Railroad expansion and industrialization: evidence from Meiji Japan

Abstract

Railroads in late nineteenth-century Japan are credited with facilitating factor mobility as well as access to human and financial capital, but their impact on firms has been unclear. Using a prefecture-level panel data set and a difference-in-differences model that exploits the temporal and spatial variation of railroad expansion, I investigate the relationship between railways and increased firm activity. Rail access led to higher average firm capitalization, particularly in manufacturing, and more populated and less accessible areas gained disproportionately more firms. By widening markets and allowing for agglomeration economies, Japanese railways promoted capital investment and more efficient resource allocation.