1. Portage and Path Dependence Hoyt Bleakley and Jeffrey Lin. 2012.
Theresa Geyer, Economics B.Sc., Universität Heidelberg

2. Portage Sites
During early settlement in North America, rivers were main transportation routes
Portage Sites: Places where boats/ cargo could be carried over land to avoid an obstacle on the waterway
Initial value: Completing trade routes
 Focal points of commerce in 1800s
Became obsolete due to changes in technology

3. Paper examines why there is still a concentration of economic activity at portage sites in the US although the original natural advantages are nowadays obsolete
How is that question answered? The authors answer the question by comparing the predictions of economic models featuring different effects.
Main result: The authors favor a model with strong increasing returns to scale in economic activity combined with historically sunk investments to explain the current distribution of economic activity.
Summary

4. Distribution of economic activity
Paper‘s contribution
Path dependence
Natural endowments
Distribution of economic activity
Paper tells us by which mechanism obsolete natural endowments are able to explain a current distribution of economic activity
Disentangling effects of path dependence & natural endowments
Portage Sites

5. The Fall Line & Areas of Analysis
Fall Line: Geomorphical feature dividing Piedmont and coastal plain  many falls along this line
Portage Site
Intersection fall line / river
Great Lakes & Mississippi River System
Falls on 3 Mississippi tributaries

6. Further Steps and Background Information
Prove decline of portage
Background information
Quantitative evidence
Data proving that early portage sites are still densely populated
Maps
Statistical comparisons
Responses after obsolescence
Explanation
Historical Factors
Contrast to neoclassical prediction
Economic models of geography

7. 1.1 Short History and Background Information
early 1800s
Portaging activities relatively important
1880s
employment at portage sites reaches a peak
average fall-line county contained 13.1% of total water-transportation employment along an entire river
1930
average fall-line county contained 2.6% of total water-transportation employment along an entire river
Transportation Infrastructure Change:
canals and locks
railroads

8. 1.2. Quantitative Evidence: Employment Data
 Portaging activities have started to decline drastically after 1880

9. 2. Data
Contemporary distribution of economic activity across the southeastern United States (nighttime lights)
FALL LINE
Contemporary fall-line cities

10. In General:
Population centers at the points where rivers cross the fall line.
No population centers along the fall line, if a river is not present.

12. 2.2 Statistical Comparisons at Fall Line
Explanatory variables:
- Proximity to portage site
- Size of watershed area upstream of the fall line
Outcome variable:
- Current population density
regression
Indicators:
- census tracts/ counties
- average intensity of nighttime lights

13. Results: a) Proximity to portage site as explanatory variable:
10% farther away from a portage site  6% lower population density in the tract data and 2% lower density in the lights and county data.
b) Including the size of watershed upstream:
10% larger upstream watershed  4% higher density at the portage site
c) Controlling for other effects  no significant changes
 correlation between historical portage and the current distribution of economic activity
Watershed size affects current density at portage sites

14. 4. Responses after Obsolescence
 Both methods show:
no evidence that portage cities became less concentrated as original portaging activities became obsolete
Difference-in-difference approach for formal test:
First difference: portage advantage
Second difference: 19th/20th century

15. 5. Explanations for Persistence
Decreasing returns to scale
An increase in all inputs (labour/capital) leads to a less than proportional increase in output
Congestion Costs
Costs resulting because of negative externalities of high population density
Sunk Costs

16. 5.1 Historical Factors?
Does historical density of specific factors/ combination of these at portage sites explain persistence?
Possible factors: railroad network, literacy, …
Result: Few differences between portage & nonportage sites if we condition on present-day population density

17. 5.1. Contrast to Neoclassical Prediction
Contrasts with predictions of models featuring locally decreasing returns to scale
area with actual
natural advantages
relocation of production factors to this area
Portage Sites should have been in decline

18. 5.2 Applying a model of economic geography...
… and considering sunk costs
No effect on long-run equilibrium
Vertical distance shrinks
Due to decline in portage advantage& sunk capital depriciation (slows down convergence)
In the medium run: differences
In the long run: convergence
One long-run equilibrium: Intersection of V* and V(x)
Natural advantages will not affect long-run equilibrium
Alternate locations will have same V curve
Differences in density can‘t be persistent
utility
Value of portage
density

19. ...with strong economies of scale
Increasing returns > congestion costs
… and considering sunk costs
Sunk investments could solve coordination problem
Vertical distance shrinks
Possibility for multiple equilibria at a site
Differences in density could persist for a long time
More possible long-run equilibria
Natural advantages could affect long-run equilibrium
Coordination device

20. Implications Level of current population density Natural endowment
CASE A
Medium-run equilibrium
oversupply of sunk capital in portage sites
differences in prices for sunk capital
Implications
Natural endowment
Level of current population density
Historical sunk investments
CASE B
long-run equilibrium

21. Results (I)
Although the advantages of the institution “portage site” became obsolete long time ago, the initial advantages still affect the current population density
path dependence can emerge if
(i) historical advantages coordinate activity to a particular location
(ii) returns to scale rise enough to sustain density there

22. Results (II): Main Economic Mechanism
Natural endowment
Water obstacle  portage site
Economic model with strong increasing returns to scale
Historical portages as coordination device
Level of current population density
one of the possible equilibria of density
obsolescence
Central hypothesis: Population density persists in places with obsolete natural advantages if there are strong economies of scale combined with historically sunk investments which act as a coordination device.