Social Saving of the Panama Canal

William Hutchinson () and Ricardo Ungo ()
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William Hutchinson: Department of Economics, Vanderbilt University
Ricardo Ungo: Department of Economic, Universidad Latina, Panama

No 423, Vanderbilt University Department of Economics Working Papers from Vanderbilt University Department of Economics

Abstract: At the time when the Panama Canal was handed over to Panama, most people believed that the Canal was of little material worth to the United States.� However, what was the value of this canal to the United States in the 1920s?� We estimate the social savings generated by the Panama Canal for the United States in 1924 in order to assess the contribution it made to the social welfare of the United States.� We estimate the direct social savings that resulted from lower shipping costs for both international and coastwise trade.� Additionally, we estimate the benefits from two sources of indirect social savings.� The first was generated as a result of the expansion of the feasible market area, due to reduced transport costs.� The second source of indirect social savings is what we refer to as the pro-competitive effect of the competition between the water shipping via the Panama Canal and shipping via the transcontinental railroad.� We argue that this competition resulted in lower freight rates for all railroad traffic due to the way in which the Interstate Commerce Commission regulated railroad freight rates.� Estimates of total social saving range from 0.58 percent of GNP to 1.97 percent of GNP in 1924.� Even the lower estimate of social saving is a value that is one quarter larger than the total cost of acquiring the land and constructing the Panama Canal.

Keywords: Canals; social saving; transport costs (search for similar items in EconPapers)
JEL-codes: N72 (search for similar items in EconPapers)
Date: 2004-12
New Economics Papers: this item is included in nep-his
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:van:wpaper:0423

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