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History and Industry Location: Evidence from German Airports

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  • Stephen Redding
  • Daniel M. Sturm
  • Nikolaus Wolf

Abstract

A central prediction of a large class of theoretical models is that industry location is not necessarily uniquely determined by fundamentals. In these models, historical accident or expectations determine which of several steady-state locations is selected. Despite the theoretical prominence of these ideas, there is surprisingly little systematic evidence on their empirical relevance. This paper exploits the combination of the division of Germany after the Second World War and the reunification of East and West Germany as an exogenous shock to industry location. We focus on a particular economic activity and establish that division caused a shift of Germany's air hub from Berlin to Frankfurt and there is no evidence of a return of the air hub to Berlin after reunification. We develop a body of evidence that the relocation of the air hub is not driven by a change in economic fundamentals but is instead a shift between multiple steady-states.

Suggested Citation

  • Stephen Redding & Daniel M. Sturm & Nikolaus Wolf, 2007. "History and Industry Location: Evidence from German Airports," CEP Discussion Papers dp0809, Centre for Economic Performance, LSE.
    • Handle: RePEc:cep:cepdps:dp0809
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    More about this item

    Keywords

    Industry Location; Economic Geography; German Division; German Reunification;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration
    • N74 - Economic History - - Economic History: Transport, International and Domestic Trade, Energy, and Other Services - - - Europe: 1913-

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