Scott Sumner  

The rich heart of Europe

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Razib Khan recently linked to a map of Europe, showing average incomes by region. The richest areas were colored dark green, and the poorest are colored dark red/brown:

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Notice that major capital cities such as London, Paris, Madrid, Stockholm, etc., are much richer than the surrounding regions. There's also a rich area centered on Europe's two biggest ports (Antwerp and Rotterdam). Again, no big surprise. Nor is the wealth of coastal Norway, which is rich in oil. But I am sort of surprised by the richest area of all, right in the center of Western Europe.

This area includes Switzerland, western Austria, northern Italy and southern Germany. What's going on there? It doesn't seem to be cultural in any obvious way, as it includes both Nordic and Mediterranean elements. It also includes both Catholic and Protestant cultures. It includes successful countries and dysfunctional countries. So the quality of governance doesn't seem like a complete explanation either. Indeed northern Italy is rich despite bad governance.

I recall that economic geographers used to argue that places like Bolivia and Afghanistan were poor because they were landlocked and mountainous. Well the rich heart of Europe is landlocked and mountainous. Yes, it has rivers, but that doesn't explain why it's richer than those regions that are closer to the coast, or which have lots of flat, fertile farmland. Nor has this region always been rich. Southern Germany only became unusually rich after WWII. I seem to recall reading that when British tourists took a Grand Tour through the Alps 200 years ago, the region was relatively backwards.

There's only one thing that I can see that these regions have in common, they are all close to the Alps. Before seeing this map, if you had asked me which part of Austria I thought was richest, I would have guessed the eastern part, which is less mountainous. I knew that Lombardy was rich, due to companies that cluster around Milan, but didn't know about the three other smaller Italian Alpine provinces.

So I offer this as a mystery to be explained. Why are areas close to the Alps richer than elsewhere? In earlier centuries, did the rugged mountains somehow prevent the development of the sort of feudal systems seen in farming regions, and instead instill rugged independence in their populations?

In the next map, the regions are broken down with finer detail. It seems to me that lots of the richer regions are right up against various mountain ranges. The far west of Italy, right up against the Alps, and also the northern Apennines in Italy. The Pyrenees region of northern Spain.

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COMMENTS (42 to date)
Tracy Wilkinson writes:

The mountains were traditionally the poor areas too.

And, in the more detailed graph, why is the South-West of Ireland so rich? Dublin is on the east coast of Ireland.

bill writes:

Could it be the beer? Just kidding.
Munich is a fantastic place to live though.

Miguel Madeira writes:

If someone asks why the south-west littoral of Portugal is relatively rich (in the detailed map), it is the result of an oil refinery and a very small population.

MikeP writes:

I'm going to go with mountainous communities being less likely to be self-sufficient.

In older times, when there was less trade, less distance to reasonably trade over, and fewer goods to trade for, that meant mountainous areas were poorer than their agricultural counterparts in the valleys.

But those living in mountainous areas learned the usefulness of trade and how to get by without being self-sufficient.

In modern times, trade is global and widespread, and the world has lots of great things to trade for and lots of great markets to trade with. So those mountainous cultures with trade in their heritage now prosper.

MikeP writes:

And, needless to say, with experience in trade comes experience in specialization and experience in exercising comparative advantage.

Cf. The Art of Not Being Governed by James C. Scott, according to which uplands tend to have less government.

Mark writes:

One relevant factor may be that interior mountainous regions get fewer poor immigrants, who might tend to drag down the numbers in coastal urban areas.

Also, areas with less fertile land, more mountainous, likely have a larger incentive to excel at industry. Much like rocky New England vs. the fertile southeast US. Originally the latter was more prosperous, until industry surpassed agriculture in importance and New England superseded it.

Scott Sumner writes:

Everyone, Thanks, interesting ideas.

Kolya writes:

The map at the top has a bright green dot on Bucharest, suggesting that it's richer than most of Scandinavia, all of France except Paris and most of the UK. There's no way that's correct.

