Impact Of Railroad

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a. In their paper Railroads and American Economic Growth: A Market Access Approach Donaldson and Hornbeck examine the historical impact of railroads on the U.S. Economy with a focus on the impact they had on the agricultural sector in 1890. To do this they look at railroad networks and waterways to calculate the lowest-cost county to county freight routes. While many early researchers found that railroads did in fact have a large impact on the U.S. economy, in 1964 Robert Fogel published his paper Railroads and American Economic Growth. This paper changed the general opinion on the effects of the railroad. In his paper, he developed a “social saving” methodology for estimating the aggregate impact of the railroad on the agricultural sector …show more content…
He estimated that inter-regional trade accounted for 0.6% and intraregional trade accounted for 2.1% of this total impact on GNP. Inter-regional trade he defined as “occurring from 9 primary markets in the Midwest to 90 secondary markets in the East and South...” On the other hand, he defines intraregional trade as the “trade from farms to primary markets…” (806) Fogel explains that this number is much higher because the effect of railroads was primarily to reduce the distance of relatively expensive wagon transportation. Without railroads, farms would have incurred much higher costs of transportation because they would have been forced to transport their goods by wagon to the nearest river or canal. Furthermore, Fogel estimates that transporting goods by wagon more than 40 miles would have been too expensive and not viable. He calls this the “infeasible region.” In contrast, the authors of this article use an expression derived from general equilibrium trade theory. This they call “market access.” By looking at the how market access impacted county’s value of agricultural land they hope to get a better estimate of the aggregate impact of railroads in …show more content…
This would imply an annual economic loss of $386 million or 3.22% of GNP in 1890 with a maximum loss of 5.35% of GNP. All in all, I believe the authors are mostly correct in their statement, “the railroads were a decisive factor in the development of the American economy.” There framework seems to make more intuitive sense than Fogel’s and it follows that there numbers then would be closer to the true estimate. By looking at direct and indirect channels through which the railroad expanded I believe this paper more accurately summarizes the railroads effects. It just seems to make sense that railroads would have direct impacts on land value through increased market access rather than just the access to a transportation routes itself. Furthermore, the authors include indirect effects of the railroad, which is at least a good start in trying to calculate the aggregate impact of the railroad. Lastly, evidence cited above from this paper gives us good reason to believe that the railroads had a large and decisive impact on the U.S. economy. Even if we were to take the lower estimate the author calculated (annual economic loss of 3.22% of GNP in 1890 and a reduction in land values by 60.2%) and put those into today’s terms (U.S. 2016 GNP = 18.75 trillion) we would get have a loss of
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