Transportation and Development: Insights from the U.S., 1840-1860
FRB of Minneapolis Staff Report No. 425
Posted: 18 Jun 2009
There are 2 versions of this paper
Transportation and Development: Insights from the U.S., 1840-1860
Date Written: May 13, 2009
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.
Keywords: regional income covergence, settlement, structural transformation, transportation costs
JEL Classification: 011, 018, 041
Suggested Citation: Suggested Citation