Shattered Rails, Ruined Credit: Financial Fragility and Railroad Operations in the Great Depression

Daniel A. Schiffman

The Journal of Economic History, 2003, vol. 63, issue 3, 802-825

Abstract: This article uses a new panel dataset to investigate the relationship between financial fragility and real activity on U.S. railroads during 1929–1940. Leverage had a negative effect on maintenance, within small firms only. Bankruptcy had a positive effect on maintenance and employment, within large firms only. Both leverage and bankruptcy effects were significantly larger during the worst depression years. Had all railroads been bankrupt during 1930–1933, GDP would have increased by 0.2 percent annually, and employment by 0.125 percent annually. Loans by the Reconstruction Finance Corporation had no impact on maintenance or employment.

Date: 2003
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