Skip to main content

Trade policy and wage gradients: evidence from a protectionist turn

Abstract

In the spirit of Hanson (Econ J 107:113–133, 1997), we analyse, first, the existence of a relationship between the wage level and the market potential of Spanish regions; second, we explore the relative importance of domestic and foreign markets in this relationship; and finally, we examine the existence of a regional nominal wage gradient in Spain during the interwar period (1914–1930) centred on the main industrial cluster, Barcelona, and its transformation following the increase in protectionism in the Spanish economy as well as in the international economy. As suggested by NEG literature, our results support the hypothesis of a relationship between wages and regional market access and show the change in the regional wage structure following the gradual closing of the Spanish economy and of Spain’s trade partners, as a result of the increasing importance of the domestic market. We find evidence of the existence of a regional wage gradient centred on Barcelona which weakened during these years. Therefore, in Spain, during the interwar period, protectionist policies appear to have favoured the loss of centrality of a border region (Barcelona) and the relative rise of other locations.

This is a preview of subscription content, access via your institution.

Fig. 1
Fig. 2
Fig. 3
Fig. 4

Notes

  1. 1.

    A’Hearn and Venables (2011) raise a similar point on analysing the geographical distribution of industrial production in Italy.

  2. 2.

    See Fujita et al. (1999) for a formalization of the different possible agglomeration forces that give rise to industrial centres, and Head and Mayer (2004) and Redding (2011) for a survey of the empirics of economic geography.

  3. 3.

    His well-known study analysed the Mexican case, where the protectionist policies implemented during the years of the ISI strategy favoured the agglomeration of industrial activity around the capital city. Then, the transition to an open economy in the 1980s witnessed a relocation of industrial activities to the north of the country close to US border. See also Krugman and Livas Elizondo (1996).

  4. 4.

    Departing from the theoretically derived Krugman wage equation, it is possible to obtain the ad hoc market potential indicator developed by Harris (see Combes et al. 2008). To do this, three assumptions have to be made: (a) there is no variation in the price indices from one region to another; (b) the share of each good within total consumption does not vary between regions; and (c) the coefficient associated with distance in gravity equations has to be close to one.

  5. 5.

    It also yields very acceptable results in the NEG empirical exercises (Head and Mayer 2004).

  6. 6.

    See Hanson (2001) for a good survey of sources of regional wage differentials.

  7. 7.

    For the labour market integration, Silvestre (2005). A more detailed description of the process of integration in goods and factors can be found in Rosés et al. (2010).

  8. 8.

    Prados de la Escosura (2010) recently offered new series of trade for the Spanish economy. The information on imports and exports has been used here to calculate the openness ratio which appears in Fig. 2. With these data, the evolution at the turn of the century is smoothed and the tendency of an increasing openness is reversed with some lag when compared to the original series provided by Tena (2005).

  9. 9.

    As has been noted by a referee, mention should also be made to the effect on protection of the surcharges Spain imposed on some foreign currencies.

  10. 10.

    An additional update of the Salvador Tariff of 1906 to correct the effect of prices was carried out in 1911. In this case, the update left 543 duties unchanged, increased only 24 and reduced up to 130. Sabaté (1992).

  11. 11.

    The Cambó Tariff was divided into two columns. The first one, aimed at the countries with no trade agreements, was highly protectionist. The second column presented lower values of protection, becoming an incentive for other countries to sign trade agreements that may favour Spanish agricultural exports. The application of the so-called Ley de Actualizaciones of 1922 included more flexibility for the second column of the tariff for those countries with bilateral trade agreements.

  12. 12.

    A detailed description of the methodology, data and sources used can be consulted in Tirado and Martinez-Galarraga (2008).

  13. 13.

    Data from Tirado and Martinez-Galarraga (2008). In this case, unlike the regional case of Catalonia (Carreras 1990), we lack an annual series of industrial production indices at a provincial level to measure the share and evolution of Barcelona compared to Spain.

  14. 14.

    The aggregate Gini index of geographical concentration of industries increased from a value of 0.68 in 1913 to 0.78 in 1929. This tendency was also verified at a higher level of disaggregation: six out of seven sectors increased their levels of concentration during those years. See Table 2.

  15. 15.

    We show non-skilled wages due to the greater geographical coverage of the source for these wages. However, it is important to note that the analysis in Sect. 4 will mainly be conducted on the basis of skilled wages. This choice is motivated by the fact that the information regarding skilled wages allows up to 8 sectors of industrial activity to be considered and, therefore, the necessary degrees of freedom to perform the empirical exercise to be increased.

  16. 16.

    In this source, when an average manufacturing wage per province is needed, the coverage for non-skilled manufacturing wages is higher than for skilled manufacturing wages.