Glen Raphael writes:

Is it possible that especially good skiing and pretty mountain views attract rich people to an area, causing that area to gentrify over time? Or can such a region get rich serving tourism from the rest of the area? I'm thinking of places like Davos.

H writes:

My take is that most commenters are overthinking this in trying to make correlations with culture.

Truth is the Alpine region is sparsely populated while receiving a huge inflow of tourism every year. If Wikipedia numbers are anything to go by there are around 120m tourists per year and 14m inhabitants, which would mean roughly 9 spending visitors per inhabitant every year.

Add to that that the Alpine region is not exactly a spot for frugal travelers (mountain skiing is still a luxury reserved to a relatively small elite) + the tourist/inhabitant ratio would be higher in the more popular areas.

Lorenzo from Oz writes:

I like MikeP's notion of have to be willing to trade. Though coastal areas have more ability to trade.

I would add have to be willing to cooperate, so stronger in social capital. (See Robert Putnam's work on why Northern Italy is richer than Southern Italy.)

Shane L writes:

Tracy, the south-west region include Cork and Limerick cities. Checking Ireland's Central Statistics Office for income per person I see that the top four counties are:

Dublin
Limerick
Kildare (a commuter county beside Dublin)
Cork

So that seems to explain it; the wealth clusters around the urban centres.

Actually Eurostat have some fantastic maps showing a whole host of variables:
http://ec.europa.eu/eurostat/statistical-atlas/gis/viewer/

Some commentators have suggested there are few immigrants in these wealthy-looking areas. Eurostat have this map showing the percentage of the population born in a foreign country. If anything it seems that these wealthy-looking areas also have disproportionately high percentages of foreign citizens. Of course many of these citizens could be from other wealthy EU countries:
http://ec.europa.eu/eurostat/documents/7116161/7188977/0201EN.pdf

The employment rate is also highest around the Swiss/South German region:
http://ec.europa.eu/eurostat/documents/7116161/7188977/0501EN.pdf

Good question, Scott. I've worked for decades to build my understanding of such things. I'm still fuzzy, but for starters:

  • For wealth in capital cities, I would say this is where the state has most of its select jobs. The state is a way that some people feed upon the productive work of other people. Like cancer, the state is not good at recognizing when it has eaten so much that it will soon kill its host. But, while the state lives, there will be many rich jobs in and near its capital.
  • For wealth distant from capital cities, I would try to attribute this to greater economic freedom, which exists in remote regions for the time being.
Sometimes prosperity blossoms faster than the state can figure out how to feed itself on the new prosperity, as I tried to clarify in my 2003 paper. Further, I flatter myself that the Resource-Patterns Model of Life provides a helpful framework for examining such questions. I work now on writing that book.

David writes:

You might be over-thinking it. This rich area could be contiguous just by chance.

Southern Germany is richer than northern Germany because it is more conservative and was therefore ruled more by the more business-friendly CDU/CSU rather than the more left-leaning SPD.
Switzerland is rich, because it is very well-governed. (I'm not going to make a guess why that is exactly.)
Western Austria and the smaller North-Italian areas are relatively sparsely populated, but get a lot of profitable wintersport-tourism.
Northern Italy is very different culturally from southern Italy. It's a small miracle that they were able to unify at all. Also very differently governed.

These are all guesses.

I don't think it's necessary to postulate some kind of alpine specialness.
Northern Italy was always quite wealthy compared to its surroundings, but the other areas not until recently.

Tim Worstall writes:

"If someone asks why the south-west littoral of Portugal is relatively rich (in the detailed map), it is the result of an oil refinery and a very small population."

Quite so Miguel: lovely town Sines, if it wasn't for the stink of that refinery.

Re the major point, those Alpine regions. First thing that struck me was that those were the Hapsburg regions. And before that the Burgundian. From which we could devise all sorts of theories none of which I'd be very confident about.

If it hadn't been for the Soviets the Czech Republic would also be that dark green. And was also Hapsburg of course....

