.149*** 0.167***
(0.0527) (0.0495)
State Capacity 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 (t-1) 0.151** 0.185***
(0.0604) (0.0590)
Constant 1.104** 1.547*** 1.221* 1.758*** 1.495* 2.170***
(0.544) (0.534) (0.735) (0.649) (0.909) (0.841)
Year Effects X X X X X X
Observations 1,118 1,118 1,047 1,047 911 911
Number of ccode 159 159 159 159 159 159
Hansen stat 0.574 3.459 0.328 1.989 0.409 2.171
Hansen pvalue 0.750 0.749 0.849 0.921 0.815 0.903
AR1 -5.162 -5.295 -4.746 -4.944 -4.541 -4.644
AR1 pvalue 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
AR2 -0.555 -0.616 -0.613 -0.662 -0.491 -0.538
AR2 pvalue 0.579 0.538 0.540 0.508 0.624 0.591
Instruments 24 28 24 28 15 19
Standard errors in parentheses *** p<0.01, ** p<0.05, * p<0.1
Notes: Odd numbered columns are estimates using only the third lag as an instrument for state
capacity and GDP in the levels equation, and only the fifth lag as an instrument for GDP in the
differenced equation. Even numbered columns use the third through fourth lag as an instrument
for all expect GDP in the differenced equation where the fifth and sixth lag are used. All
instrument sets are collapsed.
41

Figure 1. State Capacity from 1789 to 2018 (𝑐𝑐𝑛𝑛𝑛𝑛𝑛𝑛 )
Panel A: State Capacity for Select Countries

4 2
State Capacity
-2 0
-4
1800 1850 1900 1950 2000

Year
China Denmark
France Iran
Japan Nepal
Portugal
Note: Only countries with the full 230 years of data incldued.
Panel B: State Capacity for Select Countries

4 2
State Capacity
-2 0
-4
1800 1850 1900 1950 2000

Year
Russia Spain
Sweden Thailand
Turkey United Kingdom
United States of America
Note: Only countries with the full 230 years of data incldued.
Note: State capacity is measured by standardized 𝑐𝑐𝑛𝑛𝑛𝑛𝑛𝑛 and is plotted for the 14 countries with no
missing observations between 1789 and 2018.
42

Figure 2. The Narrow Corridor, Quantitatively Operationalized
2 Panel A: The Narrow Corridor, Country Group 1
DNK
State Capacity
FRA
DEU
AUT
0
CRI
CHL GRC
MMR EGY
GTM BRA CHN
BOL
HTI COL
SLV
HND DOM
IRN ECU
-2
-2 0 2
Civil Society
1850 2010
Panel B: The Narrow Corridor, Country Group 2

2
CHE
NLD
State Capacity
SWE
USA
JPN
GBR
0
ESP
KOR PRT
PER LBR TUR
VEN MEX
MDG
PRY NPL RUS
MAR
THA
-2
URY
-2 0 2
Civil Society
1850 2010
Notes: State capacity is measured by standardized 𝑐𝑐𝑛𝑛𝑛𝑛𝑛𝑛 and civil society is measured by the
standardized CSO participatory environment index. Dashed lines represent a narrow corridor
originating at (-2,-2) and widening to a width of one standard deviation in each direction at point
(2,2).
43

Figure 3. The Narrow Corridor by Country, 1850-2010
Argentina Austria Belgium Bolivia

2
2010 2010
1900
2010
1870 1850 2010
0
1850
-2
Brazil Bulgaria Burma/Myanmar Canada
2010
2
2010 2010 1870
1880
0
1850 1850
2010
-2
Chile China Colombia Costa Rica

2
2010 2010
2010 2010
0
1850 1850
1850
1850
-2
-2 0 2 -2 0 2 -2 0 2 -2 0 2
Graphs by Country name
Denmark Dominican Republic Ecuador Egypt
2010
2
1850
2010 2010
0
1850
2010
1850
1850
-2
El Salvador Ethiopia France Germany
2010
2
2010
1850
2010 1850
2010
0
1850 1860
-2
Greece Guatemala Haiti Honduras

2
2010
0
1850 2010 2010 2010

1850
1850
1850
-2
-2 0 2 -2 0 2 -2 0 2 -2 0 2
44

Figure 3. The Narrow Corridor by Country, 1850-2010 (Continued)
Iran Italy Japan Liberia

