Market Integration and Regional Inequality in Spain, 1860-1930 Julio Martínez Galarraga ADVERTIMENT. La consulta d’aquesta tesi queda condicionada a l’acceptació de les següents condicions d'ús: La difusió d’aquesta tesi per mitjà del servei TDX (www.tesisenxarxa.net) ha estat autoritzada pels titulars dels drets de propietat intel·lectual únicament per a usos privats emmarcats en activitats d’investigació i docència. No s’autoritza la seva reproducció amb finalitats de lucre ni la seva difusió i posada a disposició des d’un lloc aliè al servei TDX. No s’autoritza la presentació del seu contingut en una finestra o marc aliè a TDX (framing). Aquesta reserva de drets afecta tant al resum de presentació de la tesi com als seus continguts. En la utilització o cita de parts de la tesi és obligat indicar el nom de la persona autora. ADVERTENCIA. 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PROGRAMA DE DOCTORAT EN HISTÒRIA ECONÒMICA (BIENNI 2000-2002) DEPARTAMENT D’HISTÒRIA I INSTITUCIONS ECONÒMIQUES UNIVERSITAT DE BARCELONA MARKET INTEGRATION AND REGIONAL INEQUALITY IN SPAIN, 1860-1930 Tesi doctoral presentada per a l’obtenció del títol de doctor per la Universitat de Barcelona Barcelona, setembre de 2010 Autor: Julio Martínez Galarraga Director: Daniel A. Tirado Fabregat Tutor: Alfonso Herranz Loncán Contents Acknowledgements ....................................................................................................... 13 Chapter 1. Introduction ............................................................................................... 15 1.1. Regional inequality: the empirical evidence...........................................................15 1.2. Economic theory and regional inequality. An initial examination .........................19 1.3. Market integration and industrialisation in Spain...................................................22 1.3.1. The integration of the Spanish market.............................................................23 1.3.2. The first stages in the process of industrialisation in Spain.............................30 1.4. Objectives and the development of the thesis.........................................................33 Chapter 2. New Economic Geography (NEG): theory and empirics....................... 41 2.1. Description of the theoretical framework: New Economic Geography..................41 2.1.1. Background......................................................................................................41 2.1.2. ‘New Economic Geography’: economic integration, market access and regional inequality .....................................................................................................45 2.1.3. Multi-regional NEG models: cross-country economic integration and the internal geography of countries .................................................................................53 2.2. A survey of NEG empirics: market potential and agglomeration...........................57 2.2.1. Market access: relevance and origins ..............................................................57 2.2.2. Market potential and the empirics of NEG......................................................60 2.2.2.1. Market potential attracts production factors .............................................61 2.2.2.2. Market potential raises the price of the production factors.......................63 2.2.3. Market potential, NEG and economic history .................................................68 3 Market integration and regional inequality in Spain, 1860-1930 ______________________________________________________________________________________ Chapter 3. Market potential in the Spanish provinces, 1867-1930 .......................... 79 3.1. Introduction.............................................................................................................79 3.2. Theoretical foundations underpinning market potential.........................................82 3.3. The construction of provincial market potential in Spain, 1867-1930 ...................86 3.3.1. Definition and selection of provincial and foreign ‘nodes’ .............................86 3.3.2. Internal market potential..................................................................................89 3.3.2.1. The GDP of the Spanish provinces...........................................................89 3.3.2.2. Inter-provincial transport costs. ................................................................93 3.3.2.3. The self-potential of each province.........................................................102 3.3.3. Foreign market potential................................................................................103 3.3.3.1. Size of foreign markets. ..........................................................................105 3.3.3.2. International distances. ...........................................................................108 3.3.3.3. Tariffs......................................................................................................109 3.4. Results and initial hypotheses...............................................................................111 Chapter 4. The determinants of industrial location in Spain, 1856-1929.............. 121 4.1. Introduction...........................................................................................................121 4.2. Transport costs and industrial location in Spain...................................................129 4.3. Empirical strategy .................................................................................................133 4.3.1. The model ......................................................................................................133 4.3.2. Data................................................................................................................137 4.3.3. Comparative advantage and NEG variables: a description of the patterns....140 4.4. Estimation results..................................................................................................145 4.4.1. Robustness, alternative specifications and standardised coefficients............151 4.5. Discussion.............................................................................................................160 4 Contents ______________________________________________________________________________________ Chapter 5. Market potential and economic growth in Spain, 1860-1930 ..............167 5.1. Introduction...........................................................................................................167 5.2. Related empirical literature: first nature vs. second nature geography.................173 5.3. Empirical strategy .................................................................................................178 5.3.1. The model ......................................................................................................178 5.3.2. Data................................................................................................................183 5.4. Estimation results..................................................................................................188 5.5. Discussion.............................................................................................................192 Chapter 6. Conclusions............................................................................................... 197 Appendix...................................................................................................................... 207 Annex 1. The calculation of internal transport costs between Spanish provinces.......214 Annex 2. Transport costs and the calculation of the foreign market potential ............223 Bibliography................................................................................................................ 231 5 List of Tables Table 1.1. Migratory flows in Spain. .............................................................................. 28 Table 3.1. Distribution of the volume of traded goods by coastal shipping and rail ...... 95 Table 3.2. Mean freight rates charged