Harbingers of dissolution? Grain prices, borders and nationalism in the Habsburg economy before the First World War

This paper explores the pre-First World War Austro-Hungarian economy as a prominent case where growing conflict between various ethnic and national groups within an empire might have contributed to the emergence of internal borders and even its eventual dissolution. To this end we adopt an Engel-and-Rogerstype approach to examine on an annual basis the extent of co-movements in grain prices across a sample of ten regional capital cities in the empire and over the period 1877-1910. There are two key findings. First, the political borders that emerged from 1918 onwards became visible in the price dynamics of grain markets already 20 years before the Great War. Second, this effect of a border before a border can be explained by the extent of language heterogeneity across the various parts of the Habsburg Empire. These results raise several important questions about both the forces that shaped pre-war market integration as well as the economic costs of breaking up the Habsburg customs union after 1918. --Border Effects,Grain Prices,Habsburg Empire,Market Integration,Nationalism,Pre-1914 Europe

Economic Nationalism and Economic Integration: The Austro-Hungarian Empire in the Late Nineteenth Century

This paper seeks to reconcile two seemingly contradictory strands in the literature on economic development in the late nineteenth century Habsburg Empire - one emphasizing the centrifugal impact of rising intra-empire of nationalism, the other stressing significant improvements in market integration across the empire. We argue that the process of market integration was systematically asymmetric, shaped by intensifying intra-empire nationality conflicts. While grain markets in Austria-Hungary became overall more integrated over time, they also became systematically biased: regions with a similar ethno-linguistic composition of their population came to display significantly smaller price gaps between each other than regions with different compositions. The emergence and persistence of this differential integration cannot be explained by changes in infrastructure and transport costs, simple geographical features or asymmetric integration with neighbouring regions abroad. Instead, differential integration along ethno-linguistic lines was driven by the formation of ethno-linguistic networks. Finally, the analysis shows that the emerging pre-war regional integration patterns – shaped by nationalist sentiment – effectively anticipated the post-war settlement: the fault lines along which the Habsburg Empire was to break up eventually are evident in the price data about a quarter of a century or so before the outbreak of the First World War.Habsburg Empire, market integration, nationalism, networks, pre-1914 Europe

Harbingers of dissolution? Grain prices, borders and nationalism in the Habsburg economy before the First World War

This paper explores the pre-First World War Austro-Hungarian economy as a prominent case where growing conflict between various ethnic and national groups within an empire might have contributed to the emergence of internal borders and even its eventual dissolution. To this end we adopt an Engel-and-Rogers-type approach to examine on an annual basis the extent of co-movements in grain prices across a sample of ten regional capital cities in the empire and over the period 1877-1910. There are two key findings. First, the political borders that emerged from 1918 onwards became visible in the price dynamics of grain markets already 20 years before the Great War. Second, this effect of a 'border before a border' can be explained by the extent of language heterogeneity across the various parts of the Habsburg Empire. These results raise several important questions about both the forces that shaped pre-war market integration as well as the economic costs of breaking up the Habsburg customs union after 1918

Economic nationalism and economic integration : the Austro-Hungarian Empire in the late nineteenth century

This paper seeks to reconcile two seemingly contradictory strands in the literature on economic development in the late nineteenth century Habsburg Empire - one emphasizing the centrifugal impact of rising intra-empire of nationalism, the other stressing significant improvements in market integration across the empire. We argue that the process of market integration was systematically asymmetric, shaped by intensifying intra-empire nationality conflicts. While grain markets in Austria-Hungary became overall more integrated over time, they also became systematically biased: regions with a similar ethno-linguistic composition of their population came to display significantly smaller price gaps between each other than regions with different compositions. The emergence and persistence of this differential integration cannot be explained by changes in infrastructure and transport costs, simple geographical features or asymmetric integration with neighbouring regions abroad. Instead, differential integration along ethno-linguistic lines was driven by the formation of ethno-linguistic networks. Finally, the analysis shows that the emerging pre-war regional integration patterns shaped by nationalist sentiment effectively anticipated the post-war settlement: the fault lines along which the Habsburg Empire was to break up eventually are evident in the price data about a quarter of a century or so before the outbreak of the First World War

Endogenous Borders? The Effects of New Borders on Trade in Central Europe 1885-1933

A large literature on “border effects” in the wake of McCallum (1995) documents the massive impact of borders on trade. However, all these studies suffer from an identification problem. “Border effects” are usually identified from cross-sectional variation alone. We do not know how trade would change in response to a change in borders – the “treatment effect” of borders on trade – simply because trade flows across “future” borders are typically not documented. Nor can we rule out that there is “reverse causation”: that borders run along pre-existing trade patterns rather than shape trade flows. We exploit a natural experiment from history to explore this issue: the many dramatic border changes that were imposed and codified by the peace treaties in 1919 across Europe. We follow Ritschl and Wolf (2008) and implement Ashenfelter’s difference-in-difference estimator in levels on a large, new data set on sub-national trade flows. This allows us to trace the effects of changing borders over time and produces two key results: first, new borders have a large effect on trade. However second, the “treatment effects” of borders tend to be significantly smaller than the pure cross-sectional effects. This is so, because most of the 1919 border changes followed a pattern of trade relations across the region that was clearly visible already before 1914. Borders shape trade, and trade shapes borders.border effects, treatment effects, European history