  17. 17.

    The insular territories (the Balearic Islands and the two provinces within the Canary Islands) are excluded from the analysis throughout.

  18. 18.

    Hence, differences in sectoral wages are linked to the differences in the average wage of skilled manufacturing workers. The direct data available represent around 35% of the sample of wages for skilled workers.

  19. 19.

    See Martinez-Galarraga (2010) for more details.

  20. 20.

    This result is influenced by the general increase in tariffs in the Western economies after the First World War in a period of Globalization backlash (O’Rourke and Williamson 1999). Nevertheless, the effect of an exogenous shock like the First World War is not present in our first date and its impact could be considered as low more than one decade later in 1930 when, in turn, the Great Depression was still at an early stage.

  21. 21.

    Results available from the authors upon request.

References

  1. A’Hearn B, Venables AJ (2011) Internal geography and external trade: regional disparities in Italy, 1861–2011. Quaderni di Storia Economica 12, Bank of Italy

  2. Allen RC (2011) Global economic history: a very short introduction. Oxford University Press, Oxford

    Google Scholar 

  3. Betrán C (1999) Difusión y localización industrial en España durante el primer tercio del siglo XX. Revista de Historia Económica 3:663–696

    Google Scholar 

  4. Black D, Henderson V (1999) A theory of urban growth. J Political Econ 107:252–284

    Article  Google Scholar 

  5. Brakman S, Garretsen H, Schramm M (2004) The spatial distribution of wages: estimating the Helpman-Hanson model for Germany. J Reg Sci 44(3):437–466

    Article  Google Scholar 

  6. Brülhart M, Crozet M, Koenig-Soubeyran P (2004) Enlargement and the EU periphery: the impact of changing market potential. World Econ 27(6):853–875

    Article  Google Scholar 

  7. Carreras A (1990) Industrialización española: estudios de historia cuantitativa. Espasa-Calpe, Madrid

    Google Scholar 

  8. Combes PP, Mayer T, Thisse JF (2008) Economic geography. Princeton University Press, Princeton

    Google Scholar 

  9. Crafts N (2005) Market potential in British regions, 1871–1931. Regional Studies 39(9):1159–1166

    Article  Google Scholar 

  10. Crozet M, Koenig-Soubeyran P (2004) EU enlargement and the internal geography of countries. J Comp Econ 32:265–279

    Article  Google Scholar 

  11. Estevadeordal A, Frantz B, Taylor AM (2003) The rise and fall of world trade, 1870–1939. Quart J Econ 118(2):359–407

    Article  Google Scholar 

  12. Fujita M, Krugman P, Venables AJ (1999) The spatial economy: cities, regions and international trade. The MIT Press, Cambridge

    Google Scholar 

  13. Garcia-Pires A (2006) Estimating Krugman’s economic geography model for the Spanish regions. Span Econ Rev 8(2):83–112

    Article  Google Scholar 

  14. Geary F, Stark T (2002) Examining Ireland's post-famine economic growth performance. Econ J 112:919–935

    Google Scholar 

  15. Hanson GH (1997) Increasing returns, trade and the regional structure of wages. Econ J 107:113–133

    Article  Google Scholar 

  16. Hanson GH (2001) Scale economies and the geographic concentration of industry. J Econ Geogr 1:255–276

    Article  Google Scholar 

  17. Hanson GH (2005) Market potential, increasing returns, and geographic concentration. J Int Econ 67:1–24

    Article  Google Scholar 

  18. Harris CD (1954) The market as a factor in the localization of industry in the United States. Ann Assoc Am Geogr 44(4):315–348

    Google Scholar 

  19. Head K, Mayer T (2004) The empirics of agglomeration and trade. In: Henderson V, Thisse JF (eds) Handbook of regional and urban economics, vol 4. Elsevier, NorthHolland, pp 2609–2669

    Google Scholar 

  20. Keeble D, Owens P, Thompson C (1982) Regional accessibility and economic potential in the European community. Reg Stud 16(6):419–432

    Article  Google Scholar 

  21. Krugman P (1991) Increasing returns and economic geography. J Political Econ 99:483–499

    Article  Google Scholar 

  22. Krugman P, Livas Elizondo R (1996) Trade policy and third world metropolis. J Dev Econ 49:137–150

    Article  Google Scholar 

  23. Lafourcade M, Paluzie E (2011) European integration, foreign direct investment (FDI) and the geography of French trade. Reg Stud 45(4):419–439

    Article  Google Scholar 

  24. League of Nations (1927) Tariff level indices. Publications of the League of Nations, Economic and Financial Section, Geneva