Jared writes:

Italy of course has a reputation for being corrupt and badly governed but how much of that is southern Italy bringing it down? If they split off in to two countries, would North Italy have the same stereotype? Or would it be considered similar to Switzerland, Austria and Germany?

Brad writes:

Probably worth noting that you see a similar phenomenon in the US South. Most of the most prosperous and industrialized cities are in the hilly Piedmont east of the Appalachians.

This was always explained in history class as a combination change in river elevation allowing hydropower based industrialization and relatively poor soil providing incentives to move away from agriculture.

Jared writes:

Maybe inequality is stronger between regional areas in a globalized world so London and Paris are much richer than the surrounding regions. Those mountainous areas aren't as globalized so the wealth is more spread out.

Scott Sumner writes:

Kolya, That surprised me too, must be a very powerful "PPP" adjustment.

Glen, That's possible, but it would only explain a fairly small portion of what is a very large region.

The population of that dark green region is well up into the 10s of millions. Perhaps 50 million.

Lorenzo, I suspect that social capital plays a role.

Thanks Shane.

David, Yes, it might be a coincidence.

Tim, What is it about the Hapsburgs that would have led to that outcome?

Brad, Good point.

Jared, But does that last point really explain why those areas are richer than other parts of Germany, Austria and Italy?

Grant Gould writes:

Might it be that mountain communities tend not to be heavily contested in wartime? I don't think anyone bothered to systemically bomb the heck out of the Alps in any of the last couple of centuries' wars, though my military history might be wrong.

ilya writes:

This immediately remind me about this especially see year 962.

Perhaps self-government as a loose confederation of small states, having a common customs union, and electing the king are a better path to economic prosperity than whatever empire-builduing was popular in other parts of Europe.

Also, citing the same Wikipedia page:

- The power of the emperor was limited
- The kingdom had no permanent capital city
- public roads, tariffs, coining, collecting punitive fees, and the investiture

This decentralization, by the way, is what made Protestantism possible at all (Luther was shielded by the Saxon Prince-Elector).

Re: georgaphy, the argument is that it's easier to build empires on flat land, and the mountainous regions were traditionally viewed in Europe as the refuge for those who don't like central authority.

It's also harder to live without large empty spaces to grow cheap food, which mean that living in the mountains requires trade, cooperation, and the ability to plan ahead.

Re: diversity, yes, this seems to be the relevant variable, compare how in this map the eastern part is less diverse:

https://upload.wikimedia.org/wikipedia/commons/a/a0/HRR_1400.png?uselang=de

Diversity, as mentioned above, might follow from geography.

Miguel Madeira writes:

I think that, in the detailed map, the rich Alps largely disappear as a separate entity - what we have is a rich strip, almost contiguous, from northern Italy to Netherlands.

Btw, the fact that Switzerland count as only one geographical unit could be creating some kind of visual illusion there (if Geneva and Appenzell had different colors, perhaps the rich area will not seems so contiguous?)

Pietro Poggi-Corradini writes:

It could be a combination of large and fertile lowlands, with navigable rivers such as the Po and the Rhine, next to trade routes. I grew up in the northern italian Alps and most of my friends there work in Switzerland. They're called 'frontalieri', they go back and forth. Their grand parents used to risk their lives smuggling cigarettes, sugar etc.. across high elevation mountain passes. These mountain regions were very poor until recently. The Brianza, which is a buffer zone between the mountains and the planes was better off, and has a lot of small businesses, while the pianura padana is fertile and agricultural. I don't know that it's the same on the German side. I once visited the pre-Alps outside Munich, and they reminded me a lot of Lombardy, but I cannot say that it's a completely symmetric situation.

mico writes:

In the UK, France, and Spain - historically politically centralised states - wealth is centralised near the capital.

Bavaria, Switzerland, Lombardy–Venetia, and Piedmont were each political centres in their own right, so wealth is more spread out.

