Hinterlands, city formation and growth: Evidence from the U.S. westward expansion

• Authors: Dávid Nagy.
• economic history
• Review of Economic Studies

I study how geography shaped city formation and aggregate development in the United States prior to the Civil War. To guide my analysis, I present a conjecture that cities’ farm hinterlands fostered both city development and aggregate growth: the hinterland hypothesis. The hinterland hypothesis has rich implications on how various elements of U.S. geography – railroads, changes in U.S. political borders, and international trade – affected city formation and U.S. growth. To evaluate the hinterland hypothesis and its implications, I assemble a novel historical dataset on population, trading routes and agricultural productivity at a high spatial resolution. I combine the data with a dynamic quantitative model of economic geography that yields the hinterland hypothesis as a prediction. I find evidence for the hinterland hypothesis by showing that the model can replicate the key patterns of U.S. urbanization and city formation. Finally, I conduct a series of counterfactuals in the model to quantify the effect of geography on cities and growth, guided by the implications of the hinterland hypothesis. Results indicate that railroads were responsible for 1.8% of urban population in 1860 and for 25% of real GDP growth between 1830 and 1860. The effect of international trade was similar in magnitude, while the effect of political border changes was small during the period.