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