If you were to plot the same data with area scaling with population, you would probably find that this concentration is less remarkable. Neither Italy nor Germany have population concentrations comparable to London or Paris.

George writes:

I think many commentators are lost in the trees and not seeing the forest.

Globally the first map matches very nicely with the iron curtain.

The effect of ~50 years of communist rule should leave a large mark and it does.

As others have pointed out the map of wealth corresponds generally well with population density. I would definitely expect concentrations of wealth in cities / urban centers / areas of higher population densities.

For example exempting Norway the Nordic countries wealth is clustered around areas of high population centers. The UK, Spain, France, Germany/Switzerland and Northern Italy all map reasonably well. Even Bucharest the lonely outlier in Romania tracks well. The only country that doesn't quite pass this eye test is Italy, but hey this is shooting from the hip and from my hip it's close enough.

Emil writes:

As someone living in Milan I feel compelled to correct the americans on their geography (I would probably make similar mistakes about lots of places in the US):
- the area we are talking about contains not only alps but a large amount of plains (north and south of the apls)
- lombardy can hardly be described as sparsely populated (on the opposite, it's probably the most densely populated region in Italy) and tourism plays a pretty small part in its economy
- most of the area from Lombardy to Bavaria including Switzerland and Austria is catholic
- the rich parts of Germany and Italy are pretty much as far away from Rome and Berlin (the respective capitals) as you can get in Italy and Germany

bill writes:

A German friend of mine posited that Munich benefited over the last 30+ years from the fact that it wasn't the historical manufacturing area. ie, not part of the rust belt.

Barkley Rosser writes:

That rich part that is identified as being around the ports of Antwerp and Rotterdam is larger than that and included Amsterdam and Brussels. That has long been the richest and most densely populated core of Europe and still is.

Peter G writes:

Switzerland, and the Swiss influence on culture, business, and politics.

Especially easy access to finance.

Nowhere else has such a long history of stable banking.

Mark Anderson writes:

I certainly don't think it is the mountains themselves. Otherwise why is it that mountainous regions in Asia, South America, and North America all tend to correspond with the poorest areas? I think Scott's first comment about mountainous and landlocked areas being the poorest is the general case, and Europe is the exception.

The best rationale I've seen in the comments is that it is the influence of the Swiss. I suspect it is a cultural thing after all. Scott's comments about the culture of Italy, etc. are red herrings because culture can be different in different areas of a country.

Jim writes:

As for Switzerland having been not so prosperous a few centuries ago a likely cause was iodine deficiency. The introduction of iodine supplements probably lead to a substantial increase in Swiss IQ and as a consequence a higher level of economic development.

ChrisA writes:

As people note on Razib's blog, this is not really a new observation. The "blue banana" was discussed a lot a few years ago. I think there is a bit of an illusion that there is continuous development caused by differing sizes of political units, so the alps, which are very sparsely populated but rich looks on this kind of coloured map a similar significance as say to heavily populated but much smaller area Paris. A better way of looking at this is probably night time satellite images, which gives you an idea of the density of development. You can see on satellite images that there are really three clusters, one in Northern Italy, one clustered around the Netherlands/Belgium and Northern Germany, and then one in the UK connecting London with Manchester. Of course you can draw a curved line between any three dots and then make up a narrative about it, but trying to do that scientifically risks a lot of "just so" explanations like we see above. The boring answer is that these are three extra highly developed areas that would naturally occur in a highly developed part of the world. The Pearl River example is another one of these areas, along with the Washington/Boston and San Antonio-Houston-Dallas corridors. In these latter examples we can perhaps more easily see the path dependence on the shape of these corridors.

Robert Thorpe writes:

Like Kolya I'm very sceptical of this map. Bucharest and Prague are in dark green. The stockbroker belt county of Surrey, East & West Sussex are in light green. Kent, North Yorkshire and Normandy are in pale red. There's no way that's right. Someone has made a mistake in the maths.

