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

The paper explores the determinants of industry location across interwar Poland. After more than 120 years ofpolitical and economic separation, Poland was reunified at the end of 1918. In consequence, its industry facedmassive structural changes: the removal of internal tariff barriers and improved infrastructure strengthened thedomestic market, while foreign market relations were cut off. Similarly, the geographical dispersion of factorendowments 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 interregionaldivision of labour emerge after unification? We survey the dynamics of industrial location between 1925 and1937 and estimate a specification that nests market potential and comparative advantage to quantify theirrespective 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.