Institutions, Trade and Growth: the Ancient Case of Proxenia

Abstract: Recent scholarship contends that ancient Mediterranean economies were able to grow intensively. A common explanation is Smithian growth spurred by reductions in transaction costs and increased trade flows. This paper argues that an ancient Greek institution, proxenia, was among the innovations that allowed such growth in the period 500-0 BCE. Proxenia entailed a Greek city-state declaring an individual from a different city to be a 'public friend', a status that conferred both duties and privileges. Arguably, the functions performed by beneficiaries of proxenia facilitated economic transactions between communities. Text, network and regression analyses confirm the economic significance of proxenia and establish a strong relation between its institutional network and trade intensity. This provides indirect evidence supporting a secular process of market expansion and Smithian growth.