Railroads, factor channelling and increasing returns: Cleveland and the emergence of the American manufacturing belt

Abstract

American Manufacturing Belt (AMB) emergence has been used by NEG theorists as a prime example of how increasing returns foster industrial concentration. Other studies suggest the AMB was in place before increasing returns became established. This study examines this previously unrecognized contradiction. An analysis of Cleveland, one of the fastest growing of AMB cities, is undertaken using new data sources. This finds the railroad sector crucial in generating direct employment and stimulating related industrial investment through forward and backward linkages. The former are associated with ‘factor channeling’—planned strategies to direct raw material flows to the city. NEG theorists’ under-emphasis on raw material provision and their use of the iceberg model to avoid analysis of the railroad sector is therefore found to be erroneous. The increasing returns hypothesis is evaluated using new data for several industrial sectors and rejected as a valid explanation for early manufacturing growth in Cleveland.