Transportation Economics of American Railroads

Transporting is a critical part of modern life that enables people to travel both long and short distances. Thus, this industry is distinctly vital for humankind. Businesses working in this field provide services connected to the movement of people or things from one place to the other. Railroads are a significant part of the transportation economics because their development requires substantial resources, both financial and time, and cooperation of the state. This paper aims at examining transportation economics using the example of railroads and their impact on the US economy.

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The Importance of Transportation and its Economic Value

Transportation and economic development have a significant connection because the former provides an ability to sell products to a more substantial number of individuals. According to Prentice and Propok, transportation is considered to be the largest industry in the world (10). The authors refer to it as an invisible sector of economics because most individuals globally are dependent on transportation in their daily lives, including errands of personal and professional nature that can be accomplished due to the modern transport. From a state-level perspective, the effective transportation system is crucial for competitiveness within the foreign trade (Prentice & Propok 10). It is because logistics can be considered as a factor of production. Thus, countries with better infrastructure can manufacture goods more efficiently.

The changes in the transportation industry over the last centuries were revolutionary and significantly impacted the speed at which humans can travel. Bogart states that cliometrics is an approach that describes research into the measurement and economics of transportation (1). This allows determining the specific elements that affect this industry and estimate the financial benefit that companies within it are capable of receiving. Bogart concludes that market integration and urbanization were impacted by this sector of the economy (26). Thus, transportation economics is a crucial component of a country’s development.


Railroads became an essential part of US economics in the 19th century when the country underwent a large-scale development of this transportation mean. It was predominantly used to transport goods, which had a significant impact on the businesses in the country. Thus, one can argue that “railroads were indispensable to the United States economy” (Donaldson & Hornbeck 799). While they affected the internal market by allowing vendors to transport goods within the US more easily, international trade was impacted as well. It is because the development of the railroad infrastructure in the US made it both easier and cheaper for businesses to deliver their products to ports.

Railroads remain to be an essential part of the transportation industry in the modern era, despite the invention and widespread use of more advanced means of commuting, for instance, airplanes. Donaldson and Hornbeck state that “expansion of the railroad network may have affected all counties directly or indirectly” (800). The importance of the state’s contribution cannot be overlooked in this regard since the development of railways was dependent on the government. Additionally, the policies that determine the specifics of railroad transportation were essential to this industry as well.

The Importance of Railroads to the US Economics

In the 1890s the agricultural sector was heavily dependent on railroads as its primary mean of transporting products. It is due to the increase of the land market value and market access that correlates with the railroad expansion (Donaldson & Hornbeck 800). The authors hypothesized that the removal of railroads in 1980 would have resulted in the depreciation of the agricultural land within the US by at least 60%. This is because the transportation of products using rivers was not as efficient and could not deliver a similar capacity.

Other industries in the 19th century were not as dependent on this transportation method either because they were typically situated near ports or because transportation costs were not high. However, for the agricultural industry in the US the railroads were crucial due to the fact that they could not have been substituted by the extension of the canal network or road infrastructure (Donaldson & Hornbeck 800). The importance of the railroads to the US economy is not limited to the improvement of country land value because manufacturers were also able to benefit from this development. More specifically, the ability to sell products to more people helped advanced many industries in the US (Donaldson & Hornbeck 800). Therefore, transportation economics has a direct impact on the growth of revenue in other economic sectors.

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Currently, railroads remain to be a critical logistics industry that helps other businesses transport their products within the US. Qiao et al. calculated that on average short railroads in Texas allow companies to save at least 7,5% of the payment for transportation due to lower costs when compared to using trucks. Moreover, maintenance, safety, and emissions costs are significantly lower when compared to transportation by road. In general, Qiao et al. conclude that “at state-level, the operation of short line railroads in Texas contributes approximately 1,476 jobs, $113,769,627 in labor compensation, and $354,443,588 in economic output”. Therefore, railroads continue to be a vital element of US transportation economics.

It should be noted, however, that currently, the US government is not in the list of the most prominent railroad operators based on yearly earnings. In 2018 the German company Deutsche Bahn was able to obtain revenue of over $50 billion (“The World’s Biggest Railway Operators in 2018”). This was possible due to the country’s focus on improving the performance of its transportation industry, including investing in infrastructure and innovation. It should be noted that current Deutsche Bahn’s revenue from commercial logistics continues to decrease while the sector of passenger transportation increases. This data provides valuable information regarding the prospects of development for the US railroads.

Future of the Railroad Industry

In the contemporary world, technological advancements allow industries to modify their business models and become more cost and resource efficient. This applies to the railroads as well since novel approaches to manufacturing trains and the integration of artificial intelligence can help enhance the efficiency of processes. One of the examples is companies that are testing positive train control systems (PTCS) that allow monitor and control trains remotely (Wyman). Additionally, various systems aimed at optimizing fuel consumption were recently introduced that help cut costs and improve revenue. The speed of delivery is essential to the railroad industry and may become a significant competitive advantage for it.

However, these new developments also result in the emergence of competitors that are capable of delivering goods and people as well. For instance, an example of innovational trucks that do not require drivers can cause significant damage to the railroad industry (Wyman). This approach is a valid alternative to railroad transportation because companies will be able to deliver goods in different locations without regard for railroads in a specific area. In addition to this, the use of electric motors can result in enhanced cost efficiency, making these trucks much cheaper than railroads.

It should be noted that the improvements of railroads that will enable their competitiveness when compared to self-driving trucks can be made only with additional funding from the state. It is due to the fact that small railroad operators do not possess the funds that would allow them to make substantial alterations in the current infrastructure. Additionally, the existing railroad businesses can be compromised by developments such as Hyperloop or new train development by the China Aerospace Science and Industry Corporation. According to Palmer, the latter is a high-speed train that can develop the speed ten times higher than the current fastest train in the world. These crucial innovations present both a stimulus for the railroad industry to continually improve its infrastructure and a threat due to the emergence of more efficient means of transportation.


Overall, the railroad industry played a significant role in the development of the US economy and continues to contribute to the country’s development. The most significant impact of this transportation industry was in the 1890s due to its contribution to the agricultural sector. In the modern day, railroads have a number of competitors such as driverless trucks, Hyperloop, and ultra-fast trains that can instruct businesses in the industry from growing. Regardless, railroads and train transportation will continue to be an essential component of US transportation economics.

Works Cited

Bogart, Dan. “Clio on Speed.” Handbook of Cliometrics, 2018, pp. 1–26.

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Donaldson, Dave, and Richard Hornbeck. “Railroads and American Economic Growth: A ‘Market Access’ Approach.” The Quarterly Journal of Economics, vol. 131, no. 2, 2016, pp. 799–858.

Palmer, Annie. “China to Take on Elon Musk’s Hyperloop with Plans for a New ‘Supersonic’ Train that also Uses Vacuum Tubes to Propel Passengers.” Daily Mail. 2018, Web.

Prentice, Barry and Darren Prokop. Concepts of Transportation Economics. World Scientific, 2016.

Qiao, Fengxiang et al. “Transportation and Economic Impact Of Texas Short Line Railroads.” Trid. 2016, Web.

“The World’s Biggest Railway Operators in 2018.” Railway Technology. 2018, Web.

Wyman, Oliver. “Disruption: The Future Of Rail Freight.” Oliver Wyman, Web.

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