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Transportation and development: insights from the U.S., 1840-1860

Author

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  • Berthold Herrendorf
  • James A. Schmitz
  • Arilton Teixeira

Abstract

We study the effects of large transportation costs on economic development. We argue that the Midwest and the Northeast of the U.S. is a natural case because starting from 1840 decent data is available showing that the two regions shared key characteristics with today?s developing countries and that transportation costs were large and then came way down. To disentangle the effects of the large reduction in transportation costs from those of other changes that happened during 1840?1860, we build a model that speaks to the distribution of people across regions and across the sectors of production. We find that the large reduction in transportation costs was a quantitatively important force behind the settlement of the Midwest and the regional specialization that concentrated agriculture in the Midwest and industry in the Northeast. Moreover, we find that it led to the convergence of the regional per capita incomes measured in current regional prices and that it increased real GDP per capita. However, the increase in real GDP per capita is considerably smaller than that resulting from the productivity growth in the nontransportation sectors.

Suggested Citation

  • Berthold Herrendorf & James A. Schmitz & Arilton Teixeira, 2009. "Transportation and development: insights from the U.S., 1840-1860," Staff Report 425, Federal Reserve Bank of Minneapolis.
    • Handle: RePEc:fip:fedmsr:425
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    Cited by:

    1. Dave Donaldson & Richard Hornbeck, 2016. "Railroads and American Economic Growth: A "Market Access" Approach," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(2), pages 799-858.
    2. Pablo Fajgelbaum & Stephen J. Redding, 2014. "External Integration, Structural Transformation and Economic Development: Evidence From Argentina," CEP Discussion Papers dp1273, Centre for Economic Performance, LSE.
    3. Redding, Stephen & Fajgelbaum, Pablo, 2014. "External Integration, Structural Transformation and Economic Development: Evidence from Argentina 1870-1914," CEPR Discussion Papers 10026, C.E.P.R. Discussion Papers.
    4. Berthold Herrendorf & Richard Rogerson & ?kos Valentinyi, 2013. "Two Perspectives on Preferences and Structural Transformation," American Economic Review, American Economic Association, vol. 103(7), pages 2752-2789, December.
    5. Tombe, Trevor, 2011. "Structural change and regional convergence: the case of declining transport costs," MPRA Paper 34053, University Library of Munich, Germany.
    6. Paul Caruana-Galizia & Jordi Mart�-Henneberg, 2013. "European regional railways and real income, 1870-1910: a preliminary report," Scandinavian Economic History Review, Taylor & Francis Journals, vol. 61(2), pages 167-196, June.
    7. Pablo Fajgelbaum & Stephen J. Redding, 2022. "Trade, Structural Transformation, and Development: Evidence from Argentina 1869–1914," Journal of Political Economy, University of Chicago Press, vol. 130(5), pages 1249-1318.
    8. Pérez-Cervantes Fernando, 2014. "Railroads and Economic Growth: A Trade Policy Approach," Working Papers 2014-14, Banco de México.
    9. Tombe, Trevor, 2010. "Regions, frictions, and migrations in a model of structural transformation," MPRA Paper 26641, University Library of Munich, Germany.
    10. Felis-Rota, Marta, 2014. "A VAR Analysis of the Transportation Revolution in Europe," Working Papers in Economic History 2014/01, Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History).

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    Keywords

    Transportation; Developing countries; Middle West;
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