Transportation and Development: Insights from the U.S., 1840-1860

FRB of Minneapolis Staff Report No. 425

Posted: 18 Jun 2009

See all articles by Berthold Herrendorf

Berthold Herrendorf

Arizona State University (ASU) - Economics Department

James A. Schmitz

Federal Reserve Bank of Minneapolis

Arilton Teixeira

Ibmec, Rio de Janeiro - Department of Economics

Multiple version iconThere are 2 versions of this paper

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

Herrendorf, Berthold and Schmitz, James A. and Teixeira, Arilton, Transportation and Development: Insights from the U.S., 1840-1860 (May 13, 2009). FRB of Minneapolis Staff Report No. 425, Available at SSRN: https://ssrn.com/abstract=1421445

Berthold Herrendorf

Arizona State University (ASU) - Economics Department ( email )

Tempe, AZ 85287-3806
United States

James A. Schmitz (Contact Author)

Federal Reserve Bank of Minneapolis ( email )

90 Hennepin Avenue
Minneapolis, MN 55480
United States

Arilton Teixeira

Ibmec, Rio de Janeiro - Department of Economics ( email )

Av. Rio Branco, 108
Rio de Janeiro RJ 20040-001
Brazil
+55 21 3806 4121 (Phone)
+55 21 2242 3253 (Fax)

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