Does transport infrastructure reduce or reinforce regional inequality? Evidence from the expansion of the railroad network in 19th Century Austria-Hungary

by Alexander Reinold (Vienna University of Economics and Business). This blog is based on the author’s presentation to the Economic History Society’s annual conference 2021 (session NRIC)

The construction of railroads in nineteenth-century Europe was closely associated with a period of rapid economic growth.  Indeed, there is growing evidence that railroads contributed substantially to this growth.  But railroads might also increase regional inequality.  Recent empirical studies suggest that municipalities with a railroad connection grew at the expense of nearby municipalities without a connection (Figure 1).

My research explores the distributional consequences of railroad expansion on a broader scale. Theoretically, a substantial part of the reorganization of economic activity might occur between locations along the railroad network. For example, sufficiently low transport costs enables firms to serve a larger market from fewer places, encouraging firms to relocate and cluster in more central places to exploit agglomeration advantages and economies of scale.

I study this reorganization of economic activity in the Habsburg empire. The expansion of the imperial railroad network was one of the largest transport infrastructure projects in Central Eastern Europe.  Within a short period of time, major centres of production became connected with distant peripheral places so that very heterogeneous regions at different stages of their economic transition suddenly formed a common market.

My research examines the economic consequences of drastically decreasing transport costs between 1846 and 1910.  For my analysis, I rely on a newly created,  hand-matched dataset on population growth at the municipality level and data from official occupational censuses (Figure 2). I combine this information with a geo-referenced model of the transport network of the empire to calculate transport costs between all  municipalities, and I assess not only railroads but also the possibility of transportation by ship and horse cart.

I use this information to construct a market access index that weights the transport costs of each cargo route with the destination population to account for the fact that transport costs mattered more to larger municipalities than smaller municipalities (Figure 3).

My study demonstrates that advances in transport infrastructure on local economic activity was not uniform over time and location. An increase in market access reduced the population growth rate for most municipalities during the early stages of railroad construction (1846-80), but had a positive effect on population growth as the railroad network became denser (1890-1910). Also, depending on their location within the network, municipalities responded differently to the expansion of the railroads. Municipalities located at the centre of the network benefited more from an enlargement of the transport network than municipalities at the periphery.
I explore also why railroads reduced population growth in most of the municipalities. I find that an increase in market access lowered employment growth in the manufacturing and service sectors but did not affect employment in the agricultural sector. In most of the peripheral regions, better market access was related to a decline in artisan shops. This loss in employment was not compensated for by new jobs in the modern industrial sector.

The expansion of the railroad network in the Habsburg emoire fostered growth in central locations but failed to induce broad-scale industrialization in the hinterland. Consequently, the railroads reinforced pre-existing regional inequalities and might have contributed to the upswing of nationalism in the 1880s which contributed to the demise of the empire.

To contact the author: alexander.reinold@gmx.at