    Google Scholar 

  25. Liepmann H (1938) Tariff levels and the economic unity of Europe. George Allen & Unwin, Edinburgh

    Google Scholar 

  26. Martinez-Galarraga J (2010) Market integration and regional inequality in Spain, 1860–1930, PhD dissertation, Universitat de Barcelona

  27. Ministry of Labour and Welfare (1931) Estadística de Salarios y Jornadas de Trabajo, Madrid

  28. O’Rourke KH, Williamson JG (1999) Globalization and history: the evolution of nineteenth-century Atlantic economy. The MIT Press, Cambridge

    Google Scholar 

  29. Palafox J (1992) Atraso económico y democracia. La Segunda República y la economía española (1892–1936), Crítica, Barcelona

  30. Paluzie E, Pons J, Tirado DA (2004) The geographical concentration of industry across Spanish Regions, 1856–1995. Jahrbuch für Regionalwissenschaft (Review of Regional Research) 24(2):143–160

    Google Scholar 

  31. Paluzie E, Pons J, Tirado DA (2009) A test of the market potential equation in Spain. Appl Econ 41(12):1487–1493

    Article  Google Scholar 

  32. Prados de la Escosura L (2003) El progreso económico de España 1850–2000. Fundación BBVA, Bilbao

    Google Scholar 

  33. Prados de la Escosura L (2010) Spain’s international position, 1850–1913. Revista de Historia Económica/Journal of Iberian and Latin American Economic History 28(1):173–215

    Article  Google Scholar 

  34. Rauch JE (1993) Productivity gains from geographic concentration of human capital: evidence from the cities. J Urban Econ 34:380–400

    Article  Google Scholar 

  35. Redding SJ (2011) The empirics of new economic geography. J Reg Sci 50(1):297–311

    Article  Google Scholar 

  36. Roback J (1982) Wages, rents, and the quality of life. J Political Econ 90:1257–1278

    Article  Google Scholar 

  37. Rosés JR, Martínez-Galarraga J, Tirado DA (2010) The upswing of regional income inequality in Spain (1860–1930). Explor Econ Hist 47(2):244–257

    Article  Google Scholar 

  38. Sabaté M (1992) La reforma arancelaria de 1906: la protección legitimada, Ph.D dissertation, Universidad de Zaragoza

  39. Serrano Sanz JM (1986) La política arancelaria española al término de la Primera Guerra Mundial: proteccionismo, arancel Cambó y tratados comerciales. In: García Delgado JL (comp) La crisis de la Restauración. España entre la Primera Guerra Mundial y la Segunda República. Siglo XXI, Madrid, pp 199–223

  40. Serrano Sanz JM (1987) El viraje proteccionista en la Restauración. La política comercial española, 1875–1895, Siglo XXI, Madrid

  41. Serrano Sanz JM (1997) Sector exterior y desarrollo en la economía española contemporánea. Papeles de Economía Española 73:308–335

    Google Scholar 

  42. Silvestre J (2005) Internal migrations in Spain, 1877–1930. Eur Rev Econ Hist 9:233–265

    Article  Google Scholar 

  43. Tena A (1999) Un nuevo perfil del proteccionismo español durante la Restauración, 1875–1930. Revista de Historia Económica 3:579–622

    Google Scholar 

  44. Tena A (2005) Sector exterior. In: Carreras A, Tafunell X (eds) Estadísticas históricas de España siglos XIX–XX, vol II. Fundación BBVA, Bilbao, pp 573–644

  45. Tirado DA (1996) Protección arancelaria y evolución de la economía española durante la Restauración: un ensayo interpretativo. Revista de Historia Industrial 14(1):11–49

    Google Scholar 

  46. Tirado DA, Martinez-Galarraga J (2008) Una nova estimació retrospectiva del VAB regional industrial. Espanya (1860–1930), Working Paper E08/192, Facultat d’Economia i Empresa, Universitat de Barcelona

  47. Tirado DA, Paluzie E, Pons J (2002) Economic integration and industrial location: the case of Spain before World War I. J Econ Geogr 2:343–363

    Article  Google Scholar 

  48. Wais F (1987) Historia de los ferrocarriles españoles. Fundación de los Ferrocarriles Españoles, Madrid

Download references

Author information

Affiliations

Authors

Corresponding author

Correspondence to Elisenda Paluzie.

Rights and permissions

Reprints and Permissions

About this article

Cite this article

Tirado, D.A., Pons, J., Paluzie, E. et al. Trade policy and wage gradients: evidence from a protectionist turn. Cliometrica 7, 295–318 (2013). https://doi.org/10.1007/s11698-012-0090-y

Download citation

Keywords

  • Trade policy
  • Protectionism
  • Industrial agglomerations
  • Wage gradients

JEL Classification

  • N64
  • N94
  • F14
  • F15
  • F16