Road expansion and market integration in the Austrian low countries during the second half of the 18th century

Abstract

We analyse the integration of wheat markets across 18 towns in the Austrian Low Countries during the second half of the 18th century and their relationship to the rapidly expanding paved-road network during this period. Through the use of a switching regression approach (threshold cointegration), we study the long-term and short-term integration of these markets using monthly wheat prices. We find that throughout this period, markets were spatially interconnected. However, price margins responded slowly to local shocks. We also find that transaction costs were relatively high. The results suggest a complex market with regular trade flow reversals and periods of unprofitable trade between key markets. It is widely accepted in Belgian historiography that the construction of a paved road network caused a substantial reduction in transaction costs. Our research, however, indicates that distance, fixed costs or links by rivers and canals influenced transaction costs more than the expansion of a paved road network.