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Local Economic Development, Agglomeration Economies, and the Big Push: 100 Years of Evidence from the Tennessee Valley Authority

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  • Patrick M. Kline
  • Enrico Moretti

Abstract

We study the long run effects of one of the most ambitious regional development programs in U.S. history: the Tennessee Valley Authority (TVA). Using as controls authorities that were proposed but never approved by Congress, we find that the TVA led to large gains in agricultural employment that were eventually reversed when the program’s subsidies ended. Gains in manufacturing employment, by contrast, continued to intensify well after federal transfers had lapsed – a pattern consistent with the presence of agglomeration economies in manufacturing. Because manufacturing paid higher wages than agriculture, this shift raised aggregate income in the TVA region for an extended period of time. Economists have long cautioned that the local gains created by place based policies may be offset by losses elsewhere. We develop a structured approach to assessing the TVA’s aggregate consequences that is applicable to other place based policies. In our model, the TVA affects the national economy both directly through infrastructure improvements and indirectly through agglomeration economies. The model’s estimates suggest that the TVA’s direct investments yielded a significant increase in national manufacturing productivity, with benefits exceeding the program’s costs. However, the program’s indirect effects appear to have been limited: agglomeration gains in the TVA region were offset by losses in the rest of the country. Spillovers in manufacturing appear to be the rare example of a localized market failure that cancels out in the aggregate.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19293.

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Date of creation: Aug 2013
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Handle: RePEc:nbr:nberwo:19293

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Citations

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Cited by:
  1. Enrico Moretti & Daniel J. Wilson, 2013. "State Incentives for Innovation, Star Scientists and Jobs: Evidence from Biotech," NBER Working Papers 19294, National Bureau of Economic Research, Inc.
  2. Monica Andini & Guido de Blasio, 2013. "Local development that money can’t buy: Italy’s Contratti di Programma," Temi di discussione (Economic working papers) 915, Bank of Italy, Economic Research and International Relations Area.
  3. Accetturo, Antonio & de Blasio, Guido & Ricci, Lorenzo, 2014. "A tale of an unwanted outcome: Transfers and local endowments of trust and cooperation," Journal of Economic Behavior & Organization, Elsevier, vol. 102(C), pages 74-89.
  4. Severnini, Edson R., 2014. "The Power of Hydroelectric Dams: Agglomeration Spillovers," IZA Discussion Papers 8082, Institute for the Study of Labor (IZA).
  5. Kline, Patrick & Moretti, Enrico, 2013. "Place Based Policies with Unemployment," CEPR Discussion Papers 9330, C.E.P.R. Discussion Papers.
  6. Serafinelli, Michel, 2013. "Good Firms, Worker Flows and Productivity," MPRA Paper 49055, University Library of Munich, Germany, revised 12 Aug 2013.
  7. Edward L. Glaeser, 2012. "Urban Public Finance," NBER Working Papers 18244, National Bureau of Economic Research, Inc.
  8. Clarke, George & Li, Yue & Xu, Lixin Colin, 2013. "Business environment, economic agglomeration and job creation around the world," Policy Research Working Paper Series 6706, The World Bank.
  9. Oliver Falck & Stephan Heblich & Anne Otto, 2013. "Agglomerationsvorteile in der Wissensgesellschaft: Empirische Evidenz für deutsche Gemeinden," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 66(03), pages 17-21, 02.
  10. Thor Berger & Kerstin Enflo, 2013. "Locomotives of Local Growth: The Short- and Long-Term Impact of Railroads in Sweden," Working Papers 0042, European Historical Economics Society (EHES).
  11. Carl Kitchens & Price Fishback, 2013. "Flip the Switch: The Spatial Impact of the Rural Electrification Administration 1935-1940," NBER Working Papers 19743, National Bureau of Economic Research, Inc.
  12. David Neumark & Helen Simpson, 2014. "Place-Based Policies," NBER Working Papers 20049, National Bureau of Economic Research, Inc.
  13. Monica Andini & Guido de Blasio, 2012. "Local Development that Money Can’t Buy: Italy’s Contratti di Programma," ERSA conference papers ersa12p464, European Regional Science Association.

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