Thursday, June 25, 2009

Did railroads induce or follow economic growth?

It is, at least in the general public and in the teaching of history in schools, a well accepted idea that the development of railways brought economic development to the West in the nineteenth century in the United States. But thinking about it, it is also entirely possible that the railways went were business was already established, after all the railways companies were seeking profit.

Jeremy Atack, Fred Bateman, Michael Haines and Robert Margo look at this chicken and egg question under a new light with new a new technology, GIS data. Using geographic data on population density, as a measure of economic development, as well as the fraction of urban households and the development of the railroad system. Using difference in difference estimation they find indeed that development preceded the railway. There certainly is anecdotal evidence for that, as the most advanced western state at the time, Ohio, did not rely on railways, but canals. And Michigan was the first to adopt railways. But this does not mean that railways did not transform the economic landscape, as they caused urbanization.

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