Analysis of the Interdependence between the Economic Growth and the Development of the Railway Sector

Purpose: The authors directly formulated the ‘research hypothesis’ as the interdependence between economic growth and the volume of rail freight. It is a very valid question of primary importance not only to economic historians, but also to development economists. Approach/Methodology/Design: Econometric modelling was used to set out the factors of Germany’s economic growth between 1872 and 1913, with a particular focus on the importance of railways. While analysing many determinants of German economic growth, the authors also took into account the t time variable, which made possible the practical application of the theorem by Frisch-Waugh with the generalization of Stone. Findings: Considering these results, it can be confirmed that the railways, being a symbol of the era, and also a leading sector of the German economy, however, played an important role in shaping the modern economy and multiplying Germany’s social well-being. It can be considered as one of the causes of economic growth. On the other hand, the high economic growth rate of the German Reich was an important factor determining the development of transport. The obtained results are the basis for the construction of vector-autoregressive models (VAR) including the error correction model (ECM) and long-term relationship research. Practical Implications: A systematic, quantitative inquiry on the impact of railway expansion on economic growth would most likely contribute not only to better understanding of economic history but could also shed light on the foundations of the recent monetary theory. Originality/Value: Considering the importance of transport for the economy, it is particularly important to examine whether the development of transport had an impact on the level of economic growth, and whether economic growth led to the development of the transport industry, and perhaps was bidirectional relationships.