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The Effects of Foreign Investment

Conditions ripened for foreign railway investment in Mexico as rail construction within the United States neared the U.S.Mexican border and as financial markets recovered from the Panic of 1873. After President Porfirio Dfaz granted three rail concessions to U.S. investors in 1880, Mexico's federal railroad system leapt forward rapidly, reaching 3,561 miles (5,731 kilometers) by 1884, 7,564 miles (12,173 kilometers) by 1898, and 11,980 miles (19,280 kilometers) by 1910. In addition, Mexico possessed another 4,850 miles (7,800 kilometers) of local and feeder rails constructed under state and municipal concessions, making the entire rail system three times the length of pre-rail federal highways. U.S. builders particularly sought to link central Mexico with the United States. By 1884, the Ferrocarril Central completed a standard-gauge route from the Mexican capital to El Paso, Texas. Four years later, the Ferrocarril Nacional finished a narrowgauge line from Mexico City to Laredo, Texas. At the end of the century, other railroads belonging to U.S. interests connected Durango with the U.S. border at Eagle Pass, Texas; Guaymas with Arizona; and Monterrey, California, with the Gulf port of Tampico. Also by this time, the Ferrocarril Central had linked its main route with Guadalajara to the west and with Tampico in the east via San Luis Potosí. British capital also was active, purchasing full ownership of the Ferrocarril Mexicano in 1881 and building two other railroads, the misnamed Interoceónico connecting Mexico City with Veracruz via Puebla and Jalapa, and the Mexicano del Sur linking Puebla with Oaxaca.

The expanding system of Mexican railroads boosted economic activity at a scale inconceivable for the pre-rail era. While freight tonnage on the Ferrocarril Mexicano had risen 46 percent between 1873 and 1880, it now doubled in the 1880s as the rest of the rail system expanded, and it doubled again from 1890 to 1898. Ton-kilometers, the best measure of railroad freight traffic for the country's entire rail system, grew at an annual average of 15.6 percent from 1873 to 1910. Trains averaged about 25 miles (40 kilometers) per hour, four to five times the speed of a diligencia, and in general the railroad lowered freight costs per ton-kilometer by 77 to 85 percent. Even when one discounts for the exceptional traffic deriving from heavy rail construction in the early 1880s, a strong, vibrant relationship between rail traffic and Mexico's economy is clear. Estimates of the minimum direct social savings attained by railroad freight services are considerable, about 10.8 to 11.5 percent of Mexico's gross domestic product of 1910, a level more than twice the maximum estimates of such savings for the United States, England, or Czarist Russia. Calculations that take the question further by heavily reducing likely freight volume in the absence of railways suggest that rail construction and operation possibly were responsible for half the rise in Mexico's per capita national income from 1880 to 1910.