The Austro-Hungarian economy changed dramatically during the existence of the Dual Monarchy. The capitalist way of production spread throughout the Empire during its 50-year existence replacing medieval institutions. Technological change accelerated industrialization and urbanization. The GNP per capita grew roughly 1.76% per year from 1870–1913. That level of growth compared very favorably to that of other European nations such as Britain (1%), France (1.06%), and Germany (1.51%). However, in a comparison with Germany and Britain: the Austro-Hungarian economy as a whole still lagged considerably, as sustained modernization had begun much later. In 1873, the old capital Buda and Óbuda (Ancient Buda) were officially merged with the third city, Pest, thus creating the new metropolis of Budapest. The dynamic Pest grew into Hungary's administrative, political, economic, trade and cultural hub.
Many of the state institutions and the modern administrative system of Hungary were established during this period. Economic growth centered on Vienna and Budapest, the Austrian lands (areas of modern Austria), the Alpine region and the Bohemian lands. In the later years of the 19th century, rapid economic growth spread to the central Hungarian plain and to the Carpathian lands. As a result, wide disparities of development existed within the Empire. In general, the western areas became more developed than the eastern.
However, by the end of the 19th century, economic differences gradually began to even out as economic growth in the eastern parts of the Empire consistently surpassed that in the western. The Empire built up the fourth-largest machine building industry of the world, after the United States, Germany, and the United Kingdom of Great Britain and Ireland. Austria-Hungary was also the world's third largest manufacturer and exporter of electric home appliances, electric industrial appliances and facilities for power plants, after the United States and the German Empire. The strong agriculture and food industry of the Kingdom of Hungary with the center of Budapest became predominant within the Empire and made up a large proportion of the export to the rest of Europe. Meanwhile, western areas, concentrated mainly around Prague and Vienna, excelled in various manufacturing industries. However, since the turn of the twentieth century, the Austrian half of the Empire could preserve its dominance within the empire in the sectors of the first industrial revolution, but Hungary had a better position in the industries of the second industrial revolution, in these modern sectors of the second industrial revolution the Austrian competition could not become dominant. This division of labour between the east and west, besides the existing economic and monetary union, led to an even more rapid economic growth throughout Austria-Hungary by the early 20th century. The most important trading partner was Germany (1910: 48% of all exports, 39% of all imports), followed by Great Britain (1910: almost 10% of all exports, 8% of all imports). Trade with the geographically neighboring Russia, however, had a relatively low weight (1910: 3% of all exports /mainly machinery for Russia, 7% of all imports /mainly raw materials from Russia). In the Galician north, the Kingdom of Galicia and Lodomeria, an ethnic Pole-administered autonomous unit under the Austrian crown, became the major oil producing region of Europe.
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