2
2010
2010
1850
2010 2010
0
1870 1850
1850
-2
Luxembourg Madagascar Mexico Montenegro
2010
2
1900
2010 2010
0
1900
2010
1850 1850
-2
Morocco Nepal Netherlands Nicaragua

2
2010
1850
2010 2010
0
2010
1900
1850 1850
-2
-2 0 2 -2 0 2 -2 0 2 -2 0 2
Oman Paraguay Peru Portugal

2
2010
2010 2010
2010
0
1850 1850
1900
1850
-2
Romania Russia Serbia South Korea

2
2010
2010
2010
1880 2010
0
1880
1850
1850
-2
Spain Sweden Switzerland Thailand
2010 2010
2
2010 1850
1850
2010
0
1850
1850
-2
-2 0 2 -2 0 2 -2 0 2 -2 0 2
45

Figure 3. The Narrow Corridor by Country, 1850-2010 (Continued)
Turkey United Kingdom United States of America

2
2010 2010
1850
2010 1850
0
1850
-2
-2 0 2
Uruguay Venezuela
2
2010
0
2010
1850
-2
1850
-2 0 2 -2 0 2
Notes: State capacity is measured by the standardized 𝑐𝑐𝑛𝑛𝑛𝑛𝑛𝑛 and civil society is measured by the
standardized CSO participatory environment index (10-year periods). Dashed lines represent a
narrow corridor originating at (-2,-2) and widening to a width of one standard deviation in each
direction at point (2,2).
46

Figure 4A. Transition Probability Matrix of the Corridor (step size 0.4)
Transitional Probability of the Narrow Corridor

2.2
1.8
P
1.4
0.75
1 0.70
0.66
.6 0.61
State Capacity
0.56
.2
0.52
0.47
-.2
0.43
-.6 0.38
0.34
-1 0.29
0.25
-1.4
0.20
0.16
-1.8
0.11
-2.2
< -2.2
< -2.2 -2.2 -1.8 -1.4 -1 -.6 -.2 .2 .6 1 1.4 1.8 2.2
Civil Society
Notes: Probability that either state capacity or civil society scores increase in the next 10-year
period. State capacity is measured by the standardized 𝑐𝑐𝑛𝑛𝑛𝑛𝑛𝑛 and civil society is measured by the
standardized CSO participatory environment index. Areas with fewer than 10 observations are
omitted. Axes are labeled at the lower bound of each bin.
47

Figure 4B. Transition Probability Matrix of the Corridor (step size 0.6)
Transitional Probability of the Narrow Corridor

2.4
1.8
P
0.68
1.2
0.64
0.60
.6 0.56
State Capacity
0.52
0 0.47
0.43
0.39
-.6
0.35
0.30
-1.2 0.26
0.22
-1.8 0.18
0.13
0.09
-2.4
< -2.4
< -2.4 -2.4 -1.8 -1.2 -.6 0 .6 1.2 1.8 2.4

Civil Society
Notes: Probability that either state capacity or civil society scores increase in the next 10-year
period. State capacity is measured by the standardized 𝑐𝑐𝑛𝑛𝑛𝑛𝑛𝑛 and civil society is measured by the
standardized CSO participatory environment index. Areas with fewer than 10 observations are
omitted. Axes are labeled at the lower bound of each bin.
48

Appendix A. Complete Principal Component Analyses
Principal Component Analysis: State Capacity – 𝑐𝑐𝑛𝑛𝑛𝑛𝑟𝑟
Number of observations 18,248

Trace 4
Rho 0.6798
Component Eigenvalue Difference Proportion Cumulative

Component 1 2.7192 2.0213 0.6798 0.6798
Component 2 0.6979 0.2475 0.1745 0.8543
Component 3 0.4505 0.3180 0.1126 0.9669
Component 4 0.1324 . 0.0331 1
Principal Component Analysis: State Capacity – 𝑐𝑐𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓

Trace 5
Rho 0.6136

Component 1 3.0681 2.3597 0.6136 0.6136
Component 2 0.7084 0.0447 0.1417 0.7553
Component 3 0.6638 0.2372 0.1327 0.8881
Component 4 0.4266 0.2935 0.0853 0.9734
Component 5 0.1331 . 0.0266 1
Principal Component Analysis: State Capacity – 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐

