Working Paper: NBER ID: w20198
Authors: Jeremy Atack; Matthew S. Jaremski; Peter L. Rousseau
Abstract: Studies have shown a connection between finance and growth, but most do not consider how financial and real factors interact to put a virtuous cycle of economic development into motion. As the main transportation advance of the 19th century, railroads connected established commercial centers and made unsettled areas along their routes better candidates for development. We measure the strength of links between railroads and banks in seven Midwest states using an annual transportation GIS database linked to a census of banking. These data indicate that those counties that already had a bank were more likely to see their first railroad go through over the next decade, while new banks tended to enter a county a year or two after it got a railroad. The initial banking system thus helped establish the rail system, while the rapid expansion of railroads helped fill in the banking map of the American Midwest.
Keywords: banking; railroads; economic development
JEL Codes: N11; N21; N71; N91
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Presence of banks (G21) | Railroad development (R49) |
| Railroad development (R49) | Establishment of new banks (G21) |
| Presence of banks (G21) | Increased likelihood of receiving a railroad (L92) |
| Railroad development (R49) | Timing of bank entry (G21) |