Railroads and the Brazilian economy before 1914

Until the construction of railroads in the second half of the nineteenth century Brazil suffered under the burden of high transport costs. Possessing no modern modes of overland shipment in 1850, by 1914 the country had more than 24 thousand kilometers of track. Three broad questions are addressed in this study. First, what was the contribution of the railroad to the Brazilian economy before 1914? Second, what difference did it make that many railroads were owned by either foreigners, or the State? Third, what ramifications did the new transport technology have for growth and structural change? In the case of Brazil, what had previously been a laggard region became transformed at the turn of the century into one of the fastest growing economies in the Western world. Railroads helped effect this transformation by dramatically reducing the costs of over land shipment and travel, thereby improving the efficiency of product and labor markets in the late nineteenth century. This study demonstrates the manner in which large resource savings were created in the transport sector, impelling growth. It also examines the myriad roles played by foreign investors and the Brazilian State in that sector. While reliant on foreign capital and inputs to finance and provision many of its railroads, Brazil succeeded in retaining the vast bulk of the gains that cheap railroad transport created. Thanks in part to rate regulation by the government, the leakage abroad of direct and indirect benefits from railroads was low. The study also shows that while Brazil's railroads were initially constructed to carry exports, they came to register a relatively much stronger impact in the domestic sector of the economy. The resulting market integration contributed importantly to the creation of new opportunities in agriculture and manufacturing in Brazil. More than any other innovation or change in economic organization, the railroad facilitated Brazil's traverse to much improved economic performance in the twentieth century.