Spatial inequality in prices and wages within a late‐developing economy: Serbia, 1863–1910

Serbia emerged as a small independent nation‐state in the economic periphery of nineteenth‐century Europe. This article leverages uniquely abundant town‐level data to examine spatial inequality in prices and wages within this late‐developing economy. I first build a new dataset on prices of traded and household goods, and wages of skilled and unskilled workers for a panel of 42 urban settlements in Serbia in the period from 1863 to 1910. I apply the welfare ratio approach to calculate real wages of day labourers and masons. Second, I find strong spatial convergence in grain prices and costs of living, but divergence in wages, both nominal and real. Lastly, I investigate the determinants of price convergence and wage divergence with panel‐data models. The results suggest that falling transport costs decreased price gaps between locations, whereas rising population differences increased inter‐urban wage gaps.