I will focus on historical state development in China and Europe. Specifically I will introduce a model that formalizes the argument that the different geographical endowments facing China and Europe gave rise to different types of external threats. In China the unidrectional theat posed by nomadic invaders from the steppe made it unfeasible for small states to survive. Instead a large and politically centralized empire arose and remained a persistent feature of Chinese history for more than 2000 years. In contrast, European states faced threats from mulitdirections. This made a large and centralized European empire unfeasible and helps to explain why Europe was characterized by political fragmentation for most of its history. I go on to explore the implications that this political divergence had for patterns of taxation and economic growth.