wiiw1

Wiener Institut für Internationale Wirtschaftsvergleiche

The Vienna Institute for International Economic Studies

www.wiiw.ac.at

Economic Growth in the Habsburg Monarchy 1870-1910:

Convergence, Catching-up, Confusion

Roman Stöllinger Vienna Institute for International Economic Studies (wiiw)

Conference

Falling Behind and Catching UpSoutheast Europe and East Central Europe in Comparison

Vienna, 23 June 2016

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Motivation

� Convergence between countries or regions considered as an empirical regularity

� The example of the EU shows - convergence between EU regions (at least until 2008)

(a pattern also found in the US and Japan - Barro & Sala-i-Martin, 1992)

- convergence between EU countries (continued)

- no convergence between regions within a country (European Commission, 2014)

� Arguably some similarity between the EU and the Habsburg Empire: complex state structure incl. various nations, autonomous regional authorities,...(see e.g. Cooper, 2012)

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� Research Question: Is the period 1870-1910 characterised by regional (beta-) convergence between the regions of the Austro-Hungarian Monarchy.

� Hypothesis: Poorer regions (with lower capital/output ratio) grew faster

� Solow model: neo-classical approach; convergence channel: accumulation of capital (Solow, 1957; MRW, 1992)

� Variant: absolute convergence, long term model(see also Good, 1992)

� Models for separate convergence effects for the Austrian regions and the Hungarian regions

Research Question, Hypothesis & Methodology

�����ℎ�1870−1910 = � + � ∙ �������1870 + ��

�����ℎ�1870−1910 = � + � ∙ �������1870 + � ∙ ��������1870 × ��� + ! ∙ ��� + ��

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0

1000

2000

3000

4000

1990

Gea

ry-K

ham

is In

tern

atio

nal D

olla

rs

1870 1910

Descriptive Data

� 22 regions for the period 1870-1910 in 1990 Geary-Khamis $

Source: Good und Ma (1998).

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Bohemia

Bukovina

Carinthia

Carniola

Croatia_Slavonia

Dalmatia

Danube_Tisza_Basin

Galicia

Left_Bank_Danube

Left_Bank_Tisza

Littoral

Lower_Austria

Moravia

Right_Bank_Danube

Right_Bank_Tisza

Salzburg

Silesia

Styria

Tisza_Maros_Basin

Transylvania

Tyrol_Vorarlberg

Upper_Austria

0.0

11

00

.01

20

0.0

13

00

.01

40

0.0

15

00

.01

60

GD

P g

row

th r

ate

18

70

-19

10

6.8 7 7.2 7.4 7.6 7.8log GDP per capita 1870

Absolute long-term Convergence (Solow model)

Source: Good und Ma (1998), own estimates

�����ℎ"#$%&'#(#& = 0.03371 � 0.0029 · ������"#$%&

0.005 �0.001

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Convergence in Cisleithania & Transleithania

Source: Good und Ma (1998), own estimates.

Croatia_Slavonia Danube_Tisza_Basin

Left_Bank_Danube

Left_Bank_Tisza

Right_Bank_Danube

Right_Bank_Tisza

Tisza_Maros_Basin

Transylvania

Bohemia

Bukovina

Carinthia

Carniola

DalmatiaGalicia

Littoral

Lower_Austria

Moravia

Salzburg

Silesia

Styria

Tyrol_Vorarlberg

Upper_Austria

0.0

11

00

.01

20

0.0

13

00

.01

40

0.0

15

00

.01

60

gro

wth

ra

te o

f G

DP

pe

r ca

pit

a 1

87

0-1

91

0

6.8 7 7.2 7.4 7.6 7.8log of GDP per capita 1870

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The Speed of Convergence (Solow Model)

� The convergence coefficient β estimated at -0.0029

� The period τ required to achieve particular change in income is given by

� With β = -0.0029, it takes 238 years for a region to reduce the income gap by half!

