It’s all in the Mail: The Economic Geography of the German Empire
Florian PLOECKL (email@example.com) University of Adelaide
Information exchange is a necessary prerequisite for economic exchange over space. This relationship implies that information exchange data corresponds to the location of economic activity and therefore also of population. Building on this relationship we use postal data to analyse the spatial structure of the population distribution in the German Empire of 1871. In particular we utilize local volume data of a number of postal information transmission services and a New Economic Geography model to create two index measures, Information Intensity and Amenity. These variables respectively influence the two mechanisms behind the urban population distribution, namely agglomeration forces and location endowments. By testing the influence of actual location characteristics on these indices we identify which location factors mattered for the population distribution and show that a number of characteristics worked through both mechanisms. The model is then used to determine counterfactual population distributions, which demonstrate the relative importance of particular factors, most notably the railroad whose removal shows a 34% lower urban population. A data set of large locations for the years 1877 to 1895 shows that market access increases drove the magnitude of the increase in urban population, while endowment changes shaped their relative pattern.
Review by Anna Missiaia
This paper was distributed by NEP-HIS on 2015-04-11. The work by Florian Ploeckl lays in the expanding branch of historical economic geography, which looks at, broadly speaking, the role of geographical factors in regional development. In particular, the author looks at the effect of actual location characteristics on the information exchange and endowment (calculated through two indices) in the German Empire between 1877 and 1895. The empirical model used in the paper uses the indices that describe market access and endowments effects as dependent variables and test which geographic, institutional and cultural characteristics shaped them.
Otto Von Bismarck (1815-1898), First Chancellor of Germany
The paper relies on detailed data on the postal system to measure the diffusion of information across 41 districts in the Empire. The creation, after the German unification, of a common and homogeneous postal system with the same rates across locations allows the author to use postal flows as proxy for “information intensity”. This measure tells us the level of information exchange for each location considered. The author meticulously identifies business related correspondence for each location by selecting specific types of mail for the analysis and relating it to the general mail. The empirical exercise appears very well engineered and executed.
Kaiserliches Postamt sign, about 1900
The next step is to relate this indirect measure of economic activity to the access to markets for any given location. Following a well-established practice in the discipline, Ploeckl relies on the concept of market potential. Market potential is a measure of the centrality of a given location and can be constructed in two main ways. The first option, when trade volumes among locations are available, is a gravity model. This is the method used nowadays by economic geographers but also economic historians lucky enough to have access to internal trade flows (see Redding and Venables, 2004 for the former and Wolf, 2007 for the latter). This method basically looks at actual levels of trade and derives from these the potential for a location. The second option, used when trade flows are unknown, relies on the methodology proposed by Harris (1954) which uses GDP of the locations weighted by the inverse of distance to calculate the potential levels of trade across the locations given the size of their economies. Examples of this estimation procedure are Crafts (2005), Schulze (2007) and more recently Crafts and Klein (2012). This paper approaches the issue in a very innovative way, escaping the dichotomy that normally characterizes the calculation of market potential. As we understand, neither trade volumes nor regional GDP are available for Germany in this period. Therefore the author relies on the assumptions that “market potential translates in commercial transactions” and that “each transaction causes the same amount of mail” to claim that the measure from step 1 is able to capture the access to markets of the locations. The first assumption is shared with the broader group of scholars that use gravity models for market access and is perfectly reasonable when dealing with trade volumes. The use of quantitative evidence on correspondence to proxy for economic activity is not new in the literature: Crafts (1983) provided GDP estimates based, among the others, on letters per capita. The method proved to be quite misleading applied for instance to the Italian case (Esposto, 1997). Because of the indirect measure used in the paper, the relationship between information flows, market potential and actual exchange is of course much more questionable. However, it must be pointed out that the empirical effort in this paper makes its use of postal data more convincing compared to other more dated attempts.
The paper is also very interesting in that it finds a way to split market access into firm market access and consumer market access. This is a crucial point in the analysis of market forces as the two measures could well be following very different trajectories.
The last step is to calculate an endowment index based on real wages and the trade cost matrix across locations (the details on the methodology are explained in Ploeckl, 2012).
The bottom line results of the paper are that important factors like railroads and coal were important in the location of population (and therefore economic activity) both through the market channel and the endowment channel. The impact of these channels is quantified through counterfactual analysis, leading for instance to a 30% impact of the removal of the railroads on the population level.
Summing up, this paper contributes to a very hot debate on the determinants of the location of economic activity. It does so by finding an innovative empirical method to overcome the chronic lack of data in historical research. The limitations of these indirect methods should not, as usual, be neglected. However, the exercise appears more than reasonable and some features of these papers could find fruitful applications in a variety of other lines of research in historical economic geography.
Crafts, N., 1983, Gross National Product in Europe 1970-1910: Some New Estimates, Explorations in Economic History, Vol. 20, No. 4, 387-401.
Crafts, N., 2005, Market Potential in British regions, 1871-1931, Regional Studies, Vol. 39, pp. 1159-1166.
Esposto, A., 1997, Estimate Regional Per Capita Income: Italy, 1861-1914, Journal of European Economic History, Vol. 26, No. 3, p.585-604.
Ploeckl, F., 2012, Endowments and Market Access; the Size of Towns in Historical Perspective: Saxony 1550-1834, Vol. 42, p. 607-618.
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