Origins of catch-up failure: comparative productivity growth in the Hapsburg Empire, 1870-1910

This paper examines patterns of structural change and labour productivity growth in the late nineteenth-century Habsburg Empire. Using shift-share analysis and a set of basic measures to account for the contribution of physical and human capital growth, it seeks to address three questions: First, what was the role of labour productivity growth in per capita income growth? Second, to what extent can structural change account for the comparatively slow growth of the Habsburg economy in general, and Austria’s in particular? Third, how important were physical and human capital stock growth in aggregate labour productivity growth in Austria-Hungary as compared to Germany? The paper argues that, in contrast to the Hungarian experience, the size and performance of the agricultural sector imposed a severe burden on Austrian aggregate growth. Further, the evidence points to a significantly smaller contribution of TFP growth to aggregate and industrial labour productivity growth in Austria and Hungary than Germany. A proximate cause for the TFP growth differential may be found in far smaller positive externalities derived from lower initial human capital endowments in the Habsburg lands.