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Social Saving of the Panama Canal

Listed author(s):
  • William K. Hutchinson


    (Department of Economics, Vanderbilt University)

  • Ricardo Ungo


    (Department of Economic, Universidad Latina, Panama)

Registered author(s):

    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.

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    File Function: First version, 2004
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    Paper provided by Vanderbilt University Department of Economics in its series Vanderbilt University Department of Economics Working Papers with number 0423.

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    Date of creation: Dec 2004
    Handle: RePEc:van:wpaper:0423
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    1. Arthur E. Rockwell, 1971. "The Lumber Trade and the Panama Canal, 1921-1940," Economic History Review, Economic History Society, vol. 24(3), pages 445-462, August.
    2. Stuart Daggett, 1915. "The Panama Canal and Transcontinental Railroad Rates," Journal of Political Economy, University of Chicago Press, vol. 23, pages 953-953.
    3. Ransom, Roger L, 1970. "Social Returns from Public Transport Investment: A Case Study of the Ohio Canal," Journal of Political Economy, University of Chicago Press, vol. 78(5), pages 1041-1060, Sept.-Oct.
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