Railroads and the Rise of the Factory: Evidence for the United States, 1850-70
NBER Working Paper No. 14410
Over the course of the nineteenth century manufacturing in the United States shifted from artisan shop to factory production. At the same time United States experienced a "transportation revolution", a key component of which was the building of extensive railroad network. Using a newly created data set of manufacturing establishments linked to county level data on rail access from 1850-70, we ask whether the coming of the railroad increased establishment size in manufacturing. Difference-in-difference and instrument variable estimates suggest that the railroad had a positive effect on factory status. In other words, Adam Smith was right -- the division of labor in nineteenth century American manufacturing was limited by the extent of the market.