Railroads and American Economic Growth: A "Market Access" Approach

Dave Donaldson and Richard Hornbeck

The Quarterly Journal of Economics, 2016, vol. 131, issue 2, 799-858

Abstract: This article examines the historical impact of railroads on the U.S. economy, with a focus on quantifying the aggregate impact on the agricultural sector in 1890. 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. We estimate that county agricultural land values increased substantially with increases in county market access, as the railroad network expanded from 1870 to 1890. Removing all railroads in 1890 is estimated to decrease the total value of U.S. agricultural land by 60%, with limited potential for mitigating these losses through feasible extensions to the canal network or improvements to country roads. JEL Codes: N01, N51, N71, F1, O1, R1.

Date: 2016
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Working Paper: Railroads and American Economic Growth: A "Market Access" Approach (2013)
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