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American Banking and the Transportation Revolution before the Civil War

Published online by Cambridge University Press:  27 November 2014

Jeremy Atack
Professor Emeritus and Research Professor, Department of Economics, Box 351819, Vanderbilt University, Nashville, TN 37235. E-mail:
Matthew Jaremski
Assistant Professor, Department of Economics, Colgate University, 13 Oak Drive, Hamilton NY 13346. E-mail:
Peter L. Rousseau
Professor, Department of Economics, Box 351819, Vanderbilt University, Nashville, TN 37235. E-mail:


Studies have shown a connection between finance and growth, but most do not consider how financial and real factors interact to put a virtuous cycle of economic development into motion. As the main transportation advance of the nineteenth century, railroads connected established commercial centers and made unsettled areas along their routes better candidates for development. We measure the strength of links between railroads and banks in seven Midwest states using an annual transportation geographic information system (GIS) database linked to a census of banking. These data indicate that those counties that already had a bank were more likely to see their first railroad go through over the next decade, while new banks tended to enter a county a year or two after a railroad was built. The initial banking system thus helped establish the rail system, while the rapid expansion of railroads helped fill in the banking map of the American Midwest.

Copyright © The Economic History Association 2014 

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We acknowledge the helpful comments from the editor of this JOURNAL Paul Rhode, and its anonymous referees as well as those by participants at the 7th World Congress of Cliometrics, the 2013 Economic History Association meetings (especially our discussant Peter Temin), and Williams College.



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