This paper exploits a unique historical setting―the expansion of the telegraph network in nineteenth-century China when railroads were limited―to examine whether the reduction of information frictions stabilizes grain prices. Employing a difference-in-difference (DID) strategy, we find that the telegraph access (i) reduced both the magnitude and the incidence of extreme prices; (ii) mitigated price responses to local weather shocks but increased the responsiveness to shocks in other telegraph-connected regions; (iii) affected the price volatility in a mean-reverting pattern; i.e., volatility rose in previously price-stable regions, and volatility decreased in price-unstable regions.
Gao, Pei, and Yu-Hsiang Lei.
"Communication Infrastructure and Stabilizing Food Prices: Evidence from the Telegraph Network in China."
American Economic Journal: Applied Economics,
Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
Economic History: Agriculture, Natural Resources, Environment, and Extractive Industries: Asia including Middle East
Economic History: Transport, Trade, Energy, Technology, and Other Services: Asia including Middle East
Economic Development: Agriculture; Natural Resources; Energy; Environment; Other Primary Products
Economic Development: Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
Agriculture: Aggregate Supply and Demand Analysis; Prices