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

  • Dave Donaldson
  • Richard Hornbeck

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.

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File URL: http://www.nber.org/papers/w19213.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19213.

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Date of creation: Jul 2013
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Publication status: published as 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.
Handle: RePEc:nbr:nberwo:19213
Note: DAE DEV EFG ITI
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