The determinants of industrial location in Spain, 1856-1929

During the 19th century, the Spanish economy went through the early stages of the industrialisation process. This process developed in parallel to the growing market integration of goods and factors as a result of the liberal reforms and the construction of the railway network, with the subsequent fall in transport costs. In that period, there were major changes in the pattern of industrial location across Spain, with an increasing spatial concentration of industrial activities between the 1850s and the Spanish Civil War (1936-39) and a deeper regional specialisation. What were the forces behind these changes? On the theoretical side, the Heckscher-Ohlin model suggests that the spatial distribution of economic activity is determined by comparative advantage due to factor endowments. In turn, New Economic Geography models show the existence of a bell-shaped relationship between the process of market integration and the degree of concentration of industrial activity in the territory. This paper examines empirically the determinants of industrial location in Spain between 1856 and 1929 estimating a model that nests both Heckscher-Ohlin and NEG factors and tests the relative strength of these forces, since they are not mutually exclusive and might be at work simultaneously. The analysis of the results shows that both comparative advantage and NEG-type mechanisms were determinant drivers of industrial location in Spain, although their relative strength changed over time.