Wiener Institut für The Institute for Internationale International Economic www.wiiw.ac.at Wirtschaftsvergleiche Studies

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 Up Southeast Europe and East Central Europe in Comparison 1 Vienna, 23 June 2016  wiiw 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)

2  wiiw Research Question, Hypothesis & Methodology

° 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) 1870 −1910 1870 ℎ = + ∙ + ° Models for separate convergence effects for the Austrian regions and the Hungarian regions

1870 −1910 1870 1870 ℎ = + ∙ + ∙ × + ∙ + 3  wiiw Descriptive Data

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

4000

1870 1910

3000

2000

1000

1990 Geary-KhamisDollars 1990International 0

4  Source: Good und Ma (1998). wiiw Absolute long-term Convergence (Solow model)

0.03371 0.0029 · ℎ = 0.005 0.001

Right_Bank_Danube 0.0160

Croatia_Slavonia Danube_Tisza_Basin

Transylvania

0.0150 Tyrol_Vorarlberg Tisza_Maros_Basin Right_Bank_Tisza Left_Bank_Tisza

0.0140 Silesia Left_Bank_Danube

Carniola

0.0130 LittoralSalzburgBohemia GDP growth rate GDP1870-1910 growth

Styria 0.0120 Lower_Austria Upper_Austria 0.0110 6.8 7 7.2 7.4 7.6 7.8  5 log GDP per capita 1870 wiiw Source: Good und Ma (1998), own estimates Convergence in Cisleithania & Transleithania

Right_Bank_Danube 0.0160

Croatia_Slavonia Danube_Tisza_Basin

Transylvania

0.0150 Tyrol_Vorarlberg Tisza_Maros_Basin Right_Bank_Tisza Left_Bank_Tisza

0.0140 Silesia Left_Bank_Danube

Carniola

0.0130 Dalmatia LittoralSalzburgBohemia Galicia Bukovina

Styria Carinthia 0.0120 growth rate 1870-1910 capitaof perrate GDP growth Moravia Lower_Austria Upper_Austria

0.0110 6.8 7 7.2 7.4 7.6 7.8 log of GDP per capita 1870

6  Source: Good und Ma (1998), own estimates. wiiw 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 ∗ ln 0 = − ° 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

7  wiiw Confusing Convergence Results

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

esmaon technique panel panel cross-section cross-section type of convergence (country & time FE) (country & time FE)

absolute yes*** no no no

yes*** yes*** Solow model yes*** yes*** Empire wide (literacy rate) (literacy rate) conditional yes yes no no within entities ( > for Hungary) ( > for Hungary)

absolute yes*** yes* yes* yes**

Schumperterian yes** no yes*** yes*** model Empire wide (distance to Vienna) (distance to Vienna) conditional no yes*** no yes*** within entities

Evidence for convergence? 8  wiiw 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 . 9  wiiw Thank you for your Attention!

10  wiiw Framework Conditions 1870

° -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

11  wiiw Conditional Convergence (Schumpeterian model)

Dependent variable: 10-year growth rate of GDP per capita 10-year growth rate of GDP per capita Data source: Good and Ma Schulze Specification (A1.MA) (C1.MA) (C2.MA) (A1.S) (C1.S) (C2.S) Convergence test absolute conditional absolute conditional 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

12  wiiw Source: Good und Ma (1998), own estimates Convergence at the European Level (1)

3500

UK 3000 Netherlands Belgium 2500

Denmark Switzerland 2000 France Austria Germany Sweden 1500 Norway GDP per capita per1870 GDP 1000 Russia Finland (1990 International(1990Dollars)

500

0 0,005 0,007 0,009 0,011 0,013 0,015 0,017 0,019 GDP per capita growth 1870-1910 Anmerkung: Länder gemäß modernen Grenzen. Source: Maddison (2001). ° Österreich-Ungarn in der Gruppe der Aufholländer  13 ° Konvergenz nicht idealtypisch wiiw Convergence at the European Level (2)

Austria-Hungary France Germany Netherlands Russia

100

75

50 United Kingdom = = UnitedKingdom100 25

0 1830 1840 1850 1860 1870 1880 1890 1900 1910 1913 Anmerkung: Länder gemäß historischen Grenzen. Source: Bairoch (1976), eigene Berechnungen. ° Industrialisierung in Österreich-Ungarn mit Verzögerung ° Aufholphase beschränkt auf die Periode 1890-1910 14  wiiw ° BIP pro Kopf Wachstum: Ö-U: 1,08%/ 1,10%/1,28% ; UK: 0,91% p.a.