GEOGRAPHY, INSTITUTIONS AND ECONOMIC DEVELOPMENT: POLITICAL ECONOMY OF FLORENCE FROM 13TH TO 15TH CENTURY

The purpose of this paper is to explain the link between geography, institutions and economic development by studying Florentine political economy during the heydays of Florence from the late 13th to late 15th century. Geography plays an important role in economic development because it sets the starting positions for development of political, economic and cultural systems. Institutions and social capital are as important as geography for economic development, so we could set the following formula for their interrelationship: geography + institutions + social capital = path dependence. By using historical and comparative methods we argue that geographical features of Tuscany played an important role in the formation of its institutions, type of government and economy which enabled birth of the Renaissance, economic development and social mobility in the Florentine society. It is not by pure coincidence that today Tuscany is one of the most prosperous regions of Italy and Europe, as well. Geography influenced the building of medieval Florentine society and prevented feudalism from being formed there. Politi-cal and economic institutions of Florence were also conductive for economic growth and were made for the rule of merchants by the merchants. Far from being perfect these institutions enabled the birth of humanism, where individual rights (property rights being the most important) were respected, with the emphasis on best interests of civic community. Implications for today are that those parts of Italy that had better civic tradition like Tuscany of Emilia-Romagna have better local administration, better quality of life and higher economic growth.