NATIONAL BUREAU OF ECONOMIC RESEARCH
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Railroads, Reallocation, and the Rise of American Manufacturing

Richard Hornbeck, Martin Rotemberg

NBER Working Paper No. 26594
Issued in December 2019
NBER Program(s):Development of the American Economy, Development Economics, Environment and Energy Economics, Economic Fluctuations and Growth, Industrial Organization, International Trade and Investment, Labor Studies, Public Economics, Productivity, Innovation, and Entrepreneurship

We examine impacts of market integration on the development of American manufacturing, as railroads expanded through the latter half of the 19th century. Using new county-by-industry data from the Census of Manufactures, we estimate substantial impacts on manufacturing productivity from relative increases in county market access as railroads expanded. In particular, the railroads increased economic activity in marginally productive counties. Allowing for the presence of factor misallocation generates much larger aggregate economic gains from the railroads than previous estimates. Our estimates highlight how broadly-used infrastructure or technologies can have much larger economic impacts when there are inefficiencies in the economy.

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Document Object Identifier (DOI): 10.3386/w26594

 
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