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 endogenous technology adoption in the early 20th century China. Exploiting the historical expansion of railway and telegraph across various counties, we examine the impact of infrastructures on the adoption of new agricultural technology-the American Cotton, a high-quality variety introduced from abroad that is more suitable for mechanized weaving than the native one. As predicted by the model, the empirical tests reveal an increased adoption of the American cotton in a county that was connected to both the railway and telegraph networks, stemming from lowered take-up thresholds. With infrastructure connections, counties that were less suitable for cotton plantation and households with smaller land endowment could adopt American cotton. The contribution of the additional technology adoption margin to the overall welfare gains from infrastructure is quantitatively large.