Competitive Pressure and Technology Adoption: Evidence from a Policy Reform in Western Canada

We estimate the impact that removing a railway transportation subsidy has on the adoption of production technology for Western Canadian farms by using a unique combination of census and freight rate data. We exploit the large regional variation in these one-time freight rate increases to identify causal effects of increased competitive pressure. Using a difference-in-differences methodology, we find that higher freight rates—and hence lower farm gate prices—induced farmers to adopt new, more efficient production technology. We also find that farmers experiencing the greatest transportation cost increases also increased their fertilizer usage and made significant land use changes.