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Source: Richard Hornbeck and Martin Rotemberg, “Railroads, Reallocation, and the Rise of American Manufacturing,” NBER Working Paper No. 26594, December 2019.
Commentary: The expansion of railroads across the United States in the late 1800s dramatically increased interconnections between communities, allowing businesses to reach new markets and incentivizing more efficient resource allocation. These effects are particularly salient today, given that the adoption of broadband has played a very similar role in the modern economy. A new study aims to quantify the impact of the spread of railroads on the U.S. economy, looking at county and industry data from 1860 to 1880. It finds that doubling a county’s access to railroads increased manufacturing productivity by 43.2 percent over this period and that, collectively, GDP would have been 24.8 percent lower in 1890 in the absence of railroads.