Making a Market: Infrastructure, Integration, and the Rise of Innovation

Abstract

We exploit exogenous variation arising from the historical rollout of the Swedish railroad network across municipalities to identify the impacts of lowered interaction costs on innovative activity. A network connection led to a surge in local innovation due to an increased entry, productivity, and specialization of independent inventors. As the railroad network expanded, it further led to the emergence of a national market for ideas: inventors in connected areas began to develop ideas with applications outside the local economy, which were subsequently sold to firms along the network. Our findings suggest that the reduced interaction cost between firms, intermediaries, and inventors was a key driver of the historical emergence of a market for ideas.

Roads to innovation: Evidence from Italy

“…By instrumenting the construction of HSR with the Chinese railroad network in 1962 and the geographic slope for cities, the authors show that, in Chinese cities connected to the HSR network, researchers experienced a significant increase in productivity, both in terms of quantity and quality of scientific publications. 8 Lastly, Andersson et al (2020) apply a DiD design to identify the impact of railway connections on Swedish municipality innovative capacity in late XIX century. The authors report a positive impact of railways connection on innovation, as well as an increase in patent transfers between inventors and firms.…”

Flow of Ideas: Economic Societies and the Rise of Useful Knowledge

“…Many of the resulting institutions, most notably 10 Another related literature emphasizes the importance of physical infrastructure networks for innovation and technological diffusion. The role of transport infrastructure for the diffusion of ideas and culture have recently been analyzed by Andersson, Berger and Prawitz (2020) and Melander (2020) for Sweden, by Tsiachtsiras (2020) for France, and by Flückiger et al (forthcoming) for ancient Rome. 11 This also relates to a literature on social learning and diffusion of agricultural technologies in development economics (see, e.g.…”

Railways and Roadways to Trust

“…From a historical perspective, Andersson et al (2021) and Perlman (2017) finds that railroads have a positive impact on innovative activity in nineteenth century. Andersson et al (2021) investigate how railroads facilitate the entry and improve the productivity of inventors. The expansion of the network leads inventors to develop ideas with applications outside of the local economy.…”

“…As to the indirect effect, there is abundant evidence highlighting the effect of infrastructure on several different aspects of the economy. For instance,Perlman (2017) andAndersson et al (2021) show that a reduction in communication and transportation costs has an effect on local innovative activity. Railroads also changed the character of the regions, increasing urbanization(Atack et al, 2009) and leading to higher economic development(Atack et al, 2014).…”