Electricity and endogenous technological change : evidence from the U.S. rural electrification in 1910-1950

Abstract

This paper identifies the causal impact of the U.S. rural electrification on agri- cultural innovation between 1910 and 1950. We combine cross-county variation in access to the closest hydro-power plant and cross-crop variation in energy use be- fore the arrival of electricity to identify the effect of electrification on the number of electric patents related to each of these crops. We find evidence that agricultural in- novation responded to local incentives, and thus having access to cheaper electricity increases the number of electric patents - specially for energy-intensive crops, while total patents did not respond. This would be consistent with theories of endoge- nous technological change where inventions respond to local relative factor prices and market size is not a factor because agricultural products are commodities. As further indication of this, we find larger impacts in counties with labour shortages, whilst there are no such differences seen in counties with larger market sizes.