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Regional prices in early twentieth-century Spain: a country-product-dummy approach

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Abstract

This paper explores regional price variation in early twentieth-century Spain. Using consumer price information from the bulletins published by the Instituto de Reformas Sociales between 1910 and 1920, we build a dataset with a total of 40,581 quotes covering 22 items for each of the 49 provinces. We then estimate provincial price levels following a country-product-dummy (CPD) approach. Our findings suggest that spatial price variation existed across Spanish provinces. In line with the Balassa–Samuelson conjecture, consumer prices and productivity levels were somewhat related. Additionally, it is shown that prices rose in all provinces after the outbreak of World War I. Even more, it appears that this demand-shock brought about spatial asymmetries in price growth.

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Fig. 1

Source: Instituto de Reformas Sociales (1916, pp. 9–13)

Fig. 2

Source: Bulletins of the Instituto de Reformas Sociales (1910–1920)

Fig. 3
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Notes

  1. The ICP collects millions of prices from around the world to compile purchasing power parities (PPPs).

  2. The European Union acknowledges the importance of having purchasing power parities (PPPs) (Regulation (EC) No 1445/2007). In addition, Eurostat requires spatial adjustment factors (SAFs) every 6 years to calculate PPPs using prices collected in various locations of each member state.

  3. For recent work in this field see Aten (2017) for the USA, Biggeri et al. (2017) for China, Deaton and Dupriez (2011) for Brazil and India, and Majumder and Ray (2017) for India.

  4. Emery and Levitt (2002) compile price indices for thirteen Canadian cities from 1900 to 1950. Chen and Devereux (2003) study price convergence across cities in the USA since 1918. For Spain, Rosés and Sánchez-Alonso (2004) construct provincial real wages from the mid-nineteenth century to 1930.

  5. Whereas in Catalonia, the cotton industry, with its long tradition, stretching back to the eighteenth century, steadily mechanised, in the Basque Country the iron and steel industries set in motion the industrialisation process (Nadal and Carreras 1990).

  6. See Rosés et al. (2010, pp. 245–246) for an account of the integration of the Spanish market between 1860 and 1930.

  7. According to the calculations made by Herranz (2005), in 1878 there was a reduction in up to 86% in haulage costs thanks to the introduction of the railway.

  8. The ICP was inspired by Gilbret and Kravis (1954), among others.

  9. The ICP has already completed eight rounds since its creation (1970, 1973, 1975, 1980, 1985, 1993, 2005 and 2011). In each round the number of countries participating has increased, rising from 10 in 1970 to 199 in 2011.

  10. In the 2005 ICP there were 155 basic headings (BH) grouped into 126 classes, 61 broad commodity groups (food, clothing, health, transport…) and 26 categories.

  11. When information on BH-PPPs and expenditure is available, the Gini-Éltetö-Köves-Szulc (GEKS) aggregation method is used. Before the 2005 ICP, the Geary-Khamis (GK) aggregation method was used.

  12. Although the first Spanish household budget survey dates back to 1940, there was never any technical official publication of it (Celestino-Rey 2002).

  13. As Deaton and Heston (2010) point out, the PPP estimations rely on there being suitable data and an appropriate multilateral price index that satisfies certain properties, such as reciprocity and transitivity. It is worth noting that: “As has been known, at least since Fisher, price indexes cannot satisfy all the properties that our price-based intuition suggests from them; price indexes are not prices” (Deaton and Heston 2010, p. 9).

  14. Figure 6 in the “Appendix” shows the front page of the IRS bulletins.

  15. Established during the government of Francisco Silvela, the Instituto de Reformas Sociales (IRS) came under the aegis of the Ministerio de Gobernación. Gumersindo de Azcárate, a distinguished member of the reformist Institución Libre de Enseñanza, was its first president.

  16. The Instituto de Reformas Sociales (IRS) actively contributed to the development and enforcement of labour standards such as limiting the length of the working day to 8 h, carrying out work inspections, reviewing foreign labour regulations, mediating between workers and companies, and developing an active policy to promote social housing (Palacio-Morena 1988, 2004; Sánchez-Marín 2014).

  17. There were 49 provinces in Spain at that time. The Canary Islands were a single province, but in 1927 they were split into two, thereby making up the 50 provinces of today.

  18. Instituto de Reformas Sociales (1916, pp. 5–6).

  19. Instituto de Reformas Sociales (1916, p. 6).

  20. From 1915 onwards, the bulletins only provided the price of bread and flour. Having also used the average price and the price of wheaten bread/flour the main results are robust and consistent.

  21. Information for 1915–1920 is not available.

  22. In 1910, except for Oviedo, Ciudad Real, Jaén, Pontevedra and Tarragona, the provincial capitals were the largest centres of population in each province.

  23. From 1910 to 1914, the bulletins also indicate the municipalities where these prices were reported. See Instituto de Reformas Sociales (1916, p. 7) and Fig. 7 in the “Appendix”. From 1915 onwards, the bulletins reported most frequent, minimum and maximum prices without specifying the municipalities, see Fig. 8 in “Appendix”.

  24. The dataset contains 49 provinces × 2 (capital, province) × 22 items × 11 years × 2 (winter, summer) = 47,432.

  25. Unreported prices for Housing (1 room) also include some unusually low values (less than 21 pesetas), which we have excluded. A total of 35 reported values were removed from the sample. This threshold, though arbitrary, is well below the average housing price in our sample, so arguably those observations would be either typos or transcription errors.

