The Economic Benefit of Railway and Harbor Construction in the Early Japanese Period

Taiwan's modern economic growth started in the early Japanese colonial period. Although it is widely thought that infrastructure construction was important to the growth, there has been no empirical study to test the conjecture. In this paper, we present evidences to show that the construction of the trunk railway line and the Keelung and Kaoshiung harbors in the 1900s lowered transportation cost, increased trade opportunities, and brought about an integrated market in Taiwan. Trade opportunities enhanced farmers' incentive to raise productivity. We find that after the modern communication system began to operate, rice productivity increases near the rail stations were higher than in the non-station areas. We also find that land prices near the rail stations increased much more than in the non-station areas. We argue that this is due to the benefit of the economies of agglomeration and the externalities from the lower transportation cost. The evidence presented in this paper confirms that infrastructure construction was indeed a key factor in the productivity increases in the early Japanese period.