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Can investment in transport infrastructure overcome the curse of geography? It seems possible. The Trans-Siberian Railway brought harsh terrain in contact with markets and goods to a degree previously unimaginable. But can transport infrastructure fully overcome the curse of bad geography or just ameliorate it?

Infrastructure projects can be financed by private individuals or by the state. But why do some institutional arrangements facilitate private investment in infrastructure while others deter it? Why do some states invest and others do not? When are states even capable of undertaking such projects in the first place? These questions suggest that overcoming “bad” geography may require institutions capable of diverting resources to infrastructure. Although we will return to this issue in Chapter 7, we outline here some of the ways that investments in transport infrastructure affected historical economic development.

The Roman Empire invested in a road system. By the reign of the Emperor Trajan (r. 97–117 CE), the road network comprised 80,000 km (see Figure 2.6). It was complemented by massive inland waterways that crisscrossed the empire and connected landlocked cities with the Roman lake that was the Mediterranean Sea. The Roman road system was built for military reasons. But once established, it played a crucial role in knitting the empire together economically and culturally. The suppression of Mediterranean piracy and the establishment of safe sea-lanes was also critical in lowering transport costs, which enabled inter-regional trade and specialization. Archaeological evidence attests to the fact that manufactured goods such as amphorae (pottery) were mass produced and transported over long distances.

Figure 2.6 The Roman road network

Map provided by Erik Hornung from Flückiger, Hornung, Larch, Ludwig, and Mees (forthcoming). Grey lines symbolize roads, solid black lines navigable river sections, and dashed lines coastal shipping routes.

Following the conquest of the Mediterranean region, the Roman economy experienced a period of economic growth driven by market expansion. Adam Smith (1776/1976) observed that the greater the extent of the market, the greater the scope for specialization and the division of labor. This suggests that an increase in market size can itself be a source of productivity improvements and economic growth. This type of growth is often called Smithian growth. Over time, Smithian growth encourages capital investment. Individuals invest in longer and more complex production processes. This investment, in turn, increases the productivity of labor and the returns to trade, thereby setting in motion a virtuous cycle of economic development. Favorable geography or improvements in infrastructure can be a source of Smithian growth. Smithian growth can be derailed by war or natural disasters that upend markets and disrupt patterns of specialization. It runs into limits and ultimately into diminishing returns in the absence of sustained innovation.

In the case of Rome, the process of Smithian growth was aided by the benign climatic and geopolitical conditions discussed above. Investment in transport infrastructure, nonetheless, played a critical proximate role in Roman economic growth. Studying the distribution of terra sigillata, a red-gloss tableware made out of clay, Flückiger, Hornung, Larch, Ludwig, and Mees (forthcoming) find evidence that the intensity of Roman trade in this product reflected transportation costs. Places with lower transportation costs due to Roman infrastructure had greater inter-regional specialization, while better-connected areas traded more. As the Roman Empire declined, the road network remained in place. Until the 18th century, there was little new transport infrastructure. Flückiger et al. find that the effects of the Roman transportation network outlived the Roman Empire and were associated with much greater trade intensity up to the invention of the steam engine.

Transport infrastructure also mattered for Chinese economic development. Economic growth in the Middle Kingdom was greatly aided by the creation of the Grand Canal by the Sui (581–618 CE) and Tang (618–907 CE) dynasties and improved by their successors. The Grand Canal, said to be 40 meters wide, connected the Yangzi to the Yellow River. Its construction needed thousands of laborers and the vast expenditures involved caused the collapse of the Sui. The canal transported grain to the capital city, Luoyang, and played a critical role in supplying the army guarding the northern frontier. In the Tang dynasty, 130,000 tons of grain were transported north each year (Ball, 2017, p. 120).

Though the primary purposes of the Grand Canal were political and military, its creation brought economic benefits. According to Scheidel (2019, p. 263), between the Yangzi and Yellow Rivers, “the Grand Canal and multiple smaller rivers and feeder canals created … a huge fertile crescent united by cheap and safe transport…. No inland waterway system in world history approaches this one as a device for integrating large and productive spaces.” As we discuss in Chapter 3, market integration in China was comparable to that in many parts of Europe until the latter part of the 18th century. One reason for this was the massive investments made by several dynasties in the Grand Canal.

