Does Transport Infrastructure Reduce or Reinforce Regional Inequality? Evidence from the Expansion of the Railroad Network in 19th-century Imperial Austria-Hungary

This paper examines the effects of reducing transport costs on the growth of 1,125 municipalities in Austria-Hungary between 1846 to 1910. It uses a market access approach to analyse both global and local relocation effects and addresses the issue of non-random placement of transportation infrastructure using an inconsequential units IV approach. Panel estimation results reveal that the impact of market access on population growth was not uniform over time and space. Market access spurred population growth during the second wave of railroads (1881-1910) but not in the first wave of railroads (1846-1880) when the major railroad trunk lines were established. Moreover, the impact of market access was different in the eastern and western region of the empire. While market access promoted economic activity in the eastern periphery, it led to a concentration of economic activity in the western core region. Exploring the underlying mechanism shows that the reorganization of the manufacturing sector towards a factory system was the main factor determining spatial concentration processes.