Wiring China : The Impact of Telegraph Construction on Grain Market Integration in Late Imperial China, 1870-1911

How did the telegraph improve market integration in late imperial China? We exploit differences in the exogenous timing of telegraph construction in different prefectures from 1870 to 1911. The empirical results show that the arrival of the telegraph within a prefecture pair reduced the ratio of the two prefectures’ monthly high-grade rice prices by 6.6 percentage points in 9 southern Chinese provinces, or 17.2% of the mean of the dependent variable. The main results are robust to controlling for institutional or transportation changes occurring during the same period, to using an alternative measure of market integration, to using prices of mid-grade and low-grade rice, and to excluding outliers with low data quality. In addition, the effect of the telegraph was stronger for prefecture pairs in which information transmission was more costly, and traditional long-distance traders played an important role in the telegraph’s promotion of market integration. In conclusion, our findings help us understand how a new information technology enhanced market integration in a premodern agrarian society with an established commercial network