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Portage and Path Dependence Hoyt Bleakley and Jeffrey Lin. 2012. Theresa Geyer, Economics B.Sc ., Universität Heidelberg. Portage Sites. During early settlement in North America , rivers were main transportation routes
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Portage and Path DependenceHoytBleakleyand Jeffrey Lin. 2012. Theresa Geyer, Economics B.Sc., Universität Heidelberg
Portage Sites • Duringearlysettlement in North America, riversweremaintransportationroutes • Portage Sites: Places whereboats/ cargocouldbecarriedoverlandtoavoid an obstacle on thewaterway • Initial value: Completingtraderoutes Focalpointsofcommerce in 1800s • Became obsolete due tochanges in technology
Paper‘scontribution • Paper tellsusbywhichmechanism obsolete naturalendowmentsareabletoexplain a currentdistributionofeconomicactivity • Disentanglingeffectsofpathdependence & naturalendowments Portage Sites
The Fall Line & Areas of Analysis • Fall Line: GeomorphicalfeaturedividingPiedmontandcoastalplain many falls alongthisline
Further Stepsand Background Information • Provedeclineofportage • Background information • Quantitative evidence • Data provingthatearlyportagesitesare still denselypopulated • Maps • Statistical comparisons • Responses after obsolescence • Explanation • Historical Factors • Contrasttoneoclassicalprediction • Economicmodelsofgeography
1.1 Short Historyand Background Information Transportation Infrastructure Change: canalsandlocks railroads
1.2. Quantitative Evidence: Employment Data Portagingactivitieshavestartedtodeclinedrastically after 1880
2. Data Contemporary distributionofeconomicactivityacrossthesoutheastern United States (nighttimelights) FALL LINE Contemporary fall-linecities
In General: • Population centers at thepointswhereriverscrossthe fall line. • Nopopulationcentersalongthe fall line, if a riveris not present.
2.2 Statistical Comparisons at Fall Line regression Indicators: - censustracts/ counties - averageintensityofnighttimelights
Results: • a) Proximitytoportagesiteasexplanatory variable: • 10% fartherawayfrom a portagesite 6% lowerpopulationdensity in thetractdataand 2% lowerdensity in thelightsandcountydata. • b) Includingthesizeofwatershedupstream: • 10% larger upstreamwatershed 4% higherdensity at theportagesite • c) Controlling forothereffects nosignificantchanges • correlationbetweenhistoricalportageandthecurrentdistributionofeconomicactivity • Watershedsizeaffectscurrentdensity at portagesites
4. Responses after Obsolescence • Difference-in-differenceapproachfor formal test: • First difference: portageadvantage • Second difference: 19th/20th century Bothmethodsshow: noevidencethatportagecitiesbecamelessconcentratedas original portagingactivitiesbecame obsolete
5. ExplanationsforPersistence Decreasingreturnstoscale An increase in all inputs (labour/capital) leadsto a lessthan proportional increase in output CongestionCosts Costsresultingbecauseof negative externalitiesof high populationdensity SunkCosts
5.1 Historical Factors? • Doeshistoricaldensityofspecificfactors/ combinationoftheseat portagesitesexplainpersistence? • Possiblefactors: railroadnetwork, literacy, … • Result: Fewdifferencesbetweenportage & nonportagesitesifwecondition on present-daypopulationdensity
5.1. Contrast to Neoclassical Prediction • Contrastswithpredictionsofmodelsfeaturinglocallydecreasingreturnstoscale Portage Sites shouldhavebeen in decline
5.2 Applying a model of economic geography... … andconsideringsunkcosts • Noeffect on long-run equilibrium • Verticaldistanceshrinks • Due todecline in portageadvantage& sunkcapitaldepriciation (slows down convergence) • In the medium run: differences • In thelongrun: convergence • Onelong-run equilibrium: Intersectionof V* and V(x) • Natural advantages will not affectlong-run equilibrium • Alternatelocations will have same V curve • Differences in densitycan‘tbe persistent utility Value ofportage density
...with strong economies of scale … andconsideringsunkcosts • Sunkinvestmentscouldsolvecoordinationproblem • Verticaldistanceshrinks • Possibilityfor multiple equilibria at a site • Differences in densitycouldpersistfor a long time Increasingreturns > congestioncosts • More possiblelong-run equilibria • Natural advantagescouldaffectlong-run equilibrium • Coordinationdevice
oversupplyofsunkcapital in portagesites • differences in pricesforsunkcapital CASE A Medium-run equilibrium Implications Historical sunkinvestments CASE B long-run equilibrium
Results (I) • Although the advantages of the institution “portage site” became obsolete long time ago, the initial advantages still affect the current population density • pathdependencecanemergeif (i) historicaladvantagescoordinateactivityto a particularlocation (ii) returnstoscaleriseenoughtosustaindensitythere
Results (II): Main EconomicMechanism obsolescence Central hypothesis: Population densitypersists in placeswith obsolete naturaladvantagesifthereare strong economiesofscalecombinedwithhistoricallysunkinvestmentswhichactas a coordinationdevice.