Resumen de Market Integration and Regional Inequality in Spain, 1860-1930
This thesis represents an attempt to examine the evolution and causes of regional inequality in Spain during the early stages of economic development, in the period in which the integration of the domestic market was completed and the Spanish economy was going through the early stages of industrialization. With this objective, the research adopts a New Economic Geography (NEG) approach. This theoretical framework aims to analyse the distribution of economic activity across space and it appears to be particularly suitable for the study of regional inequality from a historical perspective (Krugman, 1991).After reviewing the NEG literature, both theoretical and empirical, in which market accessibility becomes a key variable to understand where production takes place, the first step in the research is the construction of two databases that are essential for the empirical analysis in the following chapters. Firstly, GDP estimates at a provincial level are obtained following the standard methodology developed by Geary and Stark (2002) for the years 1860, 1900, 1914 and 1930. At a second stage, the availability of GDP figures allows constructing estimates of market potential at a provincial level using Harris (1954) equation (Crafts, 2005). The results suggest that the integration of the domestic market brought about significant changes in the relative accessibility of the Spanish provinces. In particular, it has been stressed that the construction of the railway network and the subsequent fall in transport costs triggered a polarised geographical pattern with two clearly differentiated groups where coastal provinces (plus Madrid) showed higher market potential than their inland counterparts.More importantly, the availability of an indicator of market access becomes essential for the empirical analyses undertaken in the next chapters. First, the focus is placed on the industrial sector. The exercise conducted in chapter 4 aims to disentangle the factors that lie behind the intense process of spatial concentration recorded in Spain's industry between the mid-19th century and the Spanish Civil War (1936-1939). To do this, a model that combines comparative advantage in line with the Heckscher-Ohlin model, and NEG-type mechanisms is estimated (Midelfart-Knarvik et al., 2002). The results show that in the mid-19th century, the spatial distribution of industry in Spain was determined by comparative advantage. However, when industry began to concentrate in a limited number of provinces, evidence in favour of NEG effects is found. In this case, the main driving force in industrial location was the interaction between market potential and increasing returns.Once the impact of NEG-type mechanisms has been confirmed in industry, the aim of chapter 5 is to examine whether geography also had an influence at a more aggregate level, when income per capita is considered. In so doing, the empirical strategy developed by Ottaviano and Pinelli (2006), in which growth literature (Barro and Sala-i-Martin, 1991) and economic geography are combined, is applied to the Spanish case. Conditioned growth regressions are estimated, i.e., income per capita growth rates are regressed on the customary proximate sources of growth and a set of explanatory variables (wider influences) that include, among others, first nature geography (à la Sachs) and second nature geography (à la Krugman) variables. In the second half of the 19th century, the impact of geography on provincial growth came from pure geography. Then, in the first decades of the 20th century, there is evidence of a positive and significant relationship between market potential and economic growth, as some recent cross-country studies within NEG have demonstrated (Redding and Venables, 2004). In the light of these results it can be concluded that the role of geography needs to be considered in the analysis of regional inequality in the long term.
