| What was the impact of railroads in the output of the United States during the 19th century and how can a New Trade model help answer this question? In order to respond I follow three steps. First, I construct a new digital railroad data set and pair it with geographic and topographic features of the U.S. territory to estimate travel times between every pair of U.S. counties for every year between 1840 and 1900. Second, I use these results, together with a Ricardian model of trade and U.S. county output data from the 19th century, to estimate county gains from trade using a fixed-point algorithm. Third, I estimate counter-factuals with the railroads built up to a certain year. My estimates suggest that, leaving all factors of production fixed, if the railroads were made suddenly unavailable in 1890 there would have been a 9.6% reduction in output, but in 1900, after the financial crisis, the impact would have been less than 9%. Finally, I make use of network formation theory and find that my suggested railroad --the outcome of a centralized institution-- would increase real output by at least three more percentage points by the end of the 19th century. |
