Entrepôts and Economic Geography

Transcription

1 Entrepôts and Economic Geography Hugh Montag & Heyu Xiong 6/2/17

2 Motivation What explains the uneven distribution of economic activities across space? A large empirical literature has emphasized the significance of transportation infrastructure Less explored is the role of trade intermediation: Interchange and transshipment requires labor generates a substantial local stimulus What is the welfare consequences and economic effects of entrepôts?

3 Motivation What explains the uneven distribution of economic activities across space? A large empirical literature has emphasized the significance of transportation infrastructure Less explored is the role of trade intermediation: Interchange and transshipment requires labor generates a substantial local stimulus What is the welfare consequences and economic effects of entrepôts?

4 Entrepot An entrepot is a port, city, or other center to which goods are brought for imports or exports. These locations tend to be relatively prosperous. Examples: Singapore: Ken, W. L. (1978). Hong Kong: Feenstra, R. C. & G. H. Hanson (2004). Portages: Bleakley, H., & Lin, J. (2012) Landlocked countrie: World Bank (2014)

5 Entrepot An entrepot is a port, city, or other center to which goods are brought for imports or exports. These locations tend to be relatively prosperous. Examples: Singapore: Ken, W. L. (1978). Hong Kong: Feenstra, R. C. & G. H. Hanson (2004). Portages: Bleakley, H., & Lin, J. (2012) Landlocked countrie: World Bank (2014)

6 Context In the interior [South] the principal group of trade centers [...] were those located at the head of navigation, or fall line, on the larger rivers. - Phillips (1905), Quarterly Journal of Economics Studies the locational amenities of barriers to transportation

7 This Paper This paper: Focuses on a natural experiment: transportation discontinuities induced by gauge breaks along 19th century US railroads Provides reduced-form evidence that entrepôts have a significant effect on population and industry Incorporates entrepôt into a structural model to connects trade with geography Evaluates counter-factual population distribution in absence of historical "accidents."

8 Literature Review Structural Trade Literature: Fujita, M. and T. Mori (2005), Ahlfeldt, G. M., et al. (2014), Allen, T. and C. Arkolakis (2014) Treb Allen, C. A., Yuta Takahashi (2014), Nagy 2017 Davis, D. R. and D. E. Weinstein (2002) Railroads and trade: Fogel, R. W. (1964), Boyd, J. and G. Walton (1972) Donaldson & Hornbeck (2015), Atack, J., et al. (2010),Perez Cervantes, F. D. (2013) Entrepot: Ken, W. L. (1978) Bleakley, H., & Lin, J. (2012), Brooks & Lutz 2017

9 Introduction Historical Background Data Reduced Form Analysis Structural Analysis

10 Historical Background Overview Without standardized width, the diversity of gauges in 19th century US railroads induced discontinuities in the transportation network. Locations of "breaks in gauges" enjoyed an exogenous economic stimulus to the local economy.

11 Gauges Because of the patchwork nature of railroad construction, 1860s US railway network had nine distinct railroad gauges. Trains could only run on a specific gauge, so rail networks with different gauges were not interchangeable At locations where two gauges intersected, costly interchange was required.

12 Historical Background Railroad as of 1840 Railroad Network 1840

13 Historical Background Railroad as of 1845 Railroad Network 1845

14 Historical Background Railroad as of 1850 Railroad Network 1850

15 Historical Background Railroad as of 1855 Railroad Network 1850

16 Historical Background Railroad as of 1861 Railroad Network 1861

17 Historical Background Railroad as of 1870 Railroad Network 1870

18 Historical Background Railroad as of 1861 Railroad Network 1860

19 Historical Background Visualization of Gauge Networks Distinct Gauge Networks

20 Time Variation Figure from (Puffert, 2000)

21 Historical Background Local Economic Impact of Gauge Breaks Only 17 percent of American railway stations can be reached on a common gauge Historians Taylor and Neu estimated that trans shipment cost at site of gauge break varied between 7 and 25 cents per ton and up to 24 hours. Boston Board of Trade maintained that in 1866 such "gauge taxes" on traffic between Boston and Chicago amounted to 500,000 dollars.

22 Historical Background Anecdotal Evidence Where ever there is a break in gauge, there is always a large amount of business to be done and a town springs up immediately around that place --- Senator James B. Grimes

23 Historical Background Local Economic Impact of Gauge Breaks Attempts to standardize met with resistance

24 Data Sources Historical transportation network: Railroad, river, and canal geographic data: Jeremy Atack (2015) Network connections and lake routes: Donaldson-Hornbeck (2016) Historical county data: NHGIS Census files on 1860 population and production IPUMS data on county population Our contributions: Identification of gauge breaks Calculation of least cost-routes between any two counties

25 Reduced Form Outline Questions: 1 Are these entrepôt locations actually more populous? 2 Which way does causality run? Do gauge breaks induce prosperity, or do productive counties attract gauge breaks? Reduced form evidence: 1 OLS regression of population on entrepôt status 2 IV results 3 Differences in Differences Specification

