Market Integration and Urban Europe, 1100 - 1800 A.D.


What are the drivers of European development in the pre-industrial era (1100-1800) is a long-standing question in the social sciences. In this paper, we argue that falling trade frictions can provide a unified explanation for several stylized facts of European pre-industrial development: a shift of population to Northern Europe, increasing inequality in the city-size distribution, and falling importance of a fertile hinterland for urban success. To conceptualize this process, we develop a novel quantitative spatial economic model with two sectors of production and endogenous hinterlands. We then use the model to structurally estimate the trade friction parameters in each period. Our results show that trade frictions were overall falling over time, and most importantly, that the differential timing of the reduction between sectors is crucial to explain the stylized facts. A counterfactual exercise illustrates that the peculiar geography of Europe was a crucial condition for the so-called Little Divergence, the shift of the center of economic gravity to the North.