Economic integration and industrial location: the case of Spain before World War I

During the second half of the 19th century, Spain's industrialgeography underwent radical change. In Jordi Nadal's words,‘Catalonia became Spain's factory’. This gradualgeographical concentration of industrial activity coincidedwith another process: the integration of the Spanish economy.The purpose of this paper is to analyse the determinants ofthe localization of industrial activity in Spain during thesecond half of the 19th century and the effects of economicintegration on Spain's industrial geography. To this end, wefirst review the historical analysis of these changes and presentevidence on the process of market integration and industrialconcentration by constructing a range of measures of industrialspecialization and geographical concentration. Second, we performan econometric analysis of the determinants of industrial locationat two points in time, 1856 and 1893, using spatial econometricstechniques. Our results are consistent with the hypotheses oftrade theories. During the second half of the 19th century,Spain became an integrated economy and industrial activity wasconcentrated in a limited number of territories characterizedby a comparative advantage in human capital endowments, a favourablegeo-economic position, and initial specialization in sectorsshowing scale economies.