Railroads and American Economic Growth: A "Market Access" Approach
This paper examines the historical impact of railroads on the American economy. Expansion of the railroad network may have affected all counties directly or indirectly - an econometric challenge that arises in many empirical settings. However, the total impact on each county is captured by changes in that county's "market access," a reduced-form expression derived from general equilibrium trade theory. We measure counties' market access by constructing a network database of railroads and waterways and calculating lowest-cost county-to-county freight routes. As the railroad network expanded from 1870 to 1890, changes in market access were capitalized into county agricultural land values with an estimated elasticity of 1.1. County-level declines in market access associated with removing all railroads in 1890 are estimated to decrease the total value of US agricultural land by 64%. Feasible extensions to internal waterways or improvements in country roads would have mitigated 13% or 20% of the losses from removing railroads.
For helpful comments and suggestions, we thank many colleagues and seminar participants at Chicago, Colorado, EHA, George Washington, Harvard, NBER, Santa Clara, Stanford, Stanford GSB, UC-Berkeley, UC-Davis, UC-Irvine, UC-Merced, and UC-San Diego. We are grateful to Jeremy Atack and coauthors for sharing their data. Georgios Angelis, Irene Chen, Andrew Das Sarma, Manning Ding, Jan Kozak, Meredith McPhail, Rui Wang, Sophie Wang, and Kevin Wu provided excellent research assistance. This material is based upon work supported by the National Science Foundation under Grant No. 1156239. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Dave Donaldson & Richard Hornbeck, 2016. "Railroads and American Economic Growth: A “Market Access” Approach," The Quarterly Journal of Economics, vol 131(2), pages 799-858. citation courtesy of