J.V. Dubois writes:

There are several things to say:

1) The regions are not always well defined. For instance Prague (capital of Czech Republic) with 173% of average regional GDP per Capita in is considered #9 and region of Bratislava (capital of Slovakia) with 186% is #6

These statistics are not precise mostly because they do not count commuters. An egregious example is "Inner London" region that has a population of around 3 million but concentrates a lot of jobs and companies

2) The colors themselves are not nuanced enoguh. To take Austria as an example for instance the Region Oberösterreich has GDP per capita in PPP of EUR 30,800 and is dark green while neighboring region of Steiermark with GDP per Capita of EUR 27,000 is lighter green and finally another region of Kärnten with GDP per Capita of EUR 26,200 is the lightest green.

Meanwhile on the upper side there can be incredible difference between Inner London with EUR 80,000 and the Oberösterreich with EUR 30,800.

3) The conclusion for me is that in reality you should not make much difference between various shades of green. It will contain very rich regions like inner London or Hamburg that kind of artificially attract disproportional share of income from neighbouring regions together with fairly developed urban regions.

So if you look at the as green vs red the best explanation is so called "Blue Banana" belt: https://en.wikipedia.org/wiki/Blue_Banana

It is a corridor of highest level of urbanization and therefore with developed capital. There are interesting historical reasons why this belt developed the way it did that go beyond simple comment.

Robert Thorpe writes:

J.V. Dubois, your point 1 explains why the map looks so odd.

Here's another possible reasons for the high income of those mountainous places.... It could be about how the price level is calculated. Usually, the price level is calculated nationally. I expect, the PPP compensation in this map is based on national variables and only the income portion is per area.

If that's the case it could explain it. In a country with free movement we should expect a slow tendency to levelling of average income across regions. That income though is real income using the local price level.

If it's more expensive to live in a particular locality then people will take that into account. It seem likely to me that living in these mountainous places is likely to be more expensive than average. I know that living in the countryside in the UK is more expensive than living in the cities, there's research on that. So it could be that the citizens of those places actually have more similar real income to those elsewhere in their country.

J.V. Dubois writes:

Robert Thorpe: I think the whole mountain angle is a little bit overblown. Take a look at the terrain map of Europe: http://www.graphatlas.com/europe_map_relief_with_rivers.jpg

The only fully mountain regions are Austrian regions of Tyrol, Voralberg and Salzburg and Italian Trentino-Alto (South Tyrol). By the way the total population of these regions is around 2,5 million.

Other dark green regions that contain majority of population in that particular location Scott mentions such as Bavaria or Lombardy are actually quite flat - at least that is where most of the population lives. This even applies locally let's say in Switzerland where the rich and populous northern cantons such as Zurich are much richer than the mountain southern cantons like Ticino. Again there are exemptions but in general the trend holds.

So I would say that the general patern of how to predict rich region is this: a region with long history of urbanization and industrialization. Exception are some highly developed mountain regions that serve as good vacation home for nearby urban population.

jon writes:
This area includes Switzerland, western Austria, northern Italy and southern Germany.
Have you ever visited any of the places mentioned above? Of course the regions listed are among the richest in Europe, because anybody with the money to do so immediately moves (or buys a vacation home) there. Having a place in the Swiss Alps is the reason a lot of people bother with going to work.
Robert Thorpe writes:

> I think the whole mountain angle is a little bit overblown.

I see what you mean.

Michael writes:

but not being part of a territorial empire definitely helps

Netherlands, Northern Italy, Switzerland and England all have, at different times, ben (conglomerates of) merchant republics, able to withstand encroachments of neighboring territorial powers

In a virtuous circle, wealth -- and in particular credit in times of war -- was both precondition and consequence of this independence

In a way, Switzerland is just doing it again, vs. EU. Britain may have a try

James Alexander writes:

There's no way Western France or large swathes of Spain are so poor. Looks like an attempt to squeeze subsidies out of the EU by French and Spanish farmers.

Joao Coelho writes:

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