Market intervention in a backward economy: railway subsidy in Brazil, 1854-1913

Government subsidies sparked the onset of the railway age in nineteenth-century Brazil. Guaranteed dividends attracted railway investment, while rate regulation worked to capture for the consumers of transport services a large share of the railways' gains. All the major guaranteed railways generated high social rates of return for Brazil. The bulk of the benefits created by railway investment accrued to Brazilians rather than shareholders overseas. Rate regulation by the government succeeded in distributing the surplus away from foreign-owned railways. Both freight rates and profits were closely related to the nationality of ownership, revealing politics as a key determinant of the magnitude and distribution of the surplus that the subsidized railway projects created.