  26. For a brief description of the housing market in early twentieth-century Spain, see Carmona et al. (2014). “… Spanish law did not allow ownership of land to be held separately from the ownership of rights over that land, and in consequence, all floors of any building and its land were required to have only one owner. Indeed, this created a pecuniary entry barrier to the housing property for urban workers since, typically, houses in cities had several floors and, hence, their price was quite high. As a result, a large rental market was generated. This legal framework that linked land and housing property was in force until the end of the period under study”. This state of affairs changed with the Royal Order of 26 October 1939 (Carmona et al. 2014, p. 123).

  27. When there is just one missing value, traditional price index ratios cannot be correctly computed (Summers 1973; Aten 1999).

  28. Both the CPD method and the weighted country-product-dummy (WCPD), which is explained later, are used to deal with missing values (Hill and Hill, 2005) on the assumption that these are randomly distributed (Rao 2005).

  29. With 49 provinces and 22 semesters the CPD model potentially allows for (48 × 21) 1008 interactions. However, there are 14 missing values which gives a total of 994 variables.

  30. We relax the homoscedasticity assumption and consider robust standard errors.

  31. Ideally, one would like to have regional baskets to measure potentially different consumption patterns (Lindert 2016). However, obtaining regionally adapted baskets for the early decades of the twentieth century in Spain is indeed a difficult task. Baskets for specific regions such as Navarra and Vizcaya can be found in Lana Berasain (2007) and Pérez-Castroviejo (2006), respectively. Our results, available upon request, are robust to the inclusion of regional variation in consumption baskets.

  32. This author provides a representative basket constructed using the price information for 12 provinces for the period 1909–1931. For this, Ballesteros-Doncel (1997b) surveyed 59 family budgets between 1850 and 1920. Alternative baskets can be found in Rosés and Sánchez-Alonso (2004, p. 406) and Maluquer de Motes (2013, pp. 41, 43). The item ‘clothing’ is usually included in these consumption baskets but unfortunately is absent from our price data.

  33. While the CPD model is estimated using the ordinary least-square (OLS) technique, the WCPD is estimated using the weighted OLS technique. For the margins, we use the postestimation command “margins” in the statistical software Stata (StataCorp 2015).

  34. The predictive margins referring to items \(\left( {{\text{D}}_{\text{i}} } \right)\) and semesters \(\left( {{\text{D}}_{\text{t}} } \right)\) are reported in Table 6 in the “Appendix”.

  35. In the CPD model the estimated coefficient is equal to \({\hat{\gamma }}^{\text{CPD}}\) = −0.0727, indicating that in provincial capitals prices were on average 7% (= [exp(− 0.0727) − 1]100) higher than in other municipalities (Halvorsen and Palmquist 1980; Wooldridge 2016). With the WCPD model the urban–rural penalty was still higher and prices in provincial capitals were 10.9% higher than in other municipalities (\({\hat{\gamma }}^{\text{WCPD}}\) = −0.1157).

  36. To calculate the sub-national PPPs the predictive margins obtained from the estimation of Eq. (6) are used to construct provincial price indices with respect to Barcelona. Then, using provincial population in 1910 sub-national PPPs (Spain = 100) are derived.

  37. The results are stable when all items or only food are considered. Table 7 in the “Appendix” illustrates the sub-national PPPs when only food items are included in the CPD and WCPD models.

  38. Using information processed by the Instituto Nacional de Estadística (INE) in 1949, a cost-of-living index (CLI) for the Spanish provincial capitals was published a year later (Comisaría General para la Ordenación Urbana de Madrid 1950). The information was presented as the real value of 1 peseta in Madrid. Although different in nature, the correlation between these CLI and our provincial price levels range between 0.52 and 0.60.

  39. As Maluquer de Motes (2013) points, the sudden rise in the level of prices stimulated research and discussion in early twentieth-century Spain (Bernis 1923; Instituto de Reformas Sociales 1923).

  40. Ballesteros-Doncel (1997a) aimed at constructing a cost-of-living index (CLI) for Spain from 1907 to 1936. For this, price information was collected for 15 items (Bread, wheat; Chickpeas, Rice; Beans, green; Potatoes; Oil, olive; Wine; Milk; Beef; Cod, salted; Eggs; Sugar; Coffee; Charcoal; Soap) and 12 municipalities (Alicante, Barcelona, Cáceres, Coruña, Granada, Madrid, Navarra, Sevilla, Toledo, Valladolid, Vizcaya, and Zaragoza).

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Acknowledgements

We are grateful to Dolores Añón Higón, Àngela Gallardo, the editor, and two anonymous referees for their advice and suggestions. Funding was provided by Ministerio de Economía y Competitividad (Grant Nos. ECO2015-65049-C12-1-P and ECO2015-71534-REDT).

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  1. Universitat de València, València, Spain

    Alicia Gómez-Tello, Alfonso Díez-Minguela, Julio Martinez-Galarraga & Daniel A. Tirado

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  1. Alicia Gómez-Tello
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  2. Alfonso Díez-Minguela
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Correspondence to Julio Martinez-Galarraga.

Appendix

Appendix

See Figs. 6, 7, 8 and 9 and Tables 5, 6 and 7.

Table 5 Items in the price questionnaires: (a) 1910–1915 (b) 1915–1920
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Table 6 Estimation results for CPD and WCPD models. Full sample
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Table 7 Sub-national PPPs—food (Spain = 100)
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Gómez-Tello, A., Díez-Minguela, A., Martinez-Galarraga, J. et al. Regional prices in early twentieth-century Spain: a country-product-dummy approach. Cliometrica 13, 245–276 (2019). https://doi.org/10.1007/s11698-018-0175-3

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