Caruana Galizia, Paul
(2015)
Economic development and market potential: European regional income differentials, 1870-1913.
PhD thesis, London School of Economics and Political Science.
Abstract
This dissertation examines the extent to which proximity to markets - as measured by market potential, the trade cost-weighted sum of surrounding regions’ GDP - can explain late-nineteenth century Europe’s regional per capita income differentials. The research questions are: (1) was the spatial distribution of regional income random; (2) how helpful are traditional explanations - coal and institutions - of regional income; (3) how helpful is market potential when controlling for traditional explanations; and (4) did market potential have an effect on other determinants of income? This dissertation finds that: (1) the distribution of regional per capita income increasingly concentrated in the northwest; that there was little tendency to income convergence; and regional inequalities were higher within than between countries; (2) while a measure of regional institutions is correlated with income, simple distance-to-coal and a cost-to-coal measures are not; (3) market potential has a significant effect on income; foreign market potential more so than domestic; and increasing core relative to peripheral market potential results in perpherial income losses; and
(4) changes in literacy rates, a proxy for human capital, responded to changes in market potential. In conclusion, a new economic geography framework with market potential at its core fits the historical experience well. Certain regions performed better than others generally because they had cheaper access to markets. At the start of the period, trade costs were high, and so economic activity - long concentrated in Britain - was spread out more or less evenly across the Continent. By the end of the period, when trade costs dropped dramatically, economic activity concentrated in the northwest of Europe at the cost of the periphery.
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