In this paper we exploit the invasion of Europe, particularly Germany, by French Revolutionary armies as a natural experimentto investigate the causal effect of the institutions
of the ancien régime on economic development. A central hypothesis which can account for
comparative development within Europe is that economic growth emerged
first in places which
earliest escaped ancien régime and feudal institutions. However, though there is a correlation
between these two events, this does not demonstrate that it was the collapse of the ancien régime that caused the rise of capitalism. This is because there may be problems of reverse
causation and omitted variable bias. We show how the institutional reforms (essentially the
abolition of the ancien régime) brought by the French in Germany can be exploited to resolve
these problems. These reforms were akin to an exogenous change in institutions unrelated
to the underlying economic potential of the areas reformed. We can therefore compare the
economic performance of the areas reformed to those not reformed before and after the Revolutionary period to examine the impact of the reforms. The evidence we present is consistent
with the hypothesis that the institutions of the ancien régime did indeed impede capitalism.