We exploit the construction and eventual demise of the colonial railroads in Africa to study the impact of transportation investments in poor countries. Using Ghana and Sub-Saharan Africa as a whole, we assembled new data on railroads and cities spanning over one century to show that: (i) Railroads had large effects on the spatial distribution and aggregate level of economic activity during the colonial period, as they constituted a transportation revolution in a context where no modern transportation technology previously existed. (ii) These effects have persisted to date, although railroads collapsed and road networks expanded considerably in the post-independence period. The analysis contributes to our understanding of the heterogeneous impact of transportation investments. It shows that initial investments may have a large effect in poor countries with basic infrastructure. As the countries develop, increasing returns may then solidify their spatial distribution, and subsequent investments may have a smaller effect on local economic development.

Little is known about the extent and forces of path dependence in developing countries. Colonial era railway construction in Kenya provides a natural experiment to study the emergence and persistence of a spatial equilibrium. Data spanning over one century show that railways determined the location of European settlers, Asian traders and the main cities at independence. Europeans then left, Asians departed and railways declined in the immediate post‐independence period, constituting local shocks to physical and human capital. Yet the colonial cities persisted. We test four explanations for path dependence based on institutional persistence, technological change, sunk investments and spatial coordination failures.

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