� Even if there is a statistically significant result, the ‘strength’ of the convergence process is very low

. = −ln 12�∗ 2�04 5

�

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Confusing Convergence Results

type of convergence

es2ma2on technique

cross-sectionpanel

(country & time FE)cross-section

panel

(country & time FE)

Empire wide

yes***

(literacy rate)yes***

yes***

(literacy rate)yes***

within entitiesno

yes

( > for Hungary)no

yes

( > for Hungary)

Empire wide

yes**

(distance to Vienna)yes***

no

(distance to Vienna)yes***

within entitiesno yes*** no yes***

Data from Schulze (2007)Data from Good and Ma (1998)

conditional

conditional

absolute

absolute

Solow model

Schumperterian

model

yes**yes*yes*yes***

nononoyes***

Evidence for convergence?

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Conclusions

� Hungarian regions grew stronger than the Austrian regions

� Evidence for absolute regional convergence within the Dual Monarchy

� Very low rate of convergence

� No evidence for absolute regional convergence within the two entities of the Empire

� Long term convergence pattern within the Habsburg Empire resembles that of the EU

� Robust evidence for conditional convergence (even when differentiating between the two entities) when controlling for unobserved country characteristics .

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Thank you for your Attention!

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Framework Conditions 1870

� Austria-Hungary is a latecomer with respect to industrialisation

� Austrian half moderately backward, Hungarian half extremely backward (Gerschenkron)

� Free labour force due to Ground Release Act (Grundentlastung) in (1848)

� Elimination of internal tariffs (“Zwischenzölle“) in (1850) und creation of a common economic and customs union (1867)

� Economic boom period in 1867-1873

� Stock market crash 1873

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Conditional Convergence (Schumpeterian model)

Source: Good und Ma (1998), own estimates

Dependent variable: 10-year growth rate of GDP per capita 10-year growth rate of GDP per capita

Data source:

Specification (A1.MA) (C1.MA) (C2.MA) (A1.S) (C1.S) (C2.S)

Convergence test

gap-to-UK 0.0072 * 0.1815 *** 0.2398 *** 0.0106 ** 0.1312 *** 0.1921 ***

(0.004) (0.021) (0.050) (0.005) (0.028) (0.058)

literacy rate -0.0034 -0.0094

(0.009) (0.008)

gap-to-UK x AUT -0.0775 -0.0753

(0.053) (0.079)

Region FE no yes yes no yes yes

Time FE no yes yes no yes yes

F-test 4.12 38.91 56.76 4.63 10.17 11.02

R2

0.053 0.569 0.580 0.046 0.659 0.661

R2-adj. 0.042 0.385 0.400 0.035 0.514 0.517

obs. 88 88 88 88 88 88

Good and Ma Schulze

absolute conditional absolute conditional

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Convergence at the European Level (1)

� Österreich-Ungarn in der Gruppe der Aufholländer

� Konvergenz nicht idealtypisch

Austria

Belgium

Denmark

Finland

FranceGermany

Italy

Netherlands

Norway

Sweden

Switzerland

UK

Russia

0

500

1000

1500

2000

2500

3000

3500

0,005 0,007 0,009 0,011 0,013 0,015 0,017 0,019

GD

P p

er c

apita

187

0(1

990

Inte

rnat

iona

l Dol

lars

)

GDP per capita growth 1870-1910Anmerkung: Länder gemäß modernen Grenzen. Source: Maddison (2001).

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Convergence at the European Level (2)

� Industrialisierung in Österreich-Ungarn mit Verzögerung

� Aufholphase beschränkt auf die Periode 1890-1910

� BIP pro Kopf Wachstum: Ö-U: 1,08%/ 1,10%/1,28% ; UK: 0,91% p.a.

Anmerkung: Länder gemäß historischen Grenzen. Source: Bairoch (1976), eigene Berechnungen.

0

25

50

75

100

1830 1840 1850 1860 1870 1880 1890 1900 1910 1913

Uni

ted

Kin

gdom

= 1

00Austria-Hungary France Germany Netherlands Russia