Spatial inequality in prices and wages within a late-developing economy: Serbia, 1863–1910

Abstract

Serbia emerged as a small independent nation-state in the economic periphery of nineteenth-century Europe. This article leverages uniquely abundant town-level data to examine spatial inequality in prices and wages within this late-developing economy. I first build a new dataset on prices of traded and household goods, and wages of skilled and unskilled workers for a panel of 42 urban settlements in Serbia in the period from 1863 to 1910. I apply the welfare ratio approach to calculate real wages of day labourers and masons. Second, I find strong spatial convergence in grain prices and costs of living, but divergence in wages, both nominal and real. Lastly, I investigate the determinants of price convergence and wage divergence with panel-data models. The results suggest that falling transport costs decreased price gaps between locations, whereas rising population differences increased inter-urban wage gaps.