A final example of the importance of transport infrastructure comes from industrializing Britain. Before 1700, Britain (like other pre-industrial economies) was afflicted by extremely high transport costs. By 1870, this situation had been transformed. As Dan Bogart and his collaborators document (Bogart, 2014; Bogart, Alvarez-Palau, Dunn, Satchell, and Taylor, 2017; Bogart, Satchell, Alvarez-Palau, You, and Taylor, 2017), this transformation was partly due to steam power and the introduction of the railways. It was also due to investment in the road and canal network beginning in the 18th century.

The story of these investments in transport infrastructure is partly technological and partly institutional. The institutional part of the story will be discussed in Chapter 3. Here, we focus on the consequences of these improvements. Stagecoach speeds increased from 1.96 journey miles per hour in 1700 to 7.96 journey miles per hour in 1820. This was due to improvements in the road network, stagecoach design, and the number of way-stations. By 1840, Britain had twice the road density of France or Spain. Figure 2.7 depicts the expansion of the road network in England and Wales. The greatest improvement in land transportation came with the railway: rail travel in 1870 was ten times faster than coach travel had been in 1700. Goods, ideas, and people could move across Britain in a way and at a speed that had previously been impossible.

Another major area of improvement in industrializing Britain was the canal network. Waterborne transport was much more cost-efficient than road transport. Canals played an important role in linking together Britain’s growing industrial heartland in the northwest with coal.

This transportation revolution had a dramatic impact on the British economy. Bogart, Satchell, Alvarez-Palau, You, and Taylor (2017) find that improvements in turnpike roads and inland waterways played a key role in driving population growth and structural change. Locations further away from turnpikes and canals grew more slowly. They also remained more agricultural than those closer to the improving transport network.

Figure 2.7 The increase in turnpikes in England and Wales: 1680–1830

Map provided by Dan Bogart from Bogart, Satchell, Alvarez-Palau, You, and Taylor (2017). Lines represent turnpike roads in 1680 (panel a) and 1830 (panel b).

One of the challenges in measuring the benefits of infrastructure investment is that beyond the direct effects of lowering transport costs, there are numerous (potentially important) but difficult to measure indirect effects. We can think about these improvements through the concept of market access, which summarizes all the ways both goods and factor markets – that is, markets for labor, land, and capital – change in response to a change in transport technology or infrastructure.

In an influential book, Fogel (1964) argued that the benefits of the railroad to American growth were modest because in its absence other transportation techniques such as waterways and canals would have been used. However, Donaldson and Hornbeck (2016) show that once the improvements to market access are taken into account, the railroad did have a more sizable impact on economic growth, especially during the rapid period of railroad expansion in the late 19th century. This was most pronounced in the Western states, which became more closely connected with the larger markets on the Eastern seaboard (see Figure 2.8). Donaldson and Hornbeck find that removing all railroads in 1890 would have decreased the value of agricultural land by 60.2%, which translates to 3.22% of GNP.

Figure 2.8 Changes in US market access, 1870–90

Data source: Donaldson and Hornbeck (2016).

Moreover, Hornbeck and Rotemberg (2021) show that railroad access greatly increased US manufacturing output. They estimate that US aggregate productivity would have been 25% lower in 1890 in the absence of railroads. In the context of Industrial Revolution Britain, Bogart, Alvarez-Palau, Dunn, Satchell, and Taylor (2017, p. 23) find that improved market access had a direct effect on population growth. Had there been no improvements in transportation, there would have been 25 percentage points less urban growth between 1680 and 1831 and 97 percentage points less growth from 1831 to 1851. These are enormous numbers. They indicate just how important transport improvements were for the growth of the British and US economies.

Donaldson (2018) employed a similar methodology to examine the building of railroads in India under the British Raj. Transport investments made it possible to transport bulky goods such as wheat and rice over land as much as twenty times faster than had been possible with pre-industrial technologies. The railroad network thus brought regions of India out of near autarky, integrating them with the rest of the country and the world.

Infrastructure investments can help overcome the “curse of geography.” But they can also have unforeseeable, counter-productive effects in the long run. For instance, prior investments in transport can lock countries into particular, and potentially inefficient, economic configurations. A fascinating example of such lock-in comes from the western part of the Roman Empire. Michaels and Rauch (2018) contrast England with France. In France, Roman city locations remained settled throughout the early Middle Ages. Michaels and Rauch show that while this may have benefited French economic growth in the early medieval period, it harmed it in the long run. Because French cities were placed with access to Roman roads in mind, they were inferior from the point of view of subsequent economic development, where water travel dominated. In England, however, the urban network was reset following the collapse of the Roman Empire. This allowed medieval English cities to relocate along coasts and rivers that were more beneficial for economic activity in subsequent centuries (see Figure 2.9).