Scandinavian Working Papers in Economics

Research Papers in Economics,
Stockholm University, Department of Economics

No 2021:1: The Causal Effect of Transport Infrastructure: Evidence from a New Historical Database

Erik Lindgren (), Per Pettersson-Lidbom () and Björn Tyrefors ()
Additional contact information
Erik Lindgren: Dept. of Economics, Stockholm University, Postal: Department of Economics, Stockholm University, S-106 91 Stockholm, Sweden
Per Pettersson-Lidbom: Dept. of Economics, Stockholm University, Postal: Department of Economics, Stockholm University, S-106 91 Stockholm, Sweden
Björn Tyrefors: Research Institute of Industrial Economics (IFN) and Department of Economics, Stockholm University, Postal: Department of Economics, Stockholm University, S-106 91 Stockholm, Sweden

Abstract: In this paper, we analyze the effect of transport infrastructure investments in railways on three measures of local economic activity: real nonagricultural income, agricultural land values and population size. As a testing ground, we use data from a new historical database that includes annual panel data on approximately 2,400 regions, i.e., local governments, during the period 1860-1917. We use a staggered event study design that is robust to treatment effect heterogeneity. Importantly, we find extremely large reduced-form effects of having access to railways. For real nonagricultural income, the cumulative treatment effect is approximately 120% after 30 years. Therefore, this effect is 20 times larger than most reduced-form effects found in previous works on the effect of transport infrastructure on economic activity. Equally important, we also show that our reduced-form effect reflects growth rather than a reorganization of existing economic activity.

Keywords: railways; transport infrastructure; real income; land value; event study; treatment heterogeneity

JEL-codes: H54; L92; N73; O22; R12; R42

25 pages, First version: March 8, 2021. Revised: May 28, 2021.

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