Trace 6
Rho 0.6274

Component 1 3.7646 3.0426 0.6274 0.6274
Component 2 0.7220 0.0948 0.1203 0.7478
Component 3 0.6272 0.1988 0.1045 0.8523
Component 4 0.4284 0.0822 0.0714 0.9237
Component 5 0.3463 0.2346 0.0577 0.9814
Component 6 0.1116 . 0.0186 1
Note: Appendix 1 presents the results of principal component analysis. The eigenvalue and the
proportion of total variation explained by each principal component is shown. Each index of
state capacity is defined as the first principal component. As shown in the tables all three
versions of the index capture over 60% of the variation in the underlying data.
49

Appendix B1: Top and Bottom 20: 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 in Year 2000
State State
Top Country Capacity Bottom Country Capacity
1 Denmark 4.14 1 Somalia -5.65

2 Switzerland 3.90 2 Afghanistan -2.90
3 Sweden 3.89 3 Burma/Myanmar -2.83
4 Australia 3.76 4 Yemen -2.75
5 Finland 3.73 5 Sierra Leone -2.66
6 Germany 3.64 6 Angola -2.54

7 Netherlands 3.63 7 Azerbaijan -2.50
8 Belgium 3.57 8 Republic of the Congo -2.45
9 Spain 3.54 9 Egypt -2.34
10 France 3.51 10 Liberia -2.32
11 Luxembourg 3.47 11 Chad -2.18

12 New Zealand 3.46 12 Lebanon -1.92
13 South Korea 3.21 13 Equatorial Guinea -1.90
14 Taiwan 3.20 14 Tajikistan -1.89
15 Slovenia 3.18 15 North Korea -1.86
16 Portugal 3.16 16 Guinea-Bissau -1.83

17 Estonia 3.13 17 Nicaragua -1.74
18 Costa Rica 3.09 18 Iraq -1.66
19 Austria 2.97 19 Comoros -1.62
20 Botswana 2.96 20 Solomon Islands -1.62
Note: Appendix 2A lists the top and bottom 20 countries in the year 2000 using the
comprehensive state capacity index (𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 ).
50

Appendix B2: Top and Bottom 20: 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 Movements 2010-2018
State State State State
Capacity, Capacity, Capacity, Capacity,
Top Country 2000 2018 Bottom Country 2000 2018
1 Sierra Leone -2.66 0.64 1 Syria -1.08 -3.80

2 Myanmar -2.83 -0.14 2 Burundi -0.68 -2.85
3 The Gambia -0.83 1.16 3 Turkey 0.86 -1.27
4 Liberia -2.32 -0.33 4 Yemen -2.75 -4.79
5 Angola -2.54 -0.81 5 Venezuela -0.85 -2.87
6 Tunisia -0.33 1.37 6 Thailand 0.86 -1.12

7 Somalia -5.65 -4.22 7 Zimbabwe 0.29 -1.35
8 Cote D’Ivoire -0.51 0.88 8 Haiti -1.13 -2.55
9 Benin 0.44 1.74 9 Hungary 2.69 1.39
10 Kyrgyzstan -1.04 0.10 10 Central African Republic -1.45 -2.75
11 Uzbekistan -1.44 -0.36 11 Libya -1.43 -2.61

12 Rwanda 0.66 1.71 12 South Africa 1.71 0.58
13 Sri Lanka -0.53 0.50 13 Iran 0.12 -1.00
14 Fiji 0.59 1.55 14 Nicaragua -1.74 -2.76
15 Mozambique -0.56 0.38 15 Bulgaria 2.19 1.25
16 Lebanon -1.92 -1.04 16 Brazil 0.92 0.09

17 Malaysia -0.06 0.79 17 Zambia 1.13 0.33
18 Solomon Islands -1.62 -0.80 18 Sweden 3.89 3.15
19 Ethiopia -0.66 0.16 19 France 3.51 2.81
20 Guyana 0.33 1.10 20 Dominican Republic -0.07 -0.72
Note: Appendix 2B shows the largest increases and the largest decreases in the comprehensive state capacity index (𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 ) between
2000 and 2018.
51

Appendix C: Group Countries by Movement into an out of Corridor (𝑐𝑐𝑛𝑛𝑛𝑛𝑛𝑛 )
Always in Corridor: Entered and Remained in Corridor:
Canada Belgium
Switzerland Costa Rica
United States China
Denmark
Japan
Sweden
United Kingdom
Never in the Corridor: Entered and Exited the Corridor:
Dominican Republic Argentina Italy

