The Economic Role of Political Institutions:
Market-Preserving Federalism and Economic Development
Barry R. Weingast
Stanford University
Thriving markets require not only an appropriately designed economic system, but
a secure political foundation that limits the ability of the state to confiscate wealth.
This requires a form of limited government, that is, political institutions that credibly
commit the state to honor economic and political rights. This article studies how
limited government arose in the developed West, focusing on the critical role of
federalism for protecting markets in both England and the United States. Federalism
proved fundamental to the impressive economic rise of England in the 18th
century and the United States in the 19th and early 20th centuries. The article also
shows that federalism underpins the spectacular economic growth in China over
the past 15 years.