Between Malthus and the industrial take-off: regional inequality in Sweden, 1571-1850

The causes and extent of regional inequality in the process of economic growth are at the core of historical economic research. So far, much attention has been devoted to studying the role of industrialization in driving regional divergence. But empirical studies on relatively unequal countries such as Italy or Spain show that inequality was already high when their modern industrialization began (Felice, 2011; Rosés et al., 2010). This paper studies the extent and drivers of pre-industrial inequality for the first time with reference to a pre-industrial European economy. Using new estimates of regional GDP for the regions of Sweden for the period 1571-1850 (Enflo and Missiaia, 2017), we find that regional inequality increased dramatically between 1571 and 1750 and stayed high until the mid-19th century. This result discards the view that industrial take-off was the main driver of regional divergence. Decomposing the Theil index for GDP per worker, we find that the bulk of inequality from 1750 onwards was driven by structural differences across sectors rather than different regional productivity within sectors. We then show that counties with higher agricultural productivity followed a classic Malthusian pattern in its population dynamics when experiencing technological advancement, while ones with higher industrial productivity did not. The difference in the two sectors is what boosted pre-industrial regional inequality. We suggest that institutional factors such as the creation of the Swedish Empire, the monopoly trading rights for Stockholm and the protective industrial policy explain this exceptional pattern.