26 Reduced Form Outline Questions: 1 Are these entrepôt locations actually more populous? 2 Which way does causality run? Do gauge breaks induce prosperity, or do productive counties attract gauge breaks? Reduced form evidence: 1 OLS regression of population on entrepôt status 2 IV results 3 Differences in Differences Specification

27 Specification Population y c,s,1860 = βgauge Break c + +α s + λm c + γx c, ε c y c,s,1860 is log population in 1860 Gauge Break c is a measure of proximity to nearest gauge break. M c is a vector of time-invariant controls that includes: polynomial in latitude and longitude log area of county distance to geographic features (canals, lakes, waterways, coast, major cities) X c,1860 is controls for socio-economic conditions including railroad growth in 1850, 1860, and number of railroad companies in 1860 lagged population growth lagged manufacturing employment, age distribution, share of population white, gender ratio, etc.

28 Population Effects Near Gauge Breaks Log 1860 Population Kilometers to Nearest Gauge Break

29 Population and Railroad Employment Effects Near Gauge Breaks Coefficient for Within Kilometers of Gauge Break Kilometers to Nearest Gauge Break Log 1860 Population Log Railroad Employment

30 Identification Strategy Question: Is it the relationship causal? IV variable construction: Find center of each rail gauge network, circa 1840 Draw lines connecting rail gauge network centers for different gauges Find midpoints of connecting lines Measure distance from county centroids to nearest midpoints

31 IV Visualization

32 OLS and IV Results OLS and IV Estimates (1) (2) (3) (4) (5) (6) (7) (8) Basic Other spatial controls Socio-economic controls Restricted samples State fixed Railroad Distance from Lagged population Pre-railroad 1850 settlements Excluding NY Specifications: effects variables geographic features growth productivity only MA, IL, PA Explanatory Variables: Panel A: OLS Estimates, Counties Distance to nearest gauge break, kilometers (0.028) (0.093) (0.084) (0.090) (0.058) (0.060) (0.042) (0.059) Dummy for containing gauge break within county (0.055) (0.058) (0.062) (0.062) (0.055) (0.040) (0.062) (0.067) Observations Panel B: IV Estimates, Counties Distance to nearest gauge break, kilometers - 2nd stage (0.068) (0.324) (0.329) (0.333) (0.265) (0.327) (0.176) (0.289) F -statistic Observations Panel C: OLS Estimates, Towns Dummy for railroad town, having a gauge break (0.300) (0.277) Observations Standard errors clustered at the state level p <.10, p <.05, p <.01

33 Differences-in-Differences Question: Do entrepôt locations look different even before railroads appear? We estimate the time trend for multiple decades and study the interaction term. In particular, are these counties similar before the railroads appear in s. y it = 2010 t=1790 β t 1{GaugeBreak} I t t=1790 γ t I t + ρ c It c + X ict β + ε ict (1) c

34 Event Study Graphs Differences in Differences: Population Years Regression coefficient Census Years Gauge Break Counties Matched Control Counties 95% CI Gauge Break x Year Dummies (a) Log population in matched gauge and control counties (b) Event study of log population

35 Time Specification Persistence ln(2000population is ) = α s + γnumber of Gauge Breaks + σnumber of Total Junctions Between Railroad Companies + βx i + ε i X i is a vector of 1850s county characteristics that include population, rural/urban, geography, miles of railroad, agricultural/industry, size, etc. ln(1880population is ) = α s + γnumber of Gauge Breaks + σnumber of Total Junctions Between Railroad Companies + βx i + ε i ln(2000population is ) = α s + γnumber of Gauge Breaks + σnumber of Total Junctions Between Railroad Companies + δln(1880population i ) + βx i + ε i

36 Main Specifications Persistence Coefficients for irrelevant variables are suppressed Gauge Breaks.207 (.01).172 (.00).049 (.48) Company Junctions.115 (.00).048 (.00).071 (.00) 1850 Population YES YES YES 1880 Population NO NO YES FE YES YES YES R Note: p value in parenthesis

37 Summary of Structural Analysis Incorporates entrepôt sector into an Armington geography model Estimates the model with full transport network of US circa 1861 Derive conditions for welfare as function of entrepôt existence Calibrate counterfactual population distribution.

38 Model Setup Two sector version of the Armington model with Many (>2) regions indexed by i, j Each region produces a unique variety of good CES consumers Labor mobility Second sector intermediates trade Requires local labor Generates additional income Functions like a tariff being paid to another location Endogenous trade costs τ 1 Noisy traders optimize over all possible paths Incorporates trade intermediation sector Static model

39 Transportation Network Complete Transportation Network Legend NavigatableRivers Canals RailSubtypeTest2 <all other values> GAUGE_12_13 Gauge51 Gauge56 Gauge57 Gauge58 Gauge60 Gauge64 Gauge66 Gauge72 GaugeMissing

40 Future Work Run more small-scale simulations to test estimation validity Work out analytical expressions for welfare implications of entrepôts Network between-ness centrality Convert existing data into a mathematical graph