Abstract: The Relationship between Private Incentives and Subsidies in Large Infrastructure Projects: Insights from the Case of the Pacific Railroad

Xavier Duran


The first globalization era has been characterized as the consequence of "mechanical invention." The development of the steamship led to dramatic transport cost declines during the second half of the nineteenth century. In turn, transport cost reductions triggered the first globalization era. The focus on transport cost decline has, however, blurred the fact that the consequences of the "mechanical invention" were more complex. The application of steam to sea and overland transportation also led to substantial transport time savings, and merchants were prepared to pay high premiums for bringing certain commodities faster to the markets. Additionally, although transport prices did not contribute to final price declines in these goods, their high income elasticity supported consumption and trade growth. The mechanical invention's primacy is therefore confirmed. However, the economic mechanisms through which it affected globalization were far more complex and significant, because steam transportation also generated transport time reductions for which merchants and, ultimately, consumers were prepared to pay.