Indispensable Railroads in a Backward Economy: The Case of Mexico

The contribution of railroads to economic growth in the nineteenth century depended on two critical variables: unit savings in transport costs the railroads made possible and the quantity of passengers and freight the railroads attracted. Unit savings depended mainly on geography; either cheap water transport existed before the railroads or it did not. Unit savings depended secondarily on the value of the time the railroads saved and on the flexibility in selection of routes made possible by the new technology. The quantities of passengers and freight actually transported depended on two interrelated factors: the prior development of the economy and its responsiveness to cheaper transport.