TRANSPORT INFRASTRUCTURE FOR GROWTH: Evidence from Sweden’s 19th century investment in rail

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Date:
29 Mar 2017

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The spread of rail networks in nineteenth century Sweden set in motion a virtuous cycle of economic development in peripheral rural areas, which saw a rapid expansion of industrial activity and massive inflows of immigrants. But although the countryside areas traversed by the rail network saw an expansion of industrial activity, these gains were fully concentrated in areas that had been industrial centres prior to the new infrastructure being rolled out. 

These are among the findings of new research by Thor Berger, to be presented at the Economic History Society’s 2017 annual conference. His study shows that in the least industrial areas of Sweden, manufacturing activity was drawn away towards more industrial areas, leading to net losses in industrial activity. In contrast, in the areas with pre-existing industrial agglomerations, industrial growth accelerated by almost 50% relative to other areas. 

He concludes that while governments can use infrastructure investments as an instrument to ignite economic growth, they may at the same time exacerbate exactly those regional inequalities that they are intended to reduce in the first place. 

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The author explains the findings in more detail: 

Governments and international agencies invest in transport infrastructure on a grand scale in an effort to remove barriers to structural transformation and ignite growth in disadvantaged regions. Yet we know little about the effectiveness of such measures: can state intervention really set in motion a virtuous cycle of economic development; or do such investments only result in ‘bridges to nowhere’? 

My research analyses the largest investment in infrastructure in Swedish history – the nineteenth century rail network – to examine whether state intervention can bring about economic development. As market solutions failed, the state decided around the middle of the century that it would construct, fund and operate the national rail network and gave a single state planner ‘dictatorial powers’ to design the rail network. 

Grounded in the belief that the proper role of the state was to provide infrastructure to those areas that lacked the economic means to provide it themselves, the state railroads were routed through areas with bleak economic prospects. That provides a unique opportunity to analyse whether state-led investments in infrastructure are capable of igniting long-term economic development. 

I show that the spread of the railroads set in motion a virtuous cycle of economic development in peripheral rural areas, which saw a rapid expansion of industrial activity and massive inflows of immigrants. But although the countryside areas traversed by the railroads saw an expansion of industrial activity, these gains were fully concentrated in areas that had been industrial centres prior to the rail network being rolled out. 

In the least industrial areas, manufacturing activity was drawn away towards more industrial areas, leading to net losses in industrial activity. In contrast, in the areas with pre-existing industrial agglomerations, industrial growth accelerated by almost 50% relative to other areas. 

Thus, while governments can use infrastructure investments as an instrument to ignite economic growth, they may at the same time exacerbate exactly those regional inequalities that they are intended to reduce in the first place. 

ENDS 

Railroads and Rural Industrialization: Evidence from a Historical Policy Experiment
Thor Berger
Lund University

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