On the origins of border effects: insights from the Habsburg Customs Union

This paper examines the emergence and dynamics of border effects over time. We exploit the unique historical setting of the multi-national Habsburg Empire prior to the Great War to explore the hypothesis that border effects emerged as a result of persistent trade effects of ethno-linguistic networks within an overall integrating economy. While markets tended to integrate, the process was strongly asymmetric and shaped by a simultaneous rise in national consciousness and organisation among Austria-Hungary’s different ‘nationalities’. We find that the political borders which separated the empire’s successor states after the First World War became visible in the price dynamics of grain markets already 25-30 years before the First World War. This effect of a ‘border before a border’ cannot be explained by factors such as physical geography, changes in infrastructure or patterns of asymmetric integration with neighbouring regions outside of the Habsburg customs and monetary union. However, controlling for the changing ethno-linguistic composition of the population across the regional capital cities of the empire does explain most of the estimated border effects

Economic development of Austria-Hungary's machine-building industry, 1870-1913.

This thesis examines the economic development of industrial engineering in Austria-Hungary between 1870 and 1913. The pattern of sectoral change in Austria's machine-building industry is investigated in Chapter Two. New output estimates indicate that mechanical engineering took a course quite different from that suggested in recent historiography. Austria's capital goods sector was subject to prolonged stagnation during the "Great Depression" of the 1870s and 1880s. But during the subsequent two decades mechanical engineering made a large and rising contribution to overall industrial growth. Chapter Three is concerned with the rise of industrial machine-building in Hungary. Based on new output estimates, the chapter traces the phases and origins of a process which accounted for a markedly faster expansion of mechanical engineering than in the Western half of the Habsburg Empire. Chapter Four provides an analysis of the financial and investment behaviour of major machine-building firms. The growth of companies, the pattern of their investment, the volume and forms of finance varied significantly between firms and over time. The main factors accounting for differential rates of company growth were the diverging development of demand in the various machine-building branches, the impact of the business cycles in Austria and Hungary, and individual firms' preparedness to pursue external expansion. The structure, volume, and direction of the Habsburg Monarchy's trade in machinery are examined in Chapter Five. The study of import tariffs and input price diffentials yields results which suggest that, after the turn of the century, the competitive position of Austro-Hungarian engineering was impeded by an inept tariff policy. The thesis argues that the course of industrial engineering lends strong support to the notion of a "Great Depression" in Austria. Once the depression had been overcome, however, the machine-building industry became one of the two main sectoral sources of growth in industry - despite the effects of an unfavourable tariff policy. Machinery output in Hungary grew at a faster rate than in Austria. Yet its impact on total manufacturing growth was somewhat smaller than in Austria since Hungarian industry as a whole also expanded more rapidly

European goods market integration in the very long run: from the Black Death to the First World War

The paper examines price convergence and increases in the efficiency of wheat markets across Europe from the mid-fourteenth to the early twentieth century. The analysis is based on a new data set of prices from more than 500 markets. Unlike previous research, we find that convergence was a predominantly pre-modern phenomenon. It started in the late fifteenth and reached a first high point in the early seventeenth century - a level of integration that was surpassed only in the nineteenth century. In terms of market integration, the ‘little divergence’ between parts of North-Western Europe and the rest of the continent appears since about 1600. Long-term improvements in market efficiency began in the early sixteenth century, with advances being temporarily as uneven as in price convergence. We trace this to uneven institutional change and the non-synchronous spread of modern media and systems of information transmission that affected the ability of merchants to react to news

European goods market integration in the very long run: from the Black Death to the First World War

The paper examines price convergence and increases in the efficiency of wheat markets across Europe from the mid-fourteenth to the early twentieth century. The analysis is based on a new data set of prices from more than 500 markets. Unlike previous research, we find that convergence was a predominantly pre-modern phenomenon. It started in the late fifteenth and reached a first high point in the early seventeenth century - a level of integration that was surpassed only in the nineteenth century. In terms of market integration, the ‘little divergence’ between parts of North-Western Europe and the rest of the continent appears since about 1600. Long-term improvements in market efficiency began in the early sixteenth century, with advances being temporarily as uneven as in price convergence. We trace this to uneven institutional change and the non-synchronous spread of modern media and systems of information transmission that affected the ability of merchants to react to news

Benefits of empire? Capital market integration north and south of the Alps, 1350-1800

This paper addresses two questions. First, when and to what extent did capital markets integrate north and south of the Alps? Second, how mobile was capital? Analysing a unique new dataset on pre-modern urban annuities, we find that northern markets were consistently better integrated than Italian markets. Long-term integration was driven by initially peripheral places in the Netherlands and Upper Germany integrating with the rest of the Holy Roman Empire where the distance and volume of inter-urban investments grew primarily in the sixteenth century. The institutions of the Empire contributed to stronger market integration north of the Alps