Honduras Austria Luxembourg
Liberia Bolivia Mexico
Oman Brazil Netherlands
Bulgaria Nepal
Chile Nicaragua
Colombia Paraguay
El Salvador Peru
Ethiopia Portugal
France Romania
Germany Russia
Greece Serbia
Guatemala South Korea
Haiti Spain
Iran Thailand
Turkey
Uruguay
Venezuela
Notes: Appendix 3 presents a categorization of countries based on how they move in state
capacity and civil society space between 1850 and 2018. For the purpose here, the narrow
corridor is defined as the area between the dashed lines in Figure 2. Specifically, the narrow
corridor originates at (-2,-2) with a width of zero and widens to a width of one standard deviation
in each direction at point (2,2).
52

A New Measure of State Capacity, 1789-2018

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A New Measure of State Capacity, 1789-2018

JEL Codes: H11; O43; H20; P14

Electronic copy available at: https://ssrn.com/abstract=3643637

The development of effective state institutions has emerged as a hypothesis explaining

only captures one element of state capacity, fiscal capacity.

becomes available starting in 1900.

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specifications than previously considered.

A more descriptive application of our methodology is using state capacity in conjunction

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strongly point in the direction of state capacity contributing to economic growth.

II. Literature Review and Theory

perform functions that it previously performed poorly or not at all.

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𝐿𝐿(𝜋𝜋2 − 𝜋𝜋1 ) and 𝐹𝐹(𝜏𝜏2 − 𝜏𝜏1 ) respectively.

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and with respect to fiscal capacity,

𝑤𝑤(𝜋𝜋2 )[𝐸𝐸(𝜆𝜆2 ) − 1] ≤ 𝜆𝜆1 𝐹𝐹𝜏𝜏 (𝜏𝜏2 − 𝜏𝜏1 ). (3)

both legal capacity and fiscal capacity. 3

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can be generalized to Africa as well.

capacity and economic growth.

𝑌𝑌2 −𝑌𝑌1 𝑤𝑤(𝜋𝜋2 )−𝑤𝑤(𝜋𝜋1 )+𝑅𝑅2 −𝑅𝑅1

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capable of supporting markets. A large literature connecting state capacity to economic

performance in a panel of data spanning four centuries. Similarly, precolonial centralization in

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the future remains to be seen, but they are worth noting.

state capacity in Goal 17.9, “targeted capacity-building in developing countries to support

state capacity as having clear importance for economic development.

Finally, Acemoglu and Robinson (2019; 2017; 2016) re-conceptualize previous

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rather directly using our method of measuring state capacity.

III. Constructing State Capacity and Descriptive Findings

coherence of political institutions.6

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“bureaucratic and administrative quality” using V-Dem’s measures of “particularistic or public

and “educational equality” (v2peedueq). Concerning the “educational equality,” it reflects

territory which a state credibly controls.

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natural resource rents.

justified in interpreting educational equality as a measure of the capability of the state, we

data are available for both.

back as 1789 and for 174 countries in 2018.

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principal component analysis.

the decrease is modest in these cases.

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Finally, in Table 4 we also present cross-sectional correlations between each of the

the relationship with 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 , 𝑐𝑐𝑓𝑓𝑓𝑓𝑠𝑠𝑐𝑐 , and 𝑐𝑐𝑛𝑛𝑛𝑛𝑛𝑛 is particularly weak.

concept of state capacity.

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GDP per capita as a proxy for military and bureaucratic capacity.

version of the index we are referring to, as appropriate.

IV. Application 1: State Capacity and War

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the V-Dem dataset.

𝑐𝑐𝑖𝑖 = 𝛽𝛽𝑤𝑤𝑖𝑖 + 𝛿𝛿𝑥𝑥𝑖𝑖 + 𝜀𝜀𝑖𝑖 (1)

and additional control variables in Equation 3 extends the model.

𝑐𝑐𝑖𝑖𝑖𝑖 = 𝛼𝛼𝑤𝑤𝑖𝑖𝑖𝑖 + 𝛽𝛽1 𝑤𝑤𝑖𝑖𝑖𝑖−1 + 𝛽𝛽2 𝑤𝑤𝑖𝑖𝑖𝑖−2 + 𝜏𝜏𝑡𝑡 + 𝜀𝜀𝑖𝑖𝑖𝑖 (2)

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threat of war leads to greater state capacity.

capacity decades later.

War Proportion 3.944* 4.985* 5.677* 2.481 3.351* 3.778*

War Proportion 3.202 3.703* 4.112 3.058* 3.592* 4.154*

State Capacity (t-1) 0.918* 0.885*

State Capacity (t-1) 0.934* 0.907*

State Capacity (t-1) 0.940* 0.919*