Railways, Telegraph and Technology Adoption: The Introduction of American Cotton in Early 20th Century China

We present a new source of gains from infrastructure, technology adoption. Through the lens of a heterogeneous agent model with trade and information frictions, we explore how infrastructure increases welfare through the endogenous adoption of a new agricultural technology---a high-quality variety of American cotton---in early 20th century China. Using historical data, our empirical tests reveal that counties that had access to the railway and telegraph networks were more likely to cultivate American cotton, since these infrastructures decreased the take-up thresholds. As predicted by the model, counties that were less suitable for cultivating cotton and households with smaller farms experienced larger increases in the adoption of American cotton if they were connected to these infrastructures. The contribution of the additional technology adoption margin to the overall welfare gains from infrastructure is quantitatively large.