Endowments, Market Potential, and Industrial Location: Evidence from Interwar Poland (1918-1939)

The paper explores the determinants of industry location across interwar Poland. After the political reunification of Poland at the end of 1918 its industry faced massive structural changes: the removal of internal tariff barriers and improved infrastructure strengthened the domestic market, while foreign market relations were cut off. Similarly, the geographical dispersion of factor endowments was changed through internal migration and new institutional arrangements (education system, patent laws, etc.). How did these forces interact to determine the location of industry? Did a new “interregional division of labour” emerge after unification? We survey the dynamics of industrial location between 1925 and 1937 and estimate a model that nests market potential and comparative advantage to quantify their respective impact over time. The results point to a role for both, comparative advantage and market potential, but there was a dominating and ever increasing impact of the availability of skilled labour. JEL: F10, F11, F12, F14, F15, N74, O51, R1, R3 I am grateful to Albrecht Ritschl, Kevin O’Rourke, and Michael Burda for helpful comments. Many thanks to all participants at the International Economic History Seminars at Trinity College (Dublin) and at the Macroeconomic Brown Bag Seminar at Humboldt (Berlin). All errors are my own.