A recently published paper (“Railroads of the Raj,” American Economic Review, April 2018) looks at the history and development of the Indian railroad system. The paper is also a recent example of the academic “long time to fruition” publication process — I think it was a job market paper for Dave Donaldson in 2008 and is only just now being published. A link to the NBER working paper version is at http://www.nber.org/papers/w16487 and there is a concise summary/review of the paper from 2012 by Kevin Bryan from the University of Toronto, who concludes:
“Donaldson constructs a network of rail, road and river routes using 19th century sources linked on GIS, and traces out the least-cost paths from any one district to another. He then non-linearly estimates the relative cost per kilometer of rail, sea, river and road transport using the prices of eight types of salt, each of which were sold across British India but only produced in a single location. He then finds that lowered trade costs do appear to raise trade volumes with quite high elasticity. The reduced form regression suggests that access to the Indian railway increased local incomes by an average of 16 percent (Indian real incomes per capita increased only 22 percent during the entire period 1870 to 1930, so 16 percent locally is substantial). Using the “trade share” sufficient statistic described above, Donaldson shows that almost all of that increase was due to lowered trade costs rather than internal migration or other effects. Wonderful.
This paper is a great exercise in the value of theory for empiricists. Theory is meant to be used, not tested. Here, fairly high-level trade theory – literally the cutting edge – was deployed to coax an answer to a super important question even though atheoretical data could have provided us nothing (remember, there isn’t even any data on income per capita to use!). The same theory also allowed to explain the effect, rather than just state it, a feat far more interesting to those who care about external validity. Two more exercises would be nice, though; first, and Donaldson notes this in the conclusion, trade can also improve welfare by lowering volatility of income, particularly in agricultural areas. Is this so in the Indian data? Second, rail, like lots of infrastructure, is a network – what did the time trend in income effects look like?”
“Railroads of the Raj: Estimating the Impact of Transportation Infrastructure,” D. Donaldson (2013)
-Thanks to David Ballard for this post.
Moving History 