Railroads and American Economic Growth: A “Market Access” Approach*

TLDR: In this article, the authors examined the historical impact of railroads on the American economy and found that changes in market access are capitalized in agricultural land values with an estimated elasticity of 1.5.

Abstract: This paper examines the historical impact of railroads on the American economy. Expansion of the railroad network and decreased trade costs may aect all counties directly or indirectly, an econometric challenge in many empirical settings. However, the total impact on each county can be summarized 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 are capitalized in agricultural land values with an estimated elasticity of 1.5. Removing all railroads in 1890 would decrease the total value of US agricultural land by 73% and GNP by 6.3%, more than double social saving estimates (Fogel 1964). Fogel’s proposed Midwestern canals would mitigate only 8% of losses from removing railroads.