Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 1319: Making a Market: Infrastructure, Integration and the Rise of Innovation

David Andersson (), Thor Berger () and Erik Prawitz ()
Additional contact information
David Andersson: Uppsala University, Postal: and Linköping University
Thor Berger: Research Institute of Industrial Economics (IFN), Postal: and Lund University
Erik Prawitz: Research Institute of Industrial Economics (IFN), Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden

Abstract: We exploit exogenous variation arising from the historical rollout of the Swedish railroad network across municipalities to identify the impacts of lowered interaction costs on innovative activity. A network connection led to a surge in local innovation due to an increased entry, productivity, and specialization of independent inventors. As the railroad network expanded, it further led to the emergence of a national market for ideas: inventors in connected areas began to develop ideas with applications outside the local economy, which were subsequently sold to firms along the network. Our findings suggest that the reduced interaction cost between firms, intermediaries, and inventors was a key driver of the historical emergence of a market for ideas.

Keywords: Technological Change; Infrastructure; Innovation

JEL-codes: N70; O30; O33

87 pages, February 18, 2020

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