Communication Infrastructure and Stabilizing Food Prices: Evidence from the Telegraph Network in China

This paper exploits a unique historical setting- the expansion of the telegraph network in 19th century China when railroads were limited- to examine whether the reduction of information frictions stabilizes grain prices. Employing a difference-in-differences strategy, we find that the telegraph access: 1) reduced both the magnitude and the incidence of extreme prices; 2) mitigated price responses to local weather shocks, but increased the responsiveness to shocks in other telegraph-connected regions; 3) 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.
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