Developmental States?: Explaining Cross-Country Differences in Private vs. State Ownership of New Railroad

One theory argues that state ownership of infrastructure is greater in poor countries because the social returns from investment exceed the private returns by a wider margin. Another theory argues that state ownership is greater when legal and political institutions provide weak enforcement of private property rights or weak limits on government excess. I test these theories using cross-country data on state and private ownership of new railroad miles between 1860 and 1912. The results from a panel analysis show that private ownership of new railroad miles increased when G.D.P. per capita increased. They also show that state ownership was greater in countries with civil law legal systems compared to common law legal systems. The findings suggest that state ownership of new railroads was symptomatic of insecure property rights in some cases, but the dominant consideration was the level of income and its implications for private returns. JEL Classifications: N40; N70; H11; K40; P51