Connectivity and Comprehension: Infrastructure, Language, and the Making of a Common Market

Talk by Paul Schaudt (University of St. Gallen) as part of the Research Seminar Series of the IOS Economics Department.

In this paper*, we estimate how physical and non-physical intra-regional trade barriers have evolved within Switzerland over time. Our analysis documents long-term trends in mode-specific transportation costs and quantifies the evolution of linguistic frictions, revealing that improvements in both areas have substantially enhanced market access and predict the current population distribution of Switzerland. Using a counterfactual framework, we estimate that if language barriers had persisted at their 1888 levels, Switzerland’s market connectivity would have been significantly diminished, even if infrastructure improvements had occurred. Turning to mechanisms, we document that the expansion of the infrastructure network has driven geographic market access during the 1890 to 1920 period, after which technological progress has decreased trade costs on roads. Moreover, we document that linguistic frictions fall while primary and secondary education access is broadened and other domestic languages become mandatory subjects in school. In summary, our findings highlight the critical interplay between infrastructure development and education policy to reduce both physcial and nonphyscial trade barriers within countries, ultimatly fostering economic development.          

*Please note that the authors have indicated this is only a draft of the final abstract and may be subject to future changes.