Dave Donaldson
MIT and NBER
Richard Hornbeck
Harvard and NBER
Draft Version: September 2011
Preliminary and Incomplete
Abstract
This paper examines the impact of railroads on American economic growth. Drawing
on general equilibrium trade theory, changes in counties "market access" captures the
aggregate impact of local changes in railroads. Using a new spatial network of freight
transportation routes, we calculate county-to-county lowest transportation costs and
counties' implied market access. As railroads expanded from 1870 to 1890, changes in
market access are capitalized in land values with an estimated elasticity of 1-1.5. The
computed decline in market access from removing all railroads in 1890 is estimated to
reduce GNP by 6.3%, roughly double estimates by Fogel (1964). Without railroads,
the total value of US agricultural land would have been lower by 73%. Fogel's proposed
extention of the canal network would have only mitigated 8% of the loss from removing
railroads.