The effect of railroads and price responsiveness on acreage decisions in the post-Bellum period

Abstract

This study analyses the effect of farmers’ price responsiveness and railroad development on acreage decisions in the late 19th century. A potential simultaneity between these determinants was mentioned in some earlier studies, but never examined. This study sheds some light on these relationships by employing a simultaneous equations model. The results show that acreage, prices and railroad mileage were jointly determined in the late nineteenth century. Furthermore, farmers were very responsive to wheat prices in their wheat acreage decisions in the eastern and northeastern regions when endogeneity effect is considered. In the western and southern regions, however, farmers were not responsive to wheat prices in their wheat acreage decisions. On the other hand, they were very responsive to corn and animal prices in their corn acreage decisions. Railroads were one important determinant that affected farmers’ acreage decisions positively in every region.

Notes

¹ Texas annexation occurred in 1845, Oregon county annexation occurred in 1846, Mexican acquisition occurred in 1848. For detailed information see Atack and Passell (1994).

² This study incorporates Harley's (1978) argument on the importance of spatial distribution of prices altered in the years between 1850 and 1913 and includes individual states into the analysis. However, the time span appears to be slightly shorter than Harley's.

³ Bulletin 56 and 57 were issued on 1907 and 1908 including data on wheat crops and corn crops, respectively, in the United States from 1866 to 1907. Region 1 includes the northeastern states: Maine, New Hampshire, Vermont, Massachusetts, Rhode Island and Connecticut. Region 2 includes the eastern states: New York, Pennsylvania, Ohio, Michigan, Indiana, Maryland, Delaware, New Jersey, and District of Columbia. Region 3 includes the southern states: Virginia, Kentucky, Tennessee, Mississippi, Alabama, Georgia, Florida, North Carolina and South Carolina. Region 4 includes the mid-western states: Illinois, Iowa, Wisconsin, Missouri and Minnesota. Region 5 includes the far-western states: Arkansas, North and South Dakota, Oklahoma, New Mexico, Wyoming, Montana, Idaho, Utah, Arizona, Washington, Nebraska, Kansas, Texas, Colorado, California, Nevada and Oregon. We excluded Rhode Island, Connecticut, Florida, Louisiana, and Wyoming since they presented scattered data. The remaining data set contained 1446 observations.

⁴ This first annual report is issued in 30 June 1888, Washington.

⁵ Harley (1978) argued that animal prices were more appropriate variables than corn prices, although corn was the largest crop in many mid-western states, because it was an intermediate input into meat production. However, this study also focuses on how acreage decisions change in favour of corn for many states. We expect to see decreases in the acreage amount of wheat at higher prices of corn or animals. Therefore, using corn prices or animal prices should give similar effects on acreage amounts.

⁶ Kennedy (1992) suggests two problems with the Wu–Hausman test. First, he argues that [V(β ^IV)  − V(β ^OLS)] cannot be inverted in the normal ways, and second, the estimated [V(β ^IV)  − V(β ^OLS)] may have incorrect signs against what theory says. Therefore, he suggests Hausman's second test, which is not different from the Wald test. It is computationally attractive, though.

⁷ We used lagged endogenous variables as instruments in our model.

⁸ For more discussions see Kirkland (1951, PP. 447–463).