The Reasons of Differences in Dynamics of Economic Grown in Portugal and Holland in the XV-XVII Centuries: an Institutional Viewpoint

The paper is devoted to comparative analysis of socio-economic development of Portugal and Holland – two small nations who during certain periods of their history obtained European leadership and played pivotal role in Europe’s transition from Middle Ages to Modernity. Analysis is performed on the basis of the institutional theory. Based to a large extent on theoretical concepts of D. North and D. Acemoglu-J. Robinson, the author notes substantial similarity of the initial conditions in both countries in the Middle Ages – their size in terms of territory and population, geographical location, long coastal lines, early successful development of navigation, fishing and construction of vessels, emergence of strong navy and trade fleet, non-fertile arable land, grain imports, etc. Following that the author then looks for “small disparities” which gradually and having been influenced by external shocks have led to different paths of socio-economic development. These shocks include climatic changes in Holland in XIV century and – in case of Portugal –foreign policy issues (struggle against Kingdom of Castile); and then – the Great Geographical Discoveries. The paper analyses in detail the impact of foreign (especially colonial) trade on development of both countries. The process of gradual loss of leading positions in international trade first by Portugal and then by Holland is considered. Author states that as opposed to Portugal, who remained backward agrarian country until XX century, Holland preserved its position of one of the richest and most advanced countries in Europe even after having lost its monopoly position in international trade. In the final part of the paper the author analyses the reasons for divergence of Holland’s and Portugal’s development routes. In relation to it, the following concepts are considered: the concept of the cultural capital by L. Harrison; theory of limited/open access societies by D. North, J. Wallis and B. Weingast; theory of D. Acemoglu and J. Robinson on the role of extractive vs. inclusive political institutions. In conclusion the author analyses the impact of the economic structure of both countries at the moment of their active involvement into international trade on further economic development