We explore how railroads affected population growth during the first globalization (1865–1920) in Chile. We look at areas with a strong comparative advantage in agriculture using novel data that document 60 years of railroad construction. Using instrumental variables, we present four main findings. First, railroads increased both urban and rural population growth. Second, the impact was stronger in areas with more potential for agricultural expansion. Third, railroads increased specialization in agriculture when combined with a high level of the real exchange rate. And fourth, railroads had little effect on human capital and fertility. These results suggest that the effects of transportation technologies depend on existing macroeconomic conditions.
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Even today, projects like the construction of the “Belt and Road Initiative” implemented by the Chinese government incorporate the construction of railroads (Brakman et al. 2019). Fogel (1962) and Fogel (1964), Fishlow (1965), and Rostow (1967) were pioneers in studying railroads in economics. Similar technologies include the steamship (North 1958) and the refrigerator car (Kujovich 1970).
Fishlow (1965, p. 203) puts it simply: “whether railroads first set in motion the forces culminating in the economic development of the decade, or whether arising in response to profitable situations, they played a more massive role.”
Katz (2018) also applies the idea of “straight lines” in a panel data context for the USA using a different approach, which exploits the appearance of new big (connecting) cities.
Our identification strategy is suited for the center and south parts of the country and it is not valid for the north, the reason why we exclude it from the analysis in the paper.
We implement a battery of exercises to confirm that the mechanism of relative prices is behind the estimated effects and not alternative channels related to other macroeconomic variables.
The first railroads were constructed in the north to fulfill the demand of the mining industry. William Wheelwright, an American entrepreneur, led that process. The construction of these railroads started in 1850 and ended in 1851 and there were 243 km constructed by 1871 (Alliende 2006, pp. 14–19).
We observe convergence with respect to the USA and a period of faster growth than other countries in Latin America, with the ratio going up from 1.33 to 1.61 (the value of this ratio is 0.43 for the history of Chile). Countries in Latin America include Argentina, Brazil, Mexico, and Peru due to data restrictions.
Cariola and Sunkel (1990) documents that in 1917, 53% of the agriculture area corresponds to grains (of which 87% corresponds to wheat), 31% to forage, 8% to sylviculture, and the remainder to other crops.
Only 4% of wheat was produced in the north in 1877–1878 and about 1% in 1917–1918. The south of the Bio-Bio region corresponds to what previous research calls the Frontier (Garcia-Jimeno and Robinson 2011).
Censuses are available at the National Statistics Bureau (INE, Web page www.ine.cl). We use department-level data because it is the smallest administrative unit we can construct in panel data form. See Table 10 for details, including the area of the departments (in km2) and the populations in 1865 and 1920.
Note that information for occupational variables is missing in the 1885 census.
The average department during the entire period had 26,618 people living in urban areas. The estimated coefficient of 0.225 implies an increase of 0.225×25,618 = 5975.
It is important check this for two reasons: (i) this year does not add much statistical information because railroad construction was delayed due to the Pacific War, and (ii) this is the only year for which we do not have information on occupations, so it is useful to present the correlation for later comparisons.
For instance, looking at panels (a) and (b) in Fig. 4, we note that in order to get to, for instance, the Concepcion department, railroads had to be constructed before in departments located closer to Santiago. Then, our predicted construction for Concepcion in 1865 is zero and only becomes positive in 1875.
This idea implies that the timing of the treatment and our instrumental variable is correlated with distance to Santiago, which also applies to our second instrument below. However, Table 18 shows that all results are robust to include an interaction of the treatment with distance to Santiago as control.
In particular, we consider one straight line from Santiago to Valparaiso and another from Santiago to Puerto Montt. Then, using the line from Santiago to Puerto Montt, we add another segment, defined as the shortest straight line between Concepcion and the straight line between Santiago and Puerto Montt.
As a robustness check, we also use a measure of the distance from the centroid of the department to the closest straight line and normalize the distance to make the distance to the straight line comparable to the dummy, with a value of 1 when the centroid of the department is on the straight line and a value of 0 when the distance is equal to the maximum distance observed in the data.
Results are also robust to using other distance cutoffs. Given that all results are robust to the use of spatial correlation, Table 6 is the only one reporting Conley standard errors.
Table 15 studies whether the effects of railroads are driven by the extensive or intensive margin. Using the two instruments, we construct “extensive margin” instruments and run regressions of population on our main measure of railroads penetration in a department and a dummy of whether the department has any railroads using four instrumental variables. Results suggest that the intensive margin is more important.
Note that while our variable for agriculture expansion has a mean of 0 (as it is constructed using the residual of a regression), we demeaned the \(\log \) of the real exchange rate in the regressions; therefore, the main effect of railroads represents the impact of this variable at the average real exchange rate.
Table 17 presents results using the interaction of the real price of wheat instead of the real exchange rate. The sign and magnitude of the interactions are consistent with results in Table 8, confirming that the heterogeneous effects of railroad with the real exchange rate are related to production incentives.
Our proxy for the potential of agricultural growth is orthogonal to distance to Santiago because it is the negative of a residual of a regression including distance to Santiago. The same applies to initial population.
We also studied whether railroads affected the size of the transport and communication sector, and state presence. Any of them can be interpreted as an alternative explanation for the potential effects of railroads on population and other variables. We do not find effects of railroads on these dimensions (Table 19).
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July 2020. We thank Oded Galor (the editor), two anonymous referees, José Díaz, Jeanne Lafortune, Rolf Lüders, José Tessada, Javier Turén, Alejandro Vicondoa, Gert Wagner, and seminar participants at PUC-Chile, SECHI meetings, and LACEA-LAMES meetings for valuable comments and suggestions. We would like to thank FONDECYT (Project 1170956) for financial support. Rodrigo Icarán, Antonia Paredes, José D. Salas, Alejandro Saenz, Felipe Vial, and Cristine Von Dessauer provided outstanding research assistance.
We received financial support from FONDECYT (Project 1170956).
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Forero, A., Gallego, F.A., González, F. et al. Railroads, specialization, and population growth: evidence from the first globalization. J Popul Econ (2020). https://doi.org/10.1007/